Narsi Qorban, Managing Director of Narkangan Gas - to - liquid International Company, is one of the most astute observers of Iran’s energy sector specialized in petroleum economics.
Narsi Qorban, Managing Director of Narkangan Gas-to-liquid International Company, is one of the most astute observers of Iran's energy sector specialized in petroleum economics. Speaking at the 5th Academic Forum in Tehran Faculty of Petroleum on May 25, 2014, he exhausted potential roles Iran can play in cooperation with neighbors and West Asia in the area of oil and gas. Current trends, opportunities and challenges were among the topics addressed by this renowned specialist, a summary of which is presented in this report.
In general, Narsi Qorban is not in favor of increasing the gas exports. Instead, he believes Iran needs to lay necessary infrastructure in order to consume the gas domestically while generating added value and employment opportunities.
Iranian gas pricing does not follow a clear standard including what is offered by the Parliament. Therefore, it is of prime importance to come up with a pricing formula based on finished costs and a reasonable rate of tax. The government should not compare the prices of the exported gas and the delivered gas to petrochemical plants while deciding on domestic gas price as it would boost foreign countries' industries.
Holding 48.4% of total world's oil reserves, West Asian region plays a significant role in the global energy supply. As a country in the region enjoying 157 billion barrels of oil, Iran's share of West Asia and world's proven crude oil reserves amount to 19.2% and 9.4% , respectively. As to gas, Iran respectively accounts for 18% and 41.3% of the world and West Asia's proven reserves. Against all these enviable potentials, Iran contributes very little to global gas production (4.8%) and consumption (7.4%) with exports having insignificant portion in the figures.
Among the challenges threatening the region is Arab spring leading to regime changes in several North African countries with its wing already stretched towards West Asia. At worst, the development can create troubles for some West Asian countries namely Iraq and Syria nurturing further terrorism and conflicts among sects and consequently insecurity in the region. Another challenge faced by the region in recent years is the newly discovered gas reserves of Shale in the US disturbing the balance in oil and gas prices as of 2007 during which West Texas Intermediate crude oil spot price was $72 per barrel while Henry Hub gas spot price stood at $6.9 per million Btu. In view of the new discovery and continuous surge in oil prices in recent years hitting above $94 per barrel in 2012, gas prices have grown in reverse reaching $2.8 per million Btu. In the meantime, the development while expanding the US gas reserves from 4.7 trillion cubic meters in 1992 to 8.5 in 2012, can transform the US into a gas exporter and consequently influence American foreign policies in the Middle East discouraging their interest to secure the region.
Despite the challenges, there also lies opportunities to neutralize the threats. The young, educated labor force in West Asian countries with required expertise to develop their respective countries is the first and biggest strength. Next comes the emergence of a growing private sector accelerating the economic growth. Evidently, the success of the private sector in West Asian countries contributes to their political advancement.
As to Iran's role in the region, it should be noted that in the long run, a strong and moderate Iran with dynamic economy can foster economic development and cooperation in the region, reduce tensions and resolve conflicts. Iran and Turkey are two major powers in the region geographically, accommodating more than half of the region's population.
As noted earlier, vast reservoirs of gas and oil are Iran's crowning glory, despite of which she has not yet had the chance to enjoy her well-deserved standing internationally. To render Iran into a global and regional energy superpower, it is high time to identify main potentials and necessary measures that help her out of stagflation.
First and foremost, the nuclear issue needs to be settled so that all unjust and irrational western sanctions, blocking Iran's access to a strong position in energy sector, are lifted.
Proper planning by the government in order to optimize public energy consumption is another important step. Last years, Iranians consumed 14 billion cubic meters of gas. The figure is surprisingly higher than the total gas consumption in four European countries namely Greece, Denmark, Sweden and Norway. For two reasons, it is urgent for the government to structure a comprehensive and long-term formula for natural gas pricing: first to help investors calculate ROI based on gas prices within the next 10 years as of the conclusion of their contracts and next because of the fact that natural gas accounts for 65% of national energy basket that influences prices of other products. The pricing formula presented to and approved by the Parliament for the first round of subsidy cuts was based on 65% of gas export Persian Gulf FOB price while there are no FOB prices for gas. Fortunately, the approved formula was not applied as it was not a good basis for pricing.
Subject to modifying current gas contracts, local and foreign investment in downstream and upstream industries on a win-win basis should be encouraged as well.
As to energy balance, Iran produces 8.4 million barrels of crude oil of which 7.2 million barrels are consumed for exports or domestic purposes with 1.2 million barrels wasted per day. Addressing this challenge through attracting investment will increase oil production much faster than similar undertakings within the oil fields.
Oil & Gas Sector Priorities
Transfer of up-to-date technology is required to increase production from joint fields. Qatar has been producing 300,000 barrels of oil per day from South Pars oil field while Iran is yet to start.
The current structure of the oil and gas industry in Iran is not suited to deal with developments in the world oil and gas sector. Major changes are needed in order to enable the present Iranian oil and gas industry to cope with the realities of the domestic and world markets. Fortunately, NIOC by-laws has received initial approval from the Parliament in which oil, gas and petrochemical industries find clearly defined positions.
Other priorities needing urgent attention are as follows:
- Involving private sector in gas & oil projects
- Attracting foreign investment in oil industry
- Expanding cooperation with the countries in the region in the area of energy
- Putting an end to wasteful gas flaring
- Producing clean products and optimizing fuels
- The followings are introduced as priorities in gas area:
- Replacing oil products with gas
- Injecting gas to oil fields
- Generating electricity
- Developing gas-intensive industries such as petrochemicals, cement and steel
- Converting gas to petroleum products
- Exporting gas via pipeline and liquid gas.
The conversion of gas to petroleum products is especially ideal for Iran as the West Asian region is experiencing a rising trend in petroleum product consumption. If the trend continues, the region may soon witness a petroleum product consumption equal to 11 million barrels of oil per day causing a surge in oil prices. It will also harm the countries in the region as they gain much less in return for oil sale which is sold much easier than gas. It is also much more economical as 2 barrels of oil has to be refined to produce one barrel of middle distillates worth $200 while producing the same from gas requires only 280 cubic meters of gas worth $35.
Cross-West Asia Gas & Electricity Pipeline
A proposal has been submitted to the Asian Parliamentary Assembly (APA) to pump gas and electricity across West Asia. The win-win alternative is particularly significant because the region holds the largest gas reserves in the world while other Asian regions except for Russia and Turkmenistan face gas shortage.
Narsi Qorban believes that establishing a gas and electricity pipeline across West Asia is not far from reality as it is possible to facilitate interaction among Asian members through APA. Moreover, part of the required infrastructure for such an undertaking already exists for example there are several 57-inch South-to-North gas pipes available in Iran. The undertaking, if successful, can result in an energy charter similar to that of Europe. Iran can play an important role in between. The concerned pipeline would meet, inter alia, seasonal demands for gas in the region i.e. Iran in winter and Persian Gulf countries in summer. While facilitating gas pricing, such a pipeline project also ensures the security of supply-demand cycle and investment in the region better than any other means. It also reduces the cost of gas pipe construction and prevents duplication. In the meantime, development of gas-intensive industries in the region has gain pace. This in turn helps the establishment of cross-West Asia electricity network as one the main region's priorities.