atop 18% of world gas reserves but holding a meager share in global gas
trading, is striving to highlight its role as a potential mega producer and a
large exporter of natural gas especially the liquefied natural gas (LNG).
Hossein Adeli, former secretary general of Gas Exporting Countries Forum
(GECF), tells Iran Petroleum that the share of gas in global energy mix would
rise from the current 22% to 26% over 20 years in 2040.
Here is the
full text of the interview Mr. Adeli gave to Iran Petroleum:
years, there has been growing attention towards gas as a source of clean energy
in the world. The gas share is also expected to grow in energy mix of countries
in coming years. Would you please give your assessment of gas market?
The gas market
remains to be a growing as well as a promising one, i.e. many countries are
focusing on gas now mainly because of its environmental advantages. Many
leading consumers of gas like China and India have been seeking to increase the
share of gas in their energy mix. That is why demand for gas and more generally
demand for LNG was more than estimated all throughout last year and in the
first half of current year. In the meantime, gas supply has been on the rise as
well. Furthermore, in addition to traditional suppliers of gas like Russia, Algeria,
and Qatar, and members of GECF, countries like the United States and some
African countries, and Australia have moved to boost their exports in 2017 and
2018. Therefore you can see that the gas market has been very dynamic over the
past two years and will continue to be so with more or less balanced supply and
demand with of course no shortage of supply. The gas supply is still expected
to grow from Australia, the US and Africa. While the prediction for gas supply indicates
its increase, demand was down in early 2017; however, the upward trend in gas
supply would continue.
How long will
increased gas supply continue?
situation is not expected to last for more than two to three years. After which
more strict balance will be experienced. But at the same time it is expected
that during the four to five years to come, the next wave of LNG export growth
would emerge owing to investment by Qatar. But the most important development
which I believe will hit the market in coming years will pertain to China and
India, which are to increase the share of gas in their energy mix. For
instance, China is expected to increase the gas share of its energy mix from 6%
to 15% and India from 5% to 9% by 2030, which will benefit the gas market.
Therefore, the gas market will witness good conditions owning to the annual
1.8% demand growth up to 2040 with LNG demand ranging between 3to 4% growth.
How much will
LNG supply and demand reach in coming days?
As you may
know, gas supply is being carried out via pipeline or in LNG form in the world.
LNG has increasingly become more attractive due to many different reasons largely
affecting analyses related to global gas market, I believe that we will see a
boost in gas exports in coming years. LNG exports currently stand at around 283
million tonnes, which are expected to reach 295 million tonnes (more than 315
bcm) by the end of 2018. That is why the world total gas exports stand at about
1,000 bcm. LNG has currently a 30% share in the gas market with the remaining
70% going to pipeline (about 690 bcm).
Over the past
one year we have seen sharp oil price fluctuations. How has it affected the gas
answering this question I have to say that oil price has relatively witnessed a
steady adjustment with the fundamentals of the market increasing from $45 a
barrel to above $70. Estimates also show that there will be even a bigger increase
in oil demand. For example, there are estimates for 2018 to see a 1.9 mb/d
increase in oil demand, which would be apart from the failure of some producers
like Libya, Nigeria or Venezuela to produce their quotas. Therefore oil prices
are currently thought to stand between $65 and $75 a barrel, which is a
suitable price in case no geopolitical events occur.
But in response
to your question, I have to say that oil and gas prices are strongly
interrelated because long-term gas contracts in Asia are based on oil prices.
Oil is a global and predictable commodity whose price is included in long-term
contracts. Oil price serves as an anchor for gas pricing mechanism. But of
course, oil-indexed gas prices are a bit higher than oil prices presently. Gas
price will follow the oil price with a lag of two to four months. Therefore
when oil price rises, gas price will be affected positively. But developments
of gas market is as such that gas to gas prices is increasingly becoming a
viable price mechanism as well.
How much does
oil-based and long-term contract gas price stand in Asia?
price or as is called oil indexed gas price in Asia currently (on the date of
interview) stands at around $12 while long-term contracts consider gas price at
$11.2. Asian prices are the highest among the gas markets around the world.
