Tuesday, September 04, 2007

Is it all about Iran’s energy?

Commentary – Executive magazine July 2007

As the rumors of a strike on Iran continue, with US sabre rattling an almost weekly occurrence – lately over Hizbullah agents in Iraq, and Al-Qaeda allegedly using Iran as a staging ground – a question begs to be asked, is this as much about energy as Tehran’s nuclear ambitions?
Iran is sitting on huge oil and gas reserves that have not been utilized to their full potential. The country’s gas reserves are of major importance to the development of the global economy, particularly liquefied natural gas (LNG), with global consumption surging by over 30% in the five years to 2005.
Qatar’s North field and Iran’s South Pars field is the largest known gas field in the world, with estimated gas reserves of 1,300 trillion cubic feet (TCF) or 221 billion barrels of oil and gas equivalent (boe).
Major energy companies are champing at the bit to access this veritable gold mine, but the US sanctions on the Islamic Republic - which threaten to punish foreign firms that do business in Iran under the Iran-Libya Sanctions Act of 1996 - has prevented the development of the South Par’s estimated 500 TCF (85 billion boe) of natural gas.
The majors have resultantly concentrated on Qatar, which overtook Indonesia last year as the biggest exporter of LNG, exporting 31.09 billion cubic meters (bcm) or 15% of global LNG exports. But with global demand for LNG rising - demand is expected to nearly double in the next three to four years - Iran remains the untapped diamond.
“The fact is we will need Iranian energy sooner or later, perhaps sooner,” said Ian Moncrieff, Vice President, Oil and Gas Practice, at American consultancy firm Kline & Company.
So the question is, will the global thirst for Iranian gas necessitate war by the US or rapprochement?
A thaw in relations could –and arguably should - occur, spurred on by the majors, as occurred in Central Asia in the 1990s. Furthermore, the world has become increasingly dependent on the energy flowing out of the Gulf.
Last year, Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia and the UAE produced about 28% of the world's oil, while holding 55% (728 billion barrels) of the world's crude oil reserves and 41% of total proven gas reserves (2,509 TCF). OECD gross oil imports from the Gulf countries averaged about 10.4 million barrels per day (bpd) during 2006, accounting for 31% of the OECD's total net oil imports.
A strike on Iran would cause a serious upset in accessing this energy, as in such a scenario the Straits of Hormuz could be closed or partially blocked. With some 17 million bpd exported via the Straits, roughly one-fifth of the world’s oil supplies, even a slight disruption to the flow of energy would have a serious impact on energy prices – the price of a barrel of oil would not just spike, it would rocket into the triple digits.
The Gulf countries are very aware of the dangers that the reliance on the Straits presents, with two pipelines on the drawing board that could pump as much as 6.5 million bpd, around 40% of the daily exports through the Straits. These pipelines will not be finished for several years however, and the possibility of pumping oil and gas by pipeline to the Mediterranean is equally years off, due to the billions of dollars needed to overhaul as well as build pipelines across Iraq and through Syria, another geopolitical wild card.
The global need to access the Gulf’s energy resources could conceivably prevent a strike on Iran. Then again, US Energy Secretary Sam Bodman said last year that the United States would be in “good shape” if Gulf exports were affected due to America's emergency stockpile of almost 700 million barrels of crude oil. It would be the rest of the world that would not be in such good shape however, and with Washington increasingly isolated over its adventurism in Iraq, an attack on Iran and the knock-on consequences on energy supplies could leave the US without many friends. These factors are no doubt being given due consideration on Capitol Hill and at the Pentagon.
What will equally be considered is that Qatar will supply the US and UK with some 40% of their LNG needs, but only by 2010, and that LNG projects in Iran are only likely to swing into action by 2013 – plenty of time to tackle the Islamic Republic and still come out trumps, unless Iraqi resistance style developments occur in Iran of course.
Just as the invasions of Afghanistan and Iraq were about securing energy resources as well as waging the “war on terror” and nipping the supposed threat of WMDs in the bud, America’s posturing over Iran is as much about accessing energy as countering the threat of Iran’s nuclear aspirations.
How Washington handles this crisis is of grave importance not only to the region but to the rest of the world, who desperately rely on the Gulf’s oil and gas to keep their economies ticking along.

PAUL COCHRANE is a freelance journalist based in Beirut. His work has appeared in Britain’s Petroleum Review.

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