As part of the European Centre for Energy Resource Security’s (EUCERS) Energy Talk Series on “Changing Political and Economic Dynamics of Global Energy Flows”, the European Centre for Energy Resource Security’s (EUCERS) together with the Institute for Strategic Dialogue and the Konrad Adenauer Foundation (KAS) in the UK hosted a roundtable discussion on “The Implications of Iran’s Re-integration in Global Energy Markets” on July 3rd, 2014 at King’s College London.
from left: Hans Blomeier, August Hanning and Friedbert Pflüger
Commencing the discussion, Professor Dr Friedbert Pflüger, Director of EUCERS, reiterated the contemporary developments on the global energy market and tectonic shifts stemming from them. Flaring as much natural gas as Azerbaijan produces, Iran as the most powerful hydrocarbon nation in the world could become a central part of these shifts. Much will depend on the outcome of the current negotiations on Iran’s nuclear program and the lifting of the economic sanctions. According to Professor Pflüger, since the re-integration of Iranians vast energy reserves into the market would be favourable to all sides, the current opportunity should be taken seriously and Iran given a chance to prove itself as a reliable and trustworthy partner. Dr August Hanning, former President of the German Intelligence Service (BND) and representative of the Institute for Strategic Dialogue, voiced similar hopes for a positive outcome of the current negotiations. In his experience, however, one could never know with Iran, which had to clarify its position regarding its nuclear program. Iran could, nonetheless, become a stabilising force in the reshuffling of the balance of power in the Middle East.
Slightly counterbalancing the positive and hopeful standpoints taken by Professor Pflüger and Dr Hanning, Jonathan Paris, Senior Advisor to the Chertoff Group, regarded the glass rather half-empty than half-full. He suggested a more cautious approach regarding the actual willingness of Iran to give up its nuclear weapons program and pointed out the severe concessions needed to be taken by the Iranian government. Taking into account the recent ISIS operations in Iraq, Mr Paris voiced concerns over the consequent increased importance of conservative security for the countries in the region, which extended especially to Israel. Looking at the Israeli response to the death of one teenager in the past days, Mr Paris pointed out that in case of a threat to its entire population there was no country more willing to defend its people with all means necessary. According to Mr Paris, these developments – both the situation in Iraq and the nuclear negotiations with Iran – hence require a proactive leadership role to be taken by the US government, exerting the fear for US action. The Obama administration, however, had proven otherwise.
Taking the case of a re-integration of Iran, Elham Hassanzadeh, Research Fellow at the Oxford Institute for Energy Studies, pointed out that regarding European Energy Security no direct gas trade with Iran could be expected before 2020/2025. Natural gas entering the European market via Turkey could take place earlier though, utilising the TANAP pipeline. LNG exports, primarily targeted for the Asian markets, could only be expected beyond 2030, due to the lack of infrastructure (including no existing terminals) and investments. According to Ms Hassanzadeh, critical for the actual size of exports will be the evolution of domestic demand which skyrocketed over the past years, reaching 150 bcm and rendering Iran the 3rd largest consumer of natural gas. Ali Ghezelbash, founding board member of the European Iran Research Group, confirmed Ms Hassanzadeh’s points and added that in the short-term major investments needed for efficiency improvements in the industry and infrastructural upgrades are highly unlikely to take place. Mahdi Kazemzadeh, Managing Director at Afraz Advisors Ltd., voiced hopes for the return of Iran to become a significant player, hinting at the fact that the country already owned a reasonable energy infrastructure which only required upgrades. Closing these gaps had to be considered an easier task than, i.e. building new infrastructure up from the ground.
Chris Cook, Senior Research Fellow at UCL Institute for Security & Resilience Studies, proposed a new approach forward for Iran domestically by following what he called the least-common-fuel-cost principle after the Danish example. Denmark, following 1973 had decided that for a given output of electricity heat and power they would minimise the carbon fuel input. The result has been a doubling of the country’s GDP over the past 40 years, a levelling consumption of energy and a significant decrease in carbon fuel demand. With one litre of gasoline requiring three litres of crude oil and one MMbtu of heat or cooling equalling ten MMBtu from the source in Iran, efficiency according to Cook could and should be a first crucial step for the country. This becomes all the more apparent in global comparison where Iran’s energy efficiency of gas generation stands at 13%, compared to 60% in Denmark, and about 35% in the UK.
Dimitry Zhdannikov, EMEA Energy editor at Reuters News, hinted at the increased diversification of the European gas market in the future. Referring to shale gas from the U.S. as well as the potential of the Eastern Mediterranean and East African fields, according to Mr Zhdannikove, Iranian gas was not necessarily needed and entailed a political risk that required a cost-benefit analysis. The picture looked, however, slightly different for global oil markets which suffered from severe disruptions. Considering the recent developments in the Middle East and Saudi Arabia’s potential inability to cover another major supply outage, Mr Zhdannikov expected the market to remain extremely tight for the next years. With regard to Iran’s role in this respect, he agreed to previous statements of uncertainties about the country’s energy infrastructure and concluded by stating that an oil output of above 3.5 MMb/d in the near future had to be considered highly unlikely. Dr Frank Umbach, Research Director at EUCERS and the final speaker of the panel, also took a more global approach by putting the potential need for Iranian oil in perspective with current developments. In that respect Dr Umbach stressed that there were far less shale oil reserves in the US than shale gas, which had fundamentally supported stable oil prices in the past. This however meant it was crucial to provide timely investments to ensure supply in five to ten years, as also repeatedly urged for by IEA chief economist Fatih Birol. From his own experiences when he visited Iran in 2008, Dr Umbach depicted the huge ambitions present in the oil and gas industries, going as far as to propose to transport Turkmen gas via pipelines through Iran to the European market. He then questioned whether Iran would still have such expansive interests.
Following the discussion of the qualitatively and quantitatively impressive panel, the open debate with the event’s participants proved fruitful for both sides . A subsequent reception provided ample opportunity for everyone to debate further and connect, while enjoying similarly ample amounts of food and wine.
By KAS Fellow at EUCERS, Jan-Justus Andreas