Iran and Armenia have come to extend their economic cooperation in general and  independence in 1991. The two countries signed a general agreement on connecting the gas networks of them in 1992 and a memorandum of understanding was signed which led to a sales agreement in 1995. Since the first trilateral meeting of the energy committee between the Islamic Republic of Iran, the Republic of Armenia,and the Hellenic Republic in 1998 the gas pipeline project has been of continuous interest of the three countries and a pre-feasibility study has also been done on the project by the Hellenic side.

1-New Developments in Iran-Armenia Economic Cooperation

Iran and Armenia have repeatedly announced their readiness to further expand relations in all fields and they have recently signed an agreement for economic cooperation among which we can refer to

•  Credits given by Iran's Export Promotion Bank to the Armenian side for the purchase of Iranian goods,

•  Armenia’s initial agreement with the project for the construction of a  tunnel by the Iranian side

• Completion of an international transportation route along the Black Sea, Georgia, Armenia and Iran with the participation of the three countries as well as the Russian Federation

• Launching of a mini-bus manufacturing line in Armenia by an Iranian company

• Purchase of concentrated copper and molybdenum from Armenia  by the Iranian side

• Renovating of factories producing melamine crystals in Armenia by National Iranian Petrochemical Company

Energy matters also featured large during the meetings of senior officials of the two countries among which we can refer to the agreement on the feasibility studies of building a hydro-electric power station on the Aras River that marks the border between the two states.

At the present, the exports of Armenia to Iran is about 18.2 % of its total exports, while its imports from Iran is about 8.6% of its total imports. Table (1) presents the volume of export and imports of Iran to Armenia in 1996-99.

Table (1) – Export and Import of Iran to and from Armenia (1996-99) in U.S. Dollar

2-Energy Status in Armenia: The Scope for Bilateral cooperation

2-1-OIL
Armenia has no oil production, known reserves, or refineries, so it is completely dependent on imports of refined products. Since there are no petroleum product pipelines into Armenia, all of Armenia's imports must be transported either by railcars or trucks. Most of Armenia's estimated 5,000 barrels per day (bbl/d) in petroleum product imports comes from the Batumi refinery in southern Georgia.

While a modest amount of oil exploration within Armenia was undertaken in the mid-1990s mostly by Greek and U.S. firms, the Armenian officials announced in 1999 that exploration activity has ceased due to a lack of funds.

Armenia is highly interested that the main pipeline for oil exports from Azerbaijan to the Turkish port of Ceyhan be constructed through northern Armenia. This seems unlikely, however, due to the lack of a final resolution to the dispute over Nagorno-Karabakh, and Azerbaijani officials have stated publicly that they would not consider this idea, since the route through Georgia has already been decided. However, Iran looks into the possibility of opening a facility in Armenia to refine Iranian crude oil.

2-2-NATURAL GAS 
Armenia currently receives all its natural gas from Turkmenistan through Russian and Georgian pipeline networks. Over the past several years, these supplies have been cut off sporadically because of ethnic and civil unrest in the Caucasus, and pipeline accidents. The most recent gas crisis was in April 2000, when gas supplies were reduced and then restored in a dispute over payments. Natural gas is an important fuel in the country’s energy balance and its consumption is forecasted to grow in the future as the following table indicates:

Table (1) - NATURAL GAS COMSUMPTION FORECAST FOR ARMENIA (Billion m³)

Armenia recently has been exploring the option of using other gas suppliers, mainly Islamic Republic of Iran.

2-3-ELECTRICITY

Almost all types of stations are used to generate electric energy, including thermal power plants, hydroelectric plants, and the nuclear power plant. Currently, the breakdown is the following: 40% nuclear, 40% thermal, and 20% hydroelectric sources

All of thermal plats have exceeded their projected operating life spans, are inefficient, and require renovation. In addition, acquiring fuel for these plants remains a challenge.

Nuclear power and hydropower are Armenia's only indigenous sources of energy. Armenia has several hydroelectric plants on the Razdan River, with plans to develop additional hydroelectric projects.

