Iran Burning $7 Billion to Lead Gas OPEC as It Faces Sanctions

Photographer: Kaveh Kazemi/Getty Images

Natural gas is burned off at an oil field on Kharg Island in the Persian Gulf, off the coast of Iran. Close

Natural gas is burned off at an oil field on Kharg Island in the Persian Gulf, off the coast of Iran.

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Photographer: Kaveh Kazemi/Getty Images

Natural gas is burned off at an oil field on Kharg Island in the Persian Gulf, off the coast of Iran.

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 Hussein Adeli, a former central bank governor and ambassador to Canada and the U.K., was elected to lead the Gas Exporting Countries Forum, holders of 60 percent of the world’s reserves, Iran’s Oil Minister Bijan Namdar Zanganeh told reporters at a meeting of the group’s 13 members in Tehran today. Adeli will replace the current Secretary-General Leonid Bokhanovsky. Russia and Libya had also put up candidates.

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 export projects from the U.S. to Australia.

“Iran is essentially absent from the regional and global markets,” Tom James, a Dubai-based managing director of Navitas Resources Ltd., an energy and commodity markets adviser, said Oct. 30 by e-mail. “Iran could easily aim for a 10 percent share of global gas trade.”

The country 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.

Data Dispute

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

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.”

The nation 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 southeast 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 Projects

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 (RDSA), 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.

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.

Lone Project

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.

Nominating Adeli is “an interesting way for Iran to gain a place at the table, to have a way to gain stature quickly and to give it access to government and industry leaders on a global scale,” Zach Allen, president of PanEurasian Enterprises Ltd., a Raleigh, North Carolina-based tracker of LNG shipments, said in an Oct. 30 e-mail. “The opportunities there are enormous for both Iran and foreign investors.”

‘Attractive’ Terms

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.

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.

Adeli, who was fired as deputy foreign minister in 2005 by then President Mahmoud Ahmadinejad, is founder of the Ravand Institute for Economic and International Studies, which promotes “global dialog and consensus-building,” according to its website. He didn’t respond to an e-mail seeking comment.

“They seem to have picked a person 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,” said Allen.

Gazprom Executive

Russia nominated Sergey Pankratov, a Gazprom deputy head of department, to replace Bokhanovsky, Olga Golant, a spokeswoman at the Energy Ministry, said by Nov. 1 by phone from Moscow. Libya nominated Abdul-Rahman Ben Yezza, a former oil minister, Ibrahim Al Awami, the oil ministry’s head of measurement and inspection, said by phone earlier today.

The Doha-based GECF has sometimes been dubbed the gas OPEC because of its similarity to the 53-year-old Organization of Petroleum Exporting Countries. Unlike OPEC, GECF members meet to discuss the market without coordinating world supplies to control prices.

The GECF member states are Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Oman, Qatar, Russia, Trinidad and Tobago, United Arab Emirates and Venezuela.

To contact the reporters on this story: Robert Tuttle in Doha at rtuttle@bloomberg.net; Yeganeh Salehi in Tehran at yalehi@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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