Iran146;s split personality on energy

Although there may be a degree of truth to these arguments, they both focus on realpolitik at the expense of a full understanding of Iranian motives. Only by looking at the Iranian energy markets does it become clear that Iran8217;s split personality is primarily derived from domestic indecision between gas or oil sector investment. If Iran chooses to develop its gas sector, then it will desperately need the energy-hungry markets of South Asia. However, if Iran decides to forgo gas exports in order to boost oil production, then it would no longer be dependent on the South Asian market, giving it the upper hand in pricing negotiations with India.

Iran possesses the world8217;s second largest proven gas reserves, estimated at approximately 940 trillion cubic feet tcf; yet its natural gas market is highly underdeveloped. Twenty-five years of US sanctions have deprived it of the private sector technological and financial investment necessary to create a sophisticated gas market. Iran8217;s reluctance to offer low-cost, long-term LNG contracts has bred frustration among international oil companies and caused delays in project construction. While Qatar has been profitably distributing gas from its part of the divided South Pars field for almost a decade, Iran8217;s current gas exports are relatively minor 8212; amounting to six times less than Qatar8217;s exports last year. Although Iran does pipe a limited amount of gas to Turkey, its most significant challenge will be finding a long-term, profitable market for its gas.

Entering the natural gas market this late, Iran8217;s export options are limited. European demand is already satisfied by Russian gas while Central Asia and the Arab states do not require any energy imports of note. Growing demand in East Asia will certainly provide export opportunities; but, wary of the hefty shipping costs, Eastern consumers are likely to purchase most their gas from local producers such as Malaysia, Indonesia and Australia. Consequently, if Iran hopes to compete in the international gas market, it needs to engage South Asia. Hence Iran8217;s eagerness for energy cooperation with India: Iran feels that the natural gas game might have been played before it had a chance to show its cards. India, a late comer to the energy game itself, is the only remaining substantial market for Iranian exports. However, the Mr Hyde to Iran8217;s Dr Jekyll comes from a faction within the Iranian government that believes Iran should forsake its gas sector in order to maintain high oil production. Iranian oil production has fallen from 6 million barrels a day mb/d during the 1970s to 4 mb/d at present. By re-injecting gas into its oil fields, Iran could increase pressure in the fields, yielding higher quantities of crude.

A report by Feridiun Fesharaki, head of FACTS Inc, a US-based energy consultancy, found that 8220;exporting oil will provide Iran with five to six times8217; higher revenue than exporting gas on the basis of heat value at the wellhead8221;. Although the government estimates that only another 5 billion cubic feet per day bncf/d will be necessary for re-injection by 2010, FACTS estimates that the figure will be closer to 20 bncf/d. If the latter is the case, Iran8217;s total domestic gas demand will reach 40 bncf/d, a 15 bncf/d increase over current levels. With only 7 bncf/d of additional production capacity expected to come on-stream by then, Iran will have to choose between re-injecting its gas and exporting it.

What does this mean for India? In Stevenson8217;s novella, Dr Jekyll8217;s inability to relinquish his split personality eventually leads to his own demise and that of everyone around him. Energy cooperation with Iran is essential to India, and it should pursue it wholeheartedly. Yet, to avoid the unpleasant fate of Dr Jekyll8217;s compatriots, India should be aware of Iran8217;s mixed agenda and continue to pursue alternate energy options. Given pipeline diplomacy today, India must remember the counsel of Winston Churchill, who warned that 8220;safety and security in oil lie in variety and variety alone8221;.

The writer is a researcher at the Institute of Peace and Conflict Studies