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LNG, Iran Bargaining Chip

Demand for natural gas is growing on the global scale. Over 20 years to come, the energy mix is set to tilt towards gas.

Iran, sitting atop 18% of world gas reserves but holding a meager share in global gas trading, is striving to highlight its role as a potential producer and exporter of liquefied natural gas (LNG).

Mohammad Hossein Adeli, former secretary general of Gas Exporting Countries Forum (GECF), tells Iran Petroleum that the share of gas in global energy mix would rise from the current 22% to 26% over 20 years.

Here is the full text of the interview Mr Adeli gave to Iran Petroleum:

Over recent years, there has been growing attention towards gas as a source of clean energy in the world. The gas share is also expected to grow in energy mixes of countries in coming years. Would you please give your assessment of gas market?

The gas market remains a growing market, i.e. it is being focused upon by many countries. Many leading consumers of gas like China and India have been seeking to increase the share of gas in their energy mix. That is why demand for gas and more generally demand for LNG was more than thought all throughout last year and in the first half of current year. Meantime, gas supply has been on the rise. In addition to traditional suppliers of gas like Russia, countries like Algeria, Qatar and the United States moved to boost their exports in 2017 and 2018. Therefore you can see that the gas market has been very dynamic over the past one year and will continue to be so with balanced supply and demand. Of course, gas supply is still expected to drop a bit after exports began from Australia, the US and Africa. Due to the predicted increase in gas supply, demand was down in early 2017; however, the upward trend in gas supply would continue.

How long will increased gas supply continue?

During the four to five years to come, the next wave of LNG export growth is expected to emerge owing to investment by Qatar. But the most important development which I believe will hit the market in coming years will pertain to China and India, which are to increase the share of gas in their energy mix. For instance, China is expected to increase the gas share of its energy mix from 6% to 15% and India from 5% to 9% by 2030, which will benefit the gas market. Therefore, the gas market will witness good conditions owning to the annual 1.8% growth up to 2040.

How much will LNG supply and demand reach in coming days?

As you may know, gas supply is being carried out via pipeline or in LNG form in the world. Since talks are gathering momentum with regard to LNG exports in global markets, largely affecting analyses related to this market, I think that we will see a boost in gas exports in coming years. LNG exports currently stand at 283 million tonnes, which are expected to reach 295 million tonnes (more than 315 bcm) by end-2018. That is while the world total gas exports stand at about 1,000 bcm. LNG has currently a 30% share in the gas market with the remaining 70% going to pipeline (about 690 bcm).

Over the past one year we have seen sharp oil price fluctuations. How has it affected the gas price?

Before answering this question I have to say that oil prices have seen relative stability in the past one year with prices have increased from $45 a barrel to above $70. Estimates also show a bigger increase in oil prices. For example, there are estimates for 2018 to see a 1.9 mb/d increase in oil demand, which would be apart from the failure of some producers like Libya, Nigeria or Venezuela to enhance output. Therefore oil prices are currently thought to stand between $65 and $75 a barrel, which is a suitable price in case no geopolitical events occur.

But in response to your question, I have to say that oil and gas prices are strongly interrelated because long-term gas contracts in Asia are based on oil prices. Oil is a global and predictable commodity whose price is included in long-term contracts. Of course, oil-based gas prices are a bit higher than oil prices.

How much does oil-based and long-term contract gas price stand in Asia?

Oil-based gas price in Asia currently stands at $12 while long-term contracts consider gas price at $11.2. Asian prices are the highest in gas trading mainly due to the difference between spot, single-cargo transactions and their long-term nature. It is also partly related to seasonal supply and demand. The price of gas in different parts of Europe, like south Europe, north Europe and Britain, currently stands between $7.7 and $8.8. Gas is currently traded at $2.8 at the US Henry Hub. Of course this price is for domestic stock exchange in the US. If this country decides to export gas it will not be at $2. Three parameters affect the price of gas exports; namely, liquefaction or sweetening, transport and re-gasification, resulting in a $3 to $4 increase in the prices.

Now that the US has stepped up its rhetoric against Iran by deciding to reimpose sanctions on the country"s petroleum sector, how will global gas market be affected once US sanctions have been snapped back into place?

Gas is an important alternative for all sources of energy including oil. Therefore, if anything happens to oil to increase its price, gas prices will be subsequently increased. That would happen at the same time. That means when oil prices go up within two to four months, depending on circumstances, gas price will increase. The key point is that gas prices increase as soon as oil prices climb. As far as Iran is concerned, due to the meager share of Iran in the global gas market (3%), nothing important will transpire the global gas market.

Were Iran a key player in the gas market how would US oil sanctions affect gas prices?

