Interruptions and Price Revisions in Iranian-Turkish Natural Gas Trade 2001-2014

Asst. Prof. Süleyman ELİK
30 September 2014
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According to the BP Statistical Review, Iran has 33.1 tcm of natural gas reserves, which make it the second largest gas after Russia in the world.  Two thirds of these reserves are located in non-associated fields and have not as yet been developed due to international economic sanctions and the vulnerable nature of the Iranian economy.  The inefficient use of natural gas is a big problem for the Iranian natural gas sector. For instance, Iran produced 151.8 bcm but its consumption was 153.3 bcm. In 2011, Iran exported only 8.4 bcm to Turkey and 0.7 Bcm to Armenia.

Despite Iran’s immense reserves, it is a net importer of natural gas. The main reason behind this contradiction is due in large part to the international economic sanctions imposed by the US and other Western countries, weakening Iran’s entrance as a major supplier into the international gas market. The recent nuclear negotiations between six great powers and Iran has increased the hope that there is a possibility of access to Iran’s natural gas for the international energy market.

In order to cope with international sanctions, Iran has looked toward closer cooperation with firms from the East such as in India, China and Pakistan, in order to increase market diversification. On the one hand, Iran’s “buy-back” contract scheme is considered insufficient for upstream foreign direct investment, whereby foreign firms hand over their operation of the fields to the National Iranian Oil Company (NIOC) post development, against payment from natural gas production designed to cover their investment.   Iran is now at a new stage in its contract management, termed the Iranian Gas Contract, which is under preparation by Rouhani’s government. It is said that the new contract will attract foreign direct investment, especially Western companies to the Iranian gas sector.

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