EU is emerging a plan to import natural gas from Iran…

The European Union is quietly increasing the urgency of a plan to import natural gas from Iran, as relations with Tehran thaw while those with top gas supplier Russia grow chillier.

Two “ifs” – the removal of sanctions on Iran and the addition of some pipeline infrastructure – are not preventing EU planners preparing, a European Commission source involved in developing EU energy strategy told Reuters.

“Iran is far towards the top of our priorities for mid-term measures that will help reduce our reliance on Russian gas supplies,” the source said. “Iran’s gas could come to Europe quite easily and politically there is a clear rapprochement between Tehran and the West.”

Russia is currently Europe’s biggest supplier of natural gas, meeting a third of its demand worth $80bn a year. The EU has imposed sanctions on Moscow over the conflict in Ukraine, increasing the need for gas from elsewhere.

While sanctioned itself, Iran has the world’s second largest gas reserves after Russia and is a potential alternative given talks between Tehran and the West to reach a deal over Iran’s disputed nuclear programme.

“High potential for gas production, domestic energy sector reforms that are underway, and ongoing normalisation of its relationship with the West make Iran a credible alternative to Russia,” said a paper prepared for the EU’s Directorate-Generale for External Policies following Russia’s annexation of Crimea.

However, the paper added that Iran was not a credible alternative energy supplier in the short-term due to sanctions and large infrastructure needs before exports become viable.

Internal EU energy security documents seen by Reuters also describe plans to tap new non-European gas import sources in central Asia, including Iran.

Iran is also keen to sell its gas. “Iran can be a secure energy centre for Europe,” its President Hassan Rohani was quoted yesterday telling Austrian President Heinz Fischer in New York.

Tehran’s assertions over reliable supply are likely to ring alarm bells at Russia’s giant Gazprom, after interruptions to its exports via Ukraine in previous disputes scared Europe.

“Iran is trying to position itself in Europe as an alternative to Russian gas. It’s playing a very sophisticated game, talking with Russia on the one hand about co-operation on easing sanctions and also talking to Europe about substituting Russian gas with its own,” said Amir Handjani, an independent oil and gas specialist working in Dubai.

“Given Russia’s current strategy politically, which is one of confrontation with Europe, I see the EU having little choice but to find alternative gas supplies,” he added.

The lifting of sanctions on Iran – the game changer – is unlikely to be soon. Diplomats are pessimistic over the odds that Iran and world powers will conclude a final agreement by a November 24 deadline.

Iran and six world powers – the US, Britain, France, Germany, Russia and China – are trying to hammer out a long-term nuclear accord that would bring an end to international sanctions that have crippled the Iranian economy.

Analysts say Iran has already lost out on lucrative liquefied natural gas (LNG) exports in Asia, so Tehran has to look to Europe.

“Iran’s interest to deliver gas to Europe is very big. Parts of Iran’s economical and political elite as well as Western companies are preparing for an end of the sanctions,” said Frank Umbach, energy research director at King’s College in London.

Mark Dubowitz, of US think tank Foundation for Defense of Democracies, said Iran was looking to exploit the situation in both Iraq and Russia to get concessions out of the West on the nuclear track.

The most feasible route for Iranian gas to Europe would be via Turkey, already a customer, although the existing Tabriz-Ankara pipeline would not be big enough for major exports.

Iran has long lobbied to build a designated pipeline that would connect its huge South Pars gas field with European customers. “It’s an extremely ambitious project,” Handjani said. “Even if half of it gets built it would be major accomplishment for both Europe and Iran.”

Investors in Europe, as well as the European Commission, favour the cheaper, and politically less controversial, option of importing Iranian gas to the EU via Turkey through extended pipelines that already exist or are currently being developed.

Energy majors Total of France and Italy’s Eni have in the past expressed interest in developing South Pars, one of the world’s biggest gas fields. Independent feasibility studies show that, if sanctions were to be eased and investments started soon, Iran could supply 10bn-20bn cu m of gas a year to Turkey and Europe by the early 2020s.

Qatar PPI drops 6.3% in July, amid crude, gas price fall

An across-the-board price fall, notably in the crude and natural gas as well as utilities and refined petroleum goods segments, led Qatar to report a 6.3% decline year-on-year (y-o-y) in producer price index (PPI) in July this year, according to official figures.

The PPI for the industrial sector, which is calculated using the average of 2006 prices as base, was yesterday released by the Ministry of Development Planning and Statistics. The PPI measures average changes in prices received by domestic producers for their output.

The PPI for mining, which carries the maximum weight of 77% in the basket, shrank 6.4% y-o-y in July due to a similar decline in the price of crude petroleum and natural gas.

The PPI was seen declining 2.4% against the previous month of 2014 primarily due to a 3.2% fall in the prices for crude and natural gas.

The manufacturing sector, with a weight of 21% in the PPI basket, reported 6% plunge y-o-y in July 2014, explained by a 9.2% decline in the price of refined petroleum goods, 2.9% in basic metals, 2.2% in beverages and 0.1% in basic chemicals. But dairy products prices rose 3.8%, followed by cement and other non-metallic products (2.4%) and grain mill and other products (0.2%).

The manufacturing index rose 1.3% compared to June this year on a 3% jump in the price of dairy products, 2.1% in refined petroleum products, 0.6% in cement and other non-metallic products, 0.4% in beverages and 0.1% in basic chemicals.

The electricity and water group, which has a 2% weight in the PPI basket, saw its index plummet 4.4% y-o-y in July. Water and electricity prices fell 4.4% and 4.9% respectively. The index had fallen 0.4% against the previous month although electricity and water charges were rather unchanged.