Article & Lecture

Iranian-Armenian Gas Pipeline Sohrab Shahabi 6 April 2001
*Introduction:* The issue of Iranian Gas export to Armenia and the relevant gas pipeline has been considered since 1992-1993.The proposed gas pipeline’s length will be around 141 Km and the total cost of the project has been estimated 120 to150 million dollars, with near 60% of the cost in the Armenian side and 75% of the project cost in the Iranian side will be in local currency. However the estimation of Armenian Energy minister, Karen Golustiyan, is lower (around $96 million). The pipeline will run through the town of Megri in southern Armenia and the consortium of Russian‘s Gazprom natural gas Company, France’s Gas de France, the Armenian energy ministry, and Iran’s natural gas Company is planning to work on this project. After its construction the pipeline can supply about one billion cubic meters of gas per year to Armenia. The line also could pave the way for eventual deliveries of Iranian gas to Georgia and possibly to Europe. *The advantages of the project to Iran and Armenia:* The project would help very much Armenian with needed reliable energy sources, and reduce this country’s dependency to Russia. In the long-run Armenia may also become an important transit point for exportation of gas to Europe. While Iran, in terms of gas recourses, is the second in the world but its rank in the gas export is almost zero. Therefore, for Iran penetrating into the export gas market is important and helps Iranian economy to diversify itself by reducing its dependency on oil exportation. In order to enter international gas export market, the regional market may see as first steps. Commercially and in terms of its size the Iranian-Armenian gas pipeline, considering the Iranian gas resource, is not up to the expectation. However it is a start, and the relevant Iranian departments can earn the needed experiences and enhance their knowledge about international gas export market. The implementation of this project will send a very positive sign to Iranian-Armenian minority, and would be another indication of Iran realistic foreign policy. This project also fits in Iran’s regional policy, which is based on economic cooperation. *Why the project has been delayed?* If the Iranian-Armenian gas pipeline seems so good for both countries, why it has been delayed? To grapple with the above questions, two issues may be looked upon. 1- The position of relevant regional and non-regional power. 2- The financial aspects of the project. With regard to different powers, we may start with the easier one. Turkey and Azerbaijan will not favor such project and their overall position may be assessed as negative. Russia will not have much problem with the project in limited form, and given its present relations with Iran and Armenia it would not object, but certainly it is not one of their favorites. Judging by what has been said by the programme coordinator of the EU's representative office in Armenia, Sebastian Dubost, that the EU is planning to allocate 30m euros for the drawing up of the technical and legal documentation necessary for the construction of the Iran-Armenia gas pipeline, one may conclude that Europeans are supportive of the project. They wish to see progress on Iranian-Armenian “Gas for Power Project”, leading to decommissioning of the environmentally unsafe nuclear power plan, which is high on the EU regional agenda. The United States’ position would not be positive. They will see the project in conflict with their policy in Iran and their imposed sanctions. They may also not wish to irritate Turkey and Azerbaijan. In the other hand Americans would like to see the extension of the gas pipeline to Georgia. Such pipeline would reduce the vulnerability of Georgia and it would enhance the energy security of the country which is vital for the stability of Georgian Gov. The American position may also be softened due to the work of an effective Armenian lobby in the U.S. The project technically is in magnitude, which can be done by Iranian Co., and its Iranian portion can be financed locally or through some regional banks. Therefore in this way, the project could maneuver around the sanction’s difficulty. Consequently, even the position of Americans is negative, but there is a good chance to find sympathetic audiences on this project in Washington. Thus it is true that the project is not facing a hospitable regional and international environment, but it also not confronting unsolvable problems. As far as financing and the price of gas is concerned, there have been suggestions that the project may operate by private consortium. Such arrangements shall remove some of the NIOC’s concern, and NIOC resources will be free for the project with higher priority for them. But the gas price issue needs further work. Armenians apparently receiving the gas from Russia not in international price, and they are in debt to Russia for the supplied gas. Then how they are going to pay for Iranian gas? In the latest development it seems there has been suggestions that they may pay by supplying electricity to Iran. This is an area that trilateral cooperation between Iran, Armenia and Europe may still create better solution.