Faced with an acute energy crisis, Armenia resumed operation at  its Metsamor nuclear power plant at Yerevan in late 1995. Metsamor was closed in 1989 because of seismic and safety fears and the controversial move to reactivate it was taken largely out of desperation. While European countries have pressed Armenia to close the plant by 2003, recent statements from the Armenian government have stressed that this will be contingent on the country securing an alternative source of energy

Currently, Armenia is connected with all of its neighboring countries by means of electric transmission lines. The only exception was Iran, but a 230 KV line was put into operation in 1997. This allows Armenia to import and export electric energy from and to its neighbors.

Since Iran and Armenia have linked their electric grids, this allows for power sales in both directions, driven by seasonal differences in demand between the two countries. It is said that Armenia and Iran will nearly double seasonal swaps of electricity in which they have engaged since connecting their power grids several years ago. Table (2) presents the electricity trade between the two countries in 1999-2000.

Table (2) – Electricity Trade 1999-2000 (MWH)

3-Benefits of the Pipeline for the Two Sides

It seems that the most important energy issue for Armenian government is that of securing fuel (natural gas, fuel oil, LPG, and nuclear fuel) and developing local energy resources. The latter means that hydroelectric and alternative (including solar, and geothermal) energy sources have to be developed. Sometimes, they are expensive, but they consider them to be their priorities as far as security is concerned. In thinking about routes to import fuel (gas and oil pipelines), they consider not only the Northern, but also the Southern gas pipeline. This is the reason why they are actively involved in the Baku – Ceyhan, Trans-caspian, Inogate, and other projects. They see major chances to diversify energy routes. This is why the construction of the Iran-Armenia gas pipeline has become an extremely  important issue for energy officials of Armenia. On the other hand if we look at the long distances covered by Turkmenian gas to get to Armenia, it becomes obvious why the construction of the Iran-Armenia gas pipeline is so important for Armenia.

Armenia was considered as a transit country for energy resources (namely, gas) as early as 1995, when Iran was assessing the routes it can use to export gas to Europe. Studies have shown that the European market has practically no serious competition. In other words, it will not have any major problems with suppliers of gas, because the European market is quite large and tends to get larger. In this sense, Iran is being thought of as a possible observer in the Inogate project. This is a project of the EU whose objectives is to build new routes for gas and oil pipelines to Europe. Iran is also studying these possibilities, one of which involves Armenia. Armenia is not only a direct buyer of Iranian gas but also it is a transit country for Iran-EU gas pipeline. Besides, Tehran is willing to consider sending gas to Georgia as well as Armenia. If in the future Georgia wishes to buy or serve as a transit corridor for Iranian gas, the pipeline to Armenia might be extended.

4-Main Characteristics of the Pipeline

The entire pipeline is 141 km long, out of which 100km lies across Iran territory and the rest of 41km lies within Armenia. The 141-kilometer (48-mile) pipeline should cost some 120 million dollars. The starting point of the pipeline in Iranian territory is near to Tabriz and the ending point is on the Iranian-Armenian borders.

The starting point of the Armenian pipeline is at the Iranian-Armenian borders, near Megri. The ending point of the last new pipe section is connected to the existing gas pipeline network in Ararat. Armenia will begin the construction by building a section of the pipeline between its southern towns of Megri and Kajaran.

It is likely that an international consortium -- including Russia's gas giant Gazprom, France's Gas de France, Iran's National Gas Company and Armenia's energy ministry -- be created for the building of the pipeline.

According to the schedule, the construction was supposed to start January 2001.It is expected that Iranian gas will start flowing into Armenia in 2002. Once the first phase of the pipeline is brought on line, Armenia will be able to receive 1.5 million cubic meters of Iranian gas daily, which is half the current volume of fuel deliveries from Russia. The capacity of the pipeline will increase to 4-5.5 cmpd if all of the three phases of  the project come to an end.

