Iran uses energy diplomacy to shore up regional alliances

Energy is the "very significant" focus of the trip by President Ebrahim Raeisi to Qatar to attend a regional gas conference and boost political and trade relations with Persian Gulf countries. 

"Iran is one of the founders of the Gas Exporting Countries Forum (GECF) because we are among the three most important gas producing and exporting countries," President Raeisi said Monday.

This is Raeisi's fourth foreign trip since taking office in August last year and the first by an Iranian president to Qatar in eleven years. The president has so far visited Tajikistan, Turkmenistan and Russia.

Iran and Qatar share the world's largest known gas field, which each country has developed over years. While Qatar is the world's largest exporter of liquefied natural gas (LNG) and a world leader in gas-to-liquids (GTL) production, Iran's LNG plans have been in a state of flux amid US-led sanctions.

Meanwhile, most of Iran's natural gas production is consumed domestically, leaving little for export. The country has faced gas shortages at home because of record high consumption particularly for winter household heating and has had to cut supplies to cement plants and other industries.

According to experts, until correct policies are implemented in the domestic energy supply and the gas consumption pattern is reformed, it is necessary for Iran to take advantage of the opportunity of swap or transit of Qatari gas to its neighbors with the aim of upgrading its position to the regional gas hub.

In January, Iran and Azerbaijani began implementing an agreement to swap the Turkmen gas, with experts saying it would strengthen the Islamic Republic's role in the energy equations of the Caspian region.

Iran has major natural gas fields in the south, but has imported gas from Turkmenistan since 1997 for distribution in its northern provinces, especially during the winter.

The trade allows Iran to consume the imported gas in the country's north and export an equivalent amount at a higher price to neighboring countries.

The swap deal marked the first step in efforts that began 25 years ago to turn Iran into the center of gravity and a gas hub in the region, Narsi Ghorban told the ministry of petroleum's Shana news agency at the time.

"Iran, due to its geographical location, can receive gas from producing countries and deliver it to the countries that have gas shortages on the other side of the border. With this, Iran will turn into a major gas transmission conduit in the region," he said.

Senior energy expert Gholamhossein Hassantash says using Iran's vast area for swaps, transit and facilitating transportation of neighboring countries is an economically positive move that will help strengthen political relations and reduce regional tensions.

"Such agreements are in the interests of both foreign policy and the energy sector," he said.

Qatar plans to increase its gas export capacity in the coming years, while a number of the county's important gas contracts will expire between 2021 and 2025.

This is important because according to a research by Iran's parliament, LNG exports are mainly economically justified for distances of over 6,000 km and pipelines are more economical for lower distances.   

However, Qatar also exports its gas in the form of LNG on ships over short distances to the regional countries, including Iran's neighbors. As a result, there is an opportunity for cooperation between Iran and the countries of the region to pipe Qatari gas through Iran under swap or transit deals. This would strengthen Iran's trade relations with Qatar and other countries, in addition to creating a safety threshold in domestic gas supplies.

"This is a win-win game for Qatar and Iran," Mohammad Mehdi Alizadeh, an energy expert, told Fars news agency.

"Exports of gas over short distances in the form of LNG as being uneconomical would incentivize Qatar to use the Iranian pipeline network and increase its profits," he said.

"On the other hand, Iran can use this opportunity to create more gas solidarity between countries and strengthen its position as a gas hub in the region in addition to gaining economic advantage."

The staggering consumption by Iranian households uses up 80% of the natural gas extraction capacity at the country's fields.

The reasons for high gas consumption in Iran can be traced to the problems in energy policy and disregard for the implementation of optimization projects which have not only taken away the possibility of sustainable exports but have also led to periodic gas outages.

As a result, until major reforms are made in the way gas is consumed domestically and surplus gas is created for export, Iran can develop regional markets by using other countries' gas. Hence, the Qatari gas swap through Iran can be part of this puzzle.

Another area in Iran's energy diplomacy is linking its power grid to the regional networks. The connection of Iran-Qatar power grids in order to improve their reliability has been on the agenda since last year.

On Monday, Qatar and Iran signed 14 memoranda of understanding in the fields of aviation, trade, shipping, media, cancellation of visa requirements, electricity, standards, education and culture.

"We have today expanded our cooperation in the fields of the economy, energy, infrastructure, culture and food security," President Raeisi said.

"We view this visit as a step towards activating diplomacy with neighbors, especially Persian Gulf countries, and to use their capacities to develop political and economic ties," he said, adding Iran was "seeking change in regional relations" around cooperation and interaction.

The Iranian president traveled to Qatar with five cabinet ministers, including the foreign and energy ministers.

According to Iran's roads and transport minister, Rostam Qasemi, four agreements would be signed between the two countries.

Two of the other agreements deal with shipping and boosting maritime trade while the fourth one relates to improving air travel between the two countries.