After Wasting Tens of Billions of Cubic Meters of Gas, Iran Looks to Lead Exporters Amid Sanctions

Nov. 4 (Bloomberg) — Iran will lead a club of the world’s biggest natural gas exporters as its own shipments abroad are hampered by U.S. and European Union sanctions that force the country to burn off billions of dollars worth of the fuel.

Mohammad Hossein Adeli, the country’s former deputy foreign minister, was elected secretary-general of the Gas Exporting Countries Forum, whose 13 member countries hold 60 percent of the world’s reserves, the group said yesterday in a statement. Adeli, who will replace Leonid Bokhanovsky of Russia next year, vowed to turn the Persian nation into a “major player among the gas exporting countries,” he told reporters after a group meeting in Tehran.

U.S. and EU trade sanctions over Iran’s nuclear program have cut the Persian nation’s crude exports, its largest revenue source, by half since 2011 and are stifling projects to export some of its gas reserves, the world’s largest. Iran is one of three GECF members that are net importers as the group faces increased competition from liquefied natural gas projects from the U.S. to Australia.

The vote is “a signal that attitudes toward Iran perhaps are thawing, and tension easing, since they were elected to represent this group on the international stage,” Tom James, a Dubai-based managing director of Navitas Resources Ltd., an energy and commodity markets adviser, said yesterday by e-mail.

Bank Governor

Adeli was fired as deputy foreign minister in 2005 by then President Mahmoud Ahmadinejad. Prior to that, he served as ambassador to Canada and the U.K. and was Iran’s central bank governor. He holds a Ph.D. in business administration from California Coast University, according to the website of the Global Policy Journal. He is founder of the Ravand Institute for Economic and International Studies, which promotes “global dialog and consensus-building,” according to its website.

The country nominated Adeli because he is “accustomed to moving in high places to accelerate Iran’s development of Iran’s most abundant export resource, one that will generate significant foreign exchange for them,” Zach Allen, president of PanEurasian Enterprises Ltd., a Raleigh, North Carolina-based tracker of LNG shipments, said Oct. 30 by e-mail.

Iran burned off 11.4 billion cubic meters (400 billion cubic feet) of gas in 2011, the last year for which data is available, according to the World Bank’s Global Gas Flaring Reduction Public-Private Partnership. That would meet about a quarter of demand in South Korea, the world’s biggest buyer of LNG after Japan. The gas is worth about $7.3 billion on Asian spot LNG markets, according to Bloomberg calculations using World Gas Intelligence prices. Iran burns off the gas produced alongside oil because it lacks the infrastructure to process and transport it to markets.

LNG Prices

LNG prices in northeast Asia rose to $17.50 per million British thermal units in the week ended Oct. 28, the highest since Feb. 25, according to World Gas Intelligence assessments of cargoes for delivery in four to eight weeks.

Iran’s reserves “must give them an interest in what happens with the price of gas longer term,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein. “They have the most at stake here after Russia in terms of what happens to the industry.”

Iran is scheduled to hold talks over its nuclear program with the U.S., U.K., France, Germany, Russia and China on Nov. 7-8 in Geneva in hopes of reaching an agreement that loosens sanctions. Iran is willing to assent to more stringent inspections as part of confidence-building measures intended to defuse a decade-long standoff over its nuclear program, Deputy Foreign Minister Abbas Araghchi said last month.

‘Essentially Absent’

The country, the world’s third-largest gas producer, is a net importer of the fuel, according to BP Plc’s Statistical Review, which last year rated its reserves above Russia’s in a move denounced by Gazprom, the world’s biggest exporter.

“Iran is essentially absent from the regional and global markets,” Navitas’ James said Oct. 30 by e-mail. “Iran could easily aim for a 10 percent share of global gas trade.”

The sanctions have hampered development of Iran’s South Pars, an extension of Qatar’s North Field that make it the world’s largest gas reservoir, and drove away international energy companies.

Royal Dutch Shell Plc, Repsol SA and Total SA abandoned plans for LNG in Iran, depriving it of the buyers, money and expertise needed to make and sell the fuel, which is chilled to minus 162 degrees Celsius (minus 260 Fahrenheit) to shrink it to 1/600th of its original size for transport by tankers.

Iran LNG

The Persian LNG project, from which Shell and Repsol withdrew in 2010, had an annual capacity of 16.2 million metric tons, or about 5 percent of the world’s current capacity. The Pars LNG site abandoned by Total in 2009 had a planned capacity of 10 million tons. That compares with 61.2 million tons under construction in Australia and 39.55 million tons of U.S. projects that have signed off-take agreements or are being built, Bloomberg Industries data show.

“We will try to cooperate with other exporters that are not a member of this forum as it is beneficial for all of us,” Adeli said. “I’m hopeful that.”

Of the four LNG projects Iran originally envisioned, it’s pushing ahead with one, a 10.5 million-ton-a-year facility known as Iran LNG, at Tombak near the Gulf port of Assaluyeh. The government is working alone on the $3.3 billion project after suspending a contract with its Chinese partner, Mehr news agency reported in September last year.

The relaxation of sanctions would encourage international oil companies to reactivate Iranian LNG projects, Robin Mills, head of consulting at Manaar Energy Consulting and Project Management in Dubai, said in an Oct. 29 phone interview.

Improve Access

Adeli may improve Iran’s access to governments and global industry leaders, Allen said. “The opportunities there are enormous for both Iran and foreign investors.”

Iran and Oman may form a joint company to market the Persian nation’s gas in the region, Oil Minister Bijan Namdar Zanganeh told reporters in Tehran yesterday. The country will finalize a deal to supply gas to Iraq “‘soon,’’ Press TV reported, citing Hamid Reza Araqi, managing director of National Iranian Gas Co.

Shell complies with sanctions on Iran, Sarah Bradley, a company spokeswoman in London, said by e-mail. Kristian Rix, a Repsol spokesman in Madrid, declined to comment. Total didn’t return an e-mail seeking comment.

Nationalization History

Attracting companies to invest in Iran’s gas industry would be a challenge even without sanctions, Beveridge said. The country has a history of nationalizing oil and gas assets and would need to offer ‘‘attractive” terms to secure long-term foreign investment, he said.

“I would be skeptical you would see anything big occur in the near term,” Beveridge said.

Other nominees to replace Bokhanovsky included Russia’s Sergey Pankratov, a Gazprom deputy head of department, while Libya put forward Abdul-Rahman Ben Yezza, a former oil minister.

The GECF member states are Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Oman, Qatar, Russia, Trinidad and Tobago, United Arab Emirates and Venezuela. The group’s next ministerial meeting will be in Doha in 2014.
– Robert Tuttle and Yeganeh Salehi, Copyright 2013 Bloomberg.