5-Different Viewpoints Towards The pipeline

Originally intended to serve as an alternative source of energy for resource-poor Armenia, the pipeline in question has acquired a geopolitical dimension. Armenia looks at the pipeline not just within the Iran-Armenia framework but also hope that it could be extended westwards. The two countries envisage that Armenia will not be the final destination of the gas pumped from Iran. EU energy officials now view Iran as a potentially strategic supplier of energy resources.  The European Union favors extending the projected pipeline to Georgia's Black Sea coast from where it could be shipped to Europe. Laying pipeline through the Black Sea seabed, means that it would reach Europe either through Russia or Turkey. The Russian and Ukrainian pipeline networks could be used for transit.  So Armenia may become a small portion of Iran-Europe gas pipeline which may be very important for Armenia in two respects. First, Armenia's political weight will rise and second, which is of no less importance, the availability of gas supplies may give a strong impetus to the development of domestic industry.

Aside from possibly bringing gas to Europe, the EU also probably hopes the pipeline will allow Armenia to close its Medzamor nuclear power plant.

Russia also supports the pipeline; some experts say one explanation for this support is that Russia may not want to increase its own deliveries of gas to Armenia and risk Armenian debts piling up. If Medzamor shuts down, Russia would have to supply more gas unless some of the sourcing could be shifted to Iran. The Russian interest also suggests another possible explanation. It could deal a blow to the Trans-Caspian pipeline project advanced by the United States. The U.S. effort to pump natural gas from Central Asia and Azerbaijan to international markets ran into trouble last year as Turkmenistan began dragging its feet. The Iranian pipeline would give the Turkmen’s a new avenue for exporting their vast hydrocarbon resources.

Meanwhile, the U.S. remains opposed to the Iran-Armenia project claiming that it's a mistake to depend on Iran for energy resources -- whether it's oil or gas.

6-Challenges Against the Pipeline

One sticking point to the development of the project is the price of gas, which is higher than what Armenia pays for Russian gas deliveries. Our viewpoint is that Yerevan and Tehran will agree on it after the pipeline is brought on line. But Armenian officials once declared that the pipeline's construction will not start until the price dispute is resolved. Unfortunately, It seems that the meeting of the Armenia-Iran commission has produced no agreement on the issue and negotiations are still going on. Armenia argues that it has the CIS market, and pricing should be determined in accordance with this market. However we believe that  there is not a globally recognized price for gas. The Commonwealth of Independent States has their own price for gas and Europe has its own, too. The price of Iranian gas to Armenia should be finalized during the negotiations.

7-Recent Developments in the Construction of The pipeline

A senior Armenian official has recently declared that construction of the pipeline would begin this year hoping that it would be completed in the shortest possible time. He has announced that a consortium to build the pipeline is planned among Russia's Gazprom natural gas company, France's Gas de France, the Armenian energy ministry and Iran's national gas company.

On the other hand European Union plans to assign 30 million Euro for preparation of technical and legal documentation for the project of the Iran-Armenia gas pipeline construction.  European Union approves the project although it argues that highly paid lawyers will be required for preparation of its legal documentation; However, it is ready to bear these expenditures. There are two main routes for exporting Iranian gas to Europe; Iran-Turkey-Greece and Iran-Armenia-Georgia-Ukraine. It is noteworthy that the European Union gives preference to Iran-Armenia-Georgia pipeline, because European Union has some concerns regarding the safety operation of the Armenian nuclear power plant. If the Iran-Armenia gas pipeline is constructed Armenia will have an alternative source for energy generation to meet its demands.

On the other hand, Gazprom has declared that is prepared to supply pipes and the requisite equipment to build a gas pipeline between Iran and Armenia. The supplies are expected to cover 60% of the total project cost. Meanwhile, Mitsubishi has also expressed its interest in the project. Russian, Iranian and French companies have already signed on to the project, and a major Chinese gas company has recently indicated its interest in the project. Finally, French and Greek investors have also decided to help financing the project.

8- Concluding  Remarks

Iran-Armenia gas pipeline is a rational choice and a necessity for the region. It is beneficial for both countries and can be a reliable route for the export of Iranian and Turkmen gas to Europe. Armenia can boost its economic and industrial development through utilizing this pipeline and strengthen its political stability and position as  a player in the international energy transmission structure. It can also get rid of its environmentally threatening nuclear plant. The pipeline can also be beneficial to Georgia and EU. The relatively low cost of the project and the support of Europe and Russia to this pipeline have made its future highly promising. We expect that Iran’s gas will flow to Armenia in the near future and to Europe in the later stages.