Iranian-Armenian Gas Pipeline
Sohrab Shahabi
6 April 2001

Introduction:
The issue of Iranian Gas export to Armenia and the relevant gas pipeline has been considered since 1992-1993.The proposed gas pipeline’s length will be around 141 Km and the total cost of the project has been estimated 120 to150 million dollars, with near 60% of the cost in the Armenian side and 75% of the project cost in the Iranian side will be in local currency. However the estimation of Armenian Energy minister, Karen Golustiyan, is lower (around $96 million). The pipeline will run through the town of Megri in southern Armenia and the consortium of Russian‘s Gazprom natural gas Company, France’s Gas de France, the Armenian energy ministry, and Iran’s natural gas Company is planning to work on this project. After its construction the pipeline can supply about one billion cubic meters of gas per year to Armenia. The line also could pave the way for eventual deliveries of Iranian gas to Georgia and possibly to Europe.

The advantages of the project to Iran and Armenia:

The project would help very much Armenian with needed reliable energy sources, and reduce this country’s dependency to Russia. In the long-run Armenia may also become an important transit point for exportation of gas to Europe.

While Iran, in terms of gas recourses, is the second in the world but its rank in the gas export is almost zero. Therefore, for Iran penetrating into the export gas market is important and helps Iranian economy to diversify itself by reducing its dependency on oil exportation. In order to enter international gas export market, the regional market may see as first steps. Commercially and in terms of its size the Iranian-Armenian gas pipeline, considering the Iranian gas resource, is not up to the expectation. However it is a start, and the relevant Iranian departments can earn the needed experiences and enhance their knowledge about international gas export market.

The implementation of this project will send a very positive sign to Iranian-Armenian minority, and would be another indication of Iran realistic foreign policy. This project also fits in Iran’s regional policy, which is based on economic cooperation.

Why the project has been delayed?

If the Iranian-Armenian gas pipeline seems so good for both countries, why it has been delayed? To grapple with the above questions, two issues may be looked upon.

1- The position of relevant regional and non-regional power.

2- The financial aspects of the project.

With regard to different powers, we may start with the easier one. Turkey and Azerbaijan will not favor such project and their overall position may be assessed as negative. Russia will not have much problem with the project in limited form, and given its present relations with Iran and Armenia it would not object, but certainly it is not one of their favorites. Judging by what has been said by the programme coordinator of the EU's representative office in Armenia, Sebastian Dubost, that the EU is planning to allocate 30m euros for the drawing up of the technical and legal documentation necessary for the construction of the Iran-Armenia gas pipeline, one may conclude that Europeans are supportive of the project. They wish to see progress on Iranian-Armenian “Gas for Power Project”, leading to decommissioning of the environmentally unsafe nuclear power plan, which is high on the EU regional agenda. The United States’ position would not be positive. They will see the project in conflict with their policy in Iran and their imposed sanctions. They may also not wish to irritate Turkey and Azerbaijan. In the other hand Americans would like to see the extension of the gas pipeline to Georgia. Such pipeline would reduce the vulnerability of Georgia and it would enhance the energy security of the country which is vital for the stability of Georgian Gov. The American position may also be softened due to the work of an effective Armenian lobby in the U.S. The project technically is in magnitude, which can be done by Iranian Co., and its Iranian portion can be financed locally or through some regional banks. Therefore in this way, the project could maneuver around the sanction’s difficulty. Consequently, even the position of Americans is negative, but there is a good chance to find sympathetic audiences on this project in Washington.

Thus it is true that the project is not facing a hospitable regional and international environment, but it also not confronting unsolvable problems.

As far as financing and the price of gas is concerned, there have been suggestions that the project may operate by private consortium. Such arrangements shall remove some of the NIOC’s concern, and NIOC resources will be free for the project with higher priority for them. But the gas price issue needs further work. Armenians apparently receiving the gas from Russia not in international price, and they are in debt to Russia for the supplied gas. Then how they are going to pay for Iranian gas? In the latest development it seems there has been suggestions that they may pay by supplying electricity to Iran. This is an area that trilateral cooperation between Iran, Armenia and Europe may still create better solution.