The historic deal between Iran and the P5+1 group (the US, France, the UK, Russia, China and Germany) has several oil majors and refiners considering the impacts of new Iranian crude hitting the global oil market.
“As soon as Iranian oil becomes available, we will certainly start buying again. Motor Oil was always very fond of Iranian crude,” said Loukas Tripelopoulos of Motor Oil Hellas SA, Christian Science Monitor reported.
The removal of international sanctions would be a game changer for Iran, which has the world’s largest natural gas reserves and the fourth-biggest proven crude oil reserves.
Going by a recent report from Fitch, Iran has close to 34 trillion cubic meters of natural gas, which is around 18% of the total global natural gas reserves. This means that Iran definitely has the potential to become a major player in the natural gas market once the sanctions are lifted.
In spite of the western sanctions, Iran’s natural gas production grew in 2014, as another phase of its largest natural gas field, the South Pars, went on line.
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Although Iran has the largest global natural gas reserves, it contributes merely 1% to the total global natural gas trade with almost 90% of its natural gas exports going to Turkey, while the remainder goes to Armenia and Azerbaijan.
Iran is at a strategic location where it can benefit from the growing natural gas demand from Asian countries like India, China and Pakistan. It is, therefore, planning a number of gas pipelines once the sanctions are lifted.
One possible outcome of the deal is the potential for Iran to play an important role in the EU’s future energy security, as it could potentially join the 16 bcm Trans Anatolian Pipeline (TANAP) that would run from Azerbaijan through Turkey and Greece before connecting with the Trans Adriatic Pipeline (TAP). That could allow Iran to export natural gas to Western Europe.
TANAP is projected to start delivering natural gas in 2020 and Iran could use this pipeline network for gas exports, although it will require the construction of infrastructure, such as gas compression stations. The buildout in infrastructure could mean that Iran does not export gas to Europe for another decade.
A recent study made by Carbon Tracker Initiative found that there could be LNG assets worth $283 billion that might not be needed over the next decade.
It stated that the majority of LNG projects that would survive were the ones that have already been built or are under construction and there would be little opportunity for greenfield LNG projects.
“Iran could become a large gas exporter by the end of this decade at the earliest. Developing LNG capabilities is more costly and would probably take longer, but we do not expect Iran to export large volumes of LNG before mid-2020s,” said Fitch.
Infrastructure constraints currently present an enormous obstacle to large-scale exports, but those could be overcome with enough investment. Regional markets, such as India, Iraq and Pakistan, present the most promising market for gas exports in the medium term, but even Europe is not out of reach in the longer-term.
With a historic nuclear deal in hand, Iran might just change the dynamics of the global oil and gas sector in the coming decade.