There is also difference between spot, single-cargo transactions and their
long-term nature. It is also partly related to seasonal supply and demand. The
price of gas in different parts of Europe, like south Europe, north Europe and NBP
of UK, currently stands between $7.7 and $8.8. Gas is currently traded at $2.8
at the US Henry Hub. Of course this price is for domestic exchange price in the
US. If this country decides to export gas it will not be at this price. There
will be mark ups at least on three areas that will affect the price of gas
exports; they are namely, liquefaction or sweetening, transport and
re-gasification, resulting in a $3.5 to $4.5 increase in the prices.
Now that the US
has stepped up its rhetoric against Iran by deciding to re-impose sanctions on
the country’s petroleum sector, how will global gas market be affected once US
sanctions have been snapped back into place?
I do not agree
with the term snap back. Because the US position to with draw from JCPOA is by
itself a violation of international law and international norms of conduct.
Also re-imposing the sanction is illegal too. Therefore nothing has happened to
trigger any snap back of sanctions. Iran is in full complaisance but US has not
respected its commitments. In fact it is
unusual that the US is taking such position mainly for domestic ends. On the
sanctions one has to differentiate between sanctions before JCPOA and after it.
Sanctions after JCPOA are totally illegal from international point view,
therefore Europe, Russia, China and other countries have not followed it. No
country in the world has been obliged to follow the US. Therefore I would
expect that only companies with large US exposure will be compelled to follow
the US. Many countries of the world who are not aligned with the US will seek
to bypass extraterritorial sanctions of the US.
This is true for both oil and gas sector. Based on this, I would imagine
that there will be companies who would be willing to cooperate with Iran in
both oil and gas sector, though some multinationals who have large exposures
with the US would seek to either obtain US waiver or find smart ways to keep
Iran as their client. Now on the sanctions and oil price, we have seen that US
Trump has put pressure on the Arabs of Persian Gulf namely Saudi Arabia and UAE
to boost their output even before the sanctions start. But several adverse developments
took place that made the oil price hike and the gasoline prices in America
rise! This was detrimental to the Trump objectives. Therefore, any sanctions on
oil export from Iran or any attempts to reduce the Iran oil market share will
be so complex that it may push the prices up and negatively affect the Trump
administration inside the US.
Were Iran a key
player in the gas market how would US oil sanctions affect gas prices?
We have to take
into consideration a variety of assumptions. For instance, we have to imagine that
if three Iran LNG, Pars LNG and Persian LNG projects had become operational,
Iran would have been exporting 35 to 45 million tonnes of LNG, making up 15% of
world total market share. In such case, the Iran oil sanctions would have
definitely influenced the global gas market and it would have not been an easy
decision to re-impose sanctions on Iran because gas would have become an
influential international parameter of strength. Although Iran’s share of
global gas trade stands low this pertains to pipeline gas exports. Had we been
able to execute development projects in LNG exports we would have been able to
export LNG to many countries in the region, which would have been an advantage
and a strong bargaining chip for Iran.
But gas exports
via pipeline have also their own advantages. Shall we still put all our eggs in
true. Pipeline has its own advantages and I don’t deny this fact. But the
reason for me to prefer LNG exports to pipeline is that LNG may be carried from
any point of origin to any destinations desired by buyer. In such a market, the
buyer and the seller have nothing to do with political considerations and
transit issues. In the mean time I see many merits in some pipeline projects as
well. Pipeline projects to gas deficit countries of Persian Gulf such as Saudi
Arabia, Kuwait, Bahrain and UAE are viable and beneficial to all parties. This
may seem odd with prevailing political situation but the reality is that there
is a huge gas reservoir next to these countries in Iran that could be used by
them. I also hope that the gas pipeline to Pakistan will materialize as that
would benefit us and them as well. They would get cheaper gas and we would get
a market though small but a long term one. This is not odd considering the Russian
European gas trade while they passed through cold war and much differences.
