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David Fiderer

David Fiderer

Posted: April 11, 2008 07:35 PM

Money Talks. It Says: "We Like Iran!" (Part 2)


The $30 billion deal between the Swiss utility EGL and Iran's national gas company is part of a truly multinational effort. EGL and Norway's StatoilHydro are building a new pipeline that will ship Iranian gas taken from Turkey, through Greece, and Albania, under the Adriatic and into Italy, to fuel power plants that generate electricity transmitted across the Swiss border. Iran is open for business, and western countries are lining up to secure resources for their energy security. Other US allies, such as Turkey, India, and Pakistan, long ago dispensed with any pretense of humoring White House attempts to freeze out foreign investment in Iran's resources. (See Money Talks. It says: "We like Iran!".)

In Turkey, Iran's gas has fueled the engine for economic growth. Since 2000, Turkey's GDP has grown by 80%, while its consumption of natural gas has grown by over 50%. In 2006, Turkey piped in fifty-six billion cubic feet of gas from Iran. The BP Statistical Review of World Energy shows a similar trend among all emerging markets, where gas consumption increased by 50% since 2000. (During the same period oil consumption increased only 23%.)

For developing countries seeking to expand their electric power grids, and for anyone concerned about global warming, natural gas is the fuel of the future. A gas-fired electric power plant, which is essentially a jet engine bolted to the ground, has an upfront capital cost less than half that of any other alternative. Gas fired plants have greater operating flexibility, are more reliable, and may be expanded on a modular basis. And they are relatively clean. According to a new McKinsey study, Germany expects to reduce annual CO2 emissions by 18 millions tons by substituting gas-fired generation over coal and lignite.

Gas can be imported by pipeline, or, at more than triple the cost, it can be imported as liquefied natural gas via ships with special pressurized tanks. If you remember the end of the movie Syriana, the ship that was blown up was an LNG tanker.

Russia and Iran hold about 50% of the gas reserves located within Europe, the Middle East and Asia. Qatar holds another 16%. After that, no other country or region comes close. Hopes for major gas finds in Saudi Arabia have been vanquished. Our Persian Gulf allies, Oman, Bahrain and the United Arab Emirates, whose gas reserves approximate those in the North Sea, expect to be net importers of Iranian gas in the coming years.

To meet future demand, many tens of billions of dollars will need to be invested in drilling and exploration. While both Russia and Iran pose challenges to western oil companies, Iran appears to be more attractive in several respects. First, Putin's government has a habit of shaking down private companies, forcing them to sell their investments to his friends at fire sale prices. The sagas of Yukos, Shell's Sahkalin project and now TNK-BP, demonstrate an undeniable trend. Second, Iranian gas is cheaper to extract and transport, compared to Russian gas, which is mostly in Siberia.

To the extent they can, European countries seek to diversify their gas supply beyond Russia. The US wants its allies to secure gas from former Soviet states along the Caspian Sea, and to freeze out Iran. But Putin, who regrets the breakup of the Soviet Union, has secured deals with his neighbors to make sure that Russian pipelines remain the primary gateway for gas headed to Europe.

The US, along with its European allies, have been pushing the Nabucco Pipeline project, dubbed by the Wall Street Journal Europe as the Maginot Pipeline, as an alternative to Russian gas. But, as executives of Total and others have pointed out, that pipeline makes no sense unless it is used to ship Iranian gas.

Part of Iran's strategy for decreasing domestic gas consumption and increasing exports is its reliance on nuclear power. From a strictly economic and business perspective, Iran's plan for building a nuclear power plants makes perfect sense, as it did when Iran first began developing nuclear power plants in the 1970s when the Shah was in power.

Enriching nuclear fuel is another matter. The same technology and equipment used for fabricating fuel for a power plant is also used, at a much more sophisticated level, for enriching nuclear weapons-grade uranium. As the Christian Science Monitor noted last year, if Iran continues the pretense that it is enriching uranium only for peaceful purposes - as Brazil, Japan and Germany do - it may remain in compliance with the Nuclear Proliferation Treaty.

The odds that Iran will use its newly acquired expertise to develop a weapon look pretty strong. But the evidence also shows that Iran has consistently acted out of rational concern for its own interests. Consequently, many of our allies, who see Israel as a counterbalance to a nuclear Iran, feel comfortable doing business there.

The US, which has squandered its diplomatic credibility, its treasury and its military strength, is becoming more and more marginalized.