Tehran not interested in starting آ‘LNG Price Warآ’

Vol 8, PW 3 (05 May 04) People & Policy

Cornering even a slice of a major energy-starved market like India is certainly a mouth-watering prospect for a gas-surplus country like Iran.

Particularly when it feels compelled to export as much of its gas as possible in the shortest possible time to catch up with Qatars frenetic exploitation of the South Pars gasfield. India knows of Irans compulsions and is trying to get the best price possible from Tehran.

But Iran says it will not be pushed beyond a certain point. NIGEC managing director Javadi stresses that Iran will not undercut other LNG suppliers for the Indian market.

We do not want to get into a market through a price war, he said. We prefer not to enter such a market.

A price war kills all suppliers and even the buyer will suffer. Irans petroleum minister Bijan Zanganeh repeated this during his speech to inaugurate the gas conference on 25th April.

The price paid to producers is one of the most important elements for investment and development of infrastructure and these prices must be attractive. He adds that Iran is looking for, guaranteed markets and suitable prices for its gas reserves which, he reminded us, are 18% of the worlds natural gas reserves, five times that of North America, four times that of Europe, three times that of Asia Pacific and half of Middle East gas reserves.

Zanganeh worries that Irans gas export plans, like those of other producer nations, could experience difficulties if consumers drive too hard a bargain on price. His message is clear: Iran will not make a distress sale of its gas.

Javadi was even more direct. Any project in this country shall be launched only if it is commercially viable and should not mislead foreign buyers that they could pay less than the real value of gas, that is, the market price.

In an indirect reference to Qatar, Javadi said Iran is concerned about the unfair marketing practices of some LNG suppliers. Over the short term these may create better opportunities for consumers.

But long term this makes new projects uneconomical and most gas producing countries may delay their projects. This will have a negative effect on supply and consumers will bear the consequences.

Javadi said LNG projects are capital intensive. In many cases the internal rate of return is marginal (so) long term firm commitment from buyers is crucial.