When the issue
of Iran’s oil embargo is brought up, LNG sanctions are predictable. Will LNG be
still advantageous to pipeline?
bypasses political difficulties. If we develop LNG capacity we will be able to
easily sell it in different cargos. It could be bought by traders and
re-loaders who do not have any business with the US and will be ready to re sell
it to buyers. LNG trade is difficult to sanction especially when the sanctions
are formally considered to be illegal. On the other hand one has to note that
sanctions will increase the world price and the sanctioning country will have
to pay for it. In other words when the US sanction oil or gas of Iran it may
result to the increase of gasoline price inside the US and the people of
America should pay for those policies. Sanctions of gas when it is a pipeline
gas will be even more difficult as the stakeholders are either two or only a
few and they cannot easily withdraw from the trade between each other. The case
of Europe and Russian gas pipeline is a good example whereas the EU sanctioned
Russia over Ukraine dispute but they could not do without Russian gas.
that gas will have a big share in the global fuel mix over the coming two
decades. How much will be Asia’s share in this market and will Asian gas
producers become among major buyers in this region?
Within 20 years
and by 2040, the share of gas in the global energy mix will increase from the current
22% to 26%, which will be a big figure. Oil and coal are currently the main
sources of energy in the world, but in coming years gas and renewable will
together become the biggest source of energy in the world having around 48
percent. Meantime oil and coal consumption will decline and as I said earlier
China and India will account for 40% of global gas demand by 2040. Furthermore,
gas consumption in South Asia will grow significantly and will be almost
tripled. The interesting event which will happen up to 2040 is that Southeast
Asian nations like Vietnam and Bangladesh will see their economic growth and
per capita income triple to reach today‘s level of East Europe. That would be
something about $15,000 which indicates higher gas consumption. But as for the
Asian gas producers, I must say that Malaysia, Indonesia and Brunei Darussalam
will remain to be medium size producers and will be able to remain in the export
market even for a meager share.
18% share of global gas deposits, how much do you think Iran’s share of global
gas trading will be in 20 years?
question depends on Iran’s gas export strategy in coming years. But from an
expert point of view, I should say that if we intend to use gas as a strategic
factor for our development that would also serve us as a point of strength in
the international market we have to put into operation the Iran LNG project and
seriously focus on it and complete the project anyways. By this project we will
establish ourselves as an LNG producer and exporter. Then we may gradually
expand Iran LNG capacity or/ and define new LNG projects and raise our share of
LNG trading. I believe we should create a condition by which we may define LNG
project like those previous ones (Persian LNG and Pars LNG) with new big
capacities. I do not see an exaggeration if we plan for LNG exports up to 50
million tonnes within 20 years. Then we can have a very good share in the
Europe and Asia markets. Of course one of the big challenges we face today in
Iran is the high consumption of gas domestically. The growth for gas demand is
so high and sometimes it has reached something between 9 to 12 percent in some
years. This will be definitely preventing Iran from exporting. Therefore one of
the pre-requisites for exporting gas is to curb the growth of gas demand
present circumstances, do you think that Iran will continue to attractive to
We need foreign
partnership and investment for many of our projects and we have to make
necessary international arrangements to attract foreign investment and win
foreign partnership. As far as Iran’s present circumstances and US sanctions
against Iran are concerned I believe that Iran should make a new plan to
attract investments and technologies that will be made available to us by some
companies who do not have US exposures. In LNG if we seriously pursue the completion
of our Iran LNG, I am pretty confident that markets will be found for our small
amount with not much difficulty. We should not forget above all that Iran
remains to be very attractive place when it comes to the yield of investments.
This is a very significant factor in deciding on investment.
Do you mean
that companies with no business with the US would face no restrictions in their
economic cooperation with Iran?
Yes, that’s it.
I reiterate that the US has walked away from the JCPOA illegally and intends to
impose sanctions against Iran in violation of all norms of international
conduct. Therefore, any country willing to do business with Iran will be
subject only to extraterritorial sanctions. Therefore countries are free to go
along with the US or to refuse to do so. But we should not think that all
companies in the world will be following US policies. Several weeks ago I
attended a conference where a number of European companies with no business in
the US said they would not like to cut cooperation with Iran. These companies
have no interest in the US, nor do they fear American threats.
Of course we
should acknowledge the fact that under conditions of sanctions many foreign
companies with interests in the US or fearing American threats would quit Iran,
but there are companies that would stay in Iran without any fear. Now we have
to support the condition that would encourage them to do business with Iran
without having any fear from American bullying policy.
Negar Sadeqi and Roya Khaleqi