Russia, beware, Iran is trying to get into the European gas market.
In recent months, Iranian officials have been signaling to potential customers in Europe, potential suppliers in the Caspian Basin, and transit country Turkey that Iran is not only ready to get into the game but that without Iranian participation the European Union's Southern Gas Corridor will take many years to realize, or might never be realized.
Of course, the Southern Gas Corridor is all about decreasing Russian gas exports to Europe, an increasingly important issue for European governments as ties with the Kremlin continue to deteriorate over events in Ukraine.
A quick look at a map shows why Iran, with the second-largest gas reserves in the world, is well-placed to sell gas to Europe and also link gas-rich countries in the Caspian Basin region to Europe.
International sanctions imposed on Iran over that country's opaque nuclear program have constricted Iran's ability to sell its gas and oil on world markets or to participate in multinational pipeline projects.
The latest round of talks between Iran and the world powers (UN permanent Security Council members Britain, China, France, Russia, and the United States, plus Germany) seem to have already convinced Tehran that the time is approaching when sanctions will ease sufficiently and Iranian gas and oil will be available to world markets.
But that will be a complicated process, and there are already some who feel Tehran is overestimating its potential.
Iran has been dropping hints about its readiness to enter the EU's planned gas corridor for many months. But in August Tehran sent a message straight to the heart of Europe when a top official spoke of resurrecting the Nabucco gas-pipeline project: Iranian Deputy Oil Minister Ali Majedi announced that his country was ready to supply gas to Europe through Nabucco.
The Nabucco project was shelved after Azerbaijan chose in June 2013 to ship its gas via the Trans-Adriatic Pipeline (TAP). Nabucco was aimed at bringing some 31 billion cubic meters (bcm) of gas to Baumgarten, Austria, (and was included as part of the Southern Gas Corridor) but faced problems convincing potential suppliers to sign contracts.
Majedi stated that Iran was prepared to sign on as a supplier and added that "two visiting European delegations" had discussed potential routes to bring Iranian gas to Europe. He claimed the country that was closest to signing a deal with Nabucco -- that is, Azerbaijan -- has insufficient reserves of gas to fill the pipeline.
Reporting on Majedi’s comments, Iran's IRNA news agency said, "Azeri offshore Caspian Shah Deniz II production...is estimated at not more than 8 bcm per year.* Therefore, even if Azerbaijan's gas ends up supplying the Nabucco gas pipeline, there would still be a deficit of 23 bcm of gas per year for the pipeline."
*Shah Deniz 1 produces some 9 bcm annually and the Shah Deniz 2 project aims to boost production by some 16 bcm
Iranian President Hassan Rohani brought the offer up in a meeting with Austrian counterpart Heinz Fischer in September on the sidelines of the UN General Assembly. Rohani told Fischer that "the Islamic Republic can be a reliable supplier of energy for Europe" and mentioned the Nabucco pipeline.
Rohani knew his audience, since the multibillion-dollar Nabucco project was spearheaded by Austria's OMV.
At the start of February, Azizullah Ramazani, the director of National Iranian Gas Company's department for international relations, said European countries would not import Iranian gas for "political reasons."
So he offered something different.
"Our proposal -- is getting Turkmen and Azeri gas to Iran, and then its transit to Europe via Turkey, because this route is the most economical way to transfer gas to Europe," Ramazani explained. And he specifically mentioned the rival route -- the Trans-Caspian pipeline project -- as being "expensive and impractical."
The Trans-Caspian gas pipeline idea dates back to the mid-1990s and foresees shipping Turkmen gas via an underwater pipeline across the Caspian seabed to Azerbaijan, where it would be loaded into pipelines headed further west. The project has been opposed by fellow Caspian littoral states Russia...and, notably, Iran.
Turkey is the key country for bringing Azerbaijani, Iranian, or Turkmen gas to Europe. Azerbaijan and Turkey are working to construct the Trans-Anatolian Pipeline (TANAP). Once finished, TANAP would carry some 16 bcm, of which 6 bcm would go to Turkey and 10 bcm to TAP.
The original Nabucco project also envisaged a pipeline running from the Georgian and/or Iranian border, through Turkey and into Europe.
Iran already has a pipeline to Turkey that supplies some 10 bcm annually.
Of course, for the Southern Gas Corridor to seriously affect Europe's Russian gas imports would require the construction of multiple pipelines from the Caspian Basin and Iran.
Russia supplied Europe with some 155 bcm of gas in 2014. (Remember, TAP is only bringing 10 bcm.)
Iran, according to the BP Statistical Review of World Energy June 2014, has some 33.8 trillion cubic meters, while Turkmenistan has the world's fourth-largest reserves with some 17.5 trillion cubic meters.
According to the U.S. Energy Information Administration, Russia has the world's largest gas reserves with some 48.7 trillion cubic meters (tcm), though the BP report puts it far lower at 31.3 tcm. In either case, Iran and Turkmenistan together have more gas than Russia. Azerbaijan has 1 tcm also.
But Tehran and Moscow have been allies lately. Iran selling its gas, or allowing transit of Azeri and Turkmen gas to Europe, certainly hurts Gazprom's sales and, by extension, the Russian state budget. So Iran risks its good relations with Russia if it goes ahead with plans for gas exports to Europe.
There are also questions about Iran's infrastructure. The director of the Azerbaijan Center for Oil Studies, Ilham Shaban, wrote in early February that "there is not any existing infrastructure inside Iran that would allow the transfer of Turkmen gas to Turkey’s borders." Shaban noted that Iran was building gas pipelines leading from the south to the north of the country but said that "there is not a pipeline to connect Iran's north-east (Turkmenistan) to north-west (Turkey)," and concluded, "It appears given the current situation, Iran is not in any near-term position to route Caspian gas towards Europe."