We have to take into consideration a variety of assumptions. For instance, we have to image if three Iran LNG, Pars LNG and Persian LNG projects had become operational Iran would have been exporting 35 to 45 million tonnes of LNG, making up 15% of world total. In such case, the Iran oil sanctions would have definitely influenced the gas market and it would have not been easily to decide about re-imposing sanctions on Iran because gas would have become an influential international parameter of strength. Although Iran"s share of global gas trade stands low this pertains to pipeline gas exports. Had we been able to execute development projects in LNG exports we would have been able to export LNG to many countries in the region, which would have been an advantage and bargaining chip for Iran.

But gas exports via pipeline have also their own advantages. Shall we still put all our eggs in one basket?

Yes, that"s true. Pipeline has its own advantages and I don"t deny this fact. But the reason for me to prefer LNG exports to pipeline is that LNG may be carried from an origin to any spot desired by buyer. In such market, the buyer and the seller have nothing to do with political communications and transit issues.

When the issue of Iran"s oil embargo is brought up, LNG sanctions are predictable. Will LNG be still advantageous to pipeline?

In such case, imposition of sanctions on Iran and elimination of Iran from the LNG market should be compensated. When you have a commodity which is slapped with sanctions the country that imposes the sanctions or people who decline to buy will have to pay for costs. I believe that sanctioning Iran"s LNG would have cost high had we had a 15% share in this grading. As a result, other nations would have to pay more for Iran"s sanctions, which means the power of Iran. I believe that LNG sanctions are tougher than pipeline sanctions because LNG is carried on vessels to be unloaded wherever you like.

Experts believe that gas will have a big share in the global fuel mix over the coming two decades. How much will be Asia"s share in this market and will Asian gas producers will become among major buyers in this import?

Within 20 years, the share of gas in the global energy mix will increase from the current 22% to 26%, which will be a big figure. Oil and coal are currently the main sources of energy in the world, but in coming years gas and renewable will together become the biggest source of energy in the world. Meantime oil and coal consumption will decline and as I said earlier China and India will account for 40% of global gas demand by 2040. Furthermore, gas consumption in South Asia will grow significantly and almost treble the current amount. The interesting event which will happen up to 2040 is that Southeast Asian nations like Vietnam and Bangladesh will see their economic growth and per capita income triple to reach East Europe levels. That would be something about $15,000 which indicates higher gas consumption.

Given Iran"s 18% share of global gas deposits, how much do you think Iran"s share of global gas trading will be in 20 years?

Answering this question depends on Iran"s gas export strategy in coming years. But from an expert point of view, I should say that if we intend to use gas as a strategic factor of strength in the international market we have first to put into operation the Iran LNG project and raise our share of LNG trading. We should also implement the other two LNG projects and reach a stage to bring our LNG exports to 50 million tonnes within 20 years. Then we can have a very good share in the Europe and Asia markets.

The difference between LNG and pipeline is that if the two countries in question are neighbor it would become clear that gas exports via pipeline would be much better, but if they are not neighbor and have no strategic issues the best method and possibility for circumventing political issues in gas exports would be LNG. Flexibility is high in LNG exports while we have no flexibility in pipeline. Of course it does not mean that I"m opposed to pipeline. But in my view we have now to move towards LNG for Iran"s gas exports.

Given the present circumstances, do you think that Iran will continue to be attractive to LNG investors?

We need foreign partnership and investment for many of our projects and we have to make necessary international arrangements to attract foreign investment and win foreign partnership. As far as Iran"s present circumstances and US sanctions against Iran are concerned I have to note that pre-JCPOA sanctions were fundamentally different from the current circumstances. Before the JCPOA, we were under sanctions legally and based on international regulations as UN Security Council resolutions required UN member states to sanction Iran, but currently we are under US sanctions which are unilateral. In other words, as of November onward we will not be under legal and official international sanctions, rather we will be only under US sanctions and a number of companies doing business with the US will support it, but no nation or European and Asian companies are required by international law to do so. It is not so that all countries that had earlier sanctioned Iran would sanction Iran anew.

Do you mean that companies with no business with the US would face no restrictions in their economic cooperation with Iran?

Yes, that"s it. I reiterate that the US has walked away from the JCPOA and intends to impose sanctions against Iran. Therefore, any country willing to do business with Iran will be subjected to such sanctions. But the fact is that this US sanction does not comply with international rules and therefore countries are free to go along with the US or not. But we should not think that all companies in the world will be following US policies. Several weeks ago I attended a conference where a number of European companies with no business in the US said they would not like to cut cooperation with Iran. These companies have no interest in the US, nor do they fear American threats.

Of course we should acknowledge the fact that under conditions of sanctions many foreign companies with interests in the US or fearing American threats would quit Iran, but there are companies that would stay in Iran without any fear. Now we have to make international arrangements for them to continue with their activities in Iran with peace of mind.

 

Negar Sadeqi and Roya Khaleqi

Courtesy of Iran Petroleum

 


18:47 - 6/09/2018    /    Number : 12566    /    Show Count : 208


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