Iran Seeks to Undermine U.S. Energy Plan for Europe

BAKU, Azerbaijan – Iran plans to import more oil and gas from Central Asia as it seeks to undermine a U.S.-backed project to build pipelines from the Caspian Sea to Europe.

Iran intends to build its own energy link from Kazakhstan and Turkmenistan to rival a U.S.-supported web of pipelines, Mahmood Khaghani, director of Caspian Sea affairs in the Iranian Oil Ministry, said in Baku, Azerbaijan, today.

The U.S., at loggerheads with Iran over its nuclear program, supports plans for a pipeline system that would link Turkmenistan to Turkey as a way to lessen Europe’s dependence on Russian natural gas. Iran is responding by pushing the expansion of an existing link it has to Turkmenistan, which holds the second-largest gas reserves in the former Soviet Union.

“Iran will do anything to kick sand in the eyes of the U.S.,” said Kim Iskyan, co-head of research at UralSib Financial Corp. in Moscow.” Even if this has a small chance of being realized, it’ll throw a wild card on the table.”

Russia, Europe and Iran are all vying for the same gas reserves in Turkmenistan. Iran is urging Turkmenistan to increase volumes through an existing pipeline.

“Whatever volume Turkmenistan can afford to produce, we are ready to buy it,” Khaghani said.

Irritating the U.S.

Kazakhstan and Turkmenistan already ship oil through Iran, which is keen to expand capacity by building oil and gas links from both countries to its border, making the U.S.-backed Trans-Caspian Pipeline superfluous.

“Perhaps Iran wants some gas, but in the bigger picture they want to irritate the U.S. and Europe,” Iskyan said by telephone today.

Iran is seeking to become a refining hub for Caspian oil and gas, Khaghani said. The country also wants to build a domestic crude-oil pipeline between the Caspian Sea and its export terminals in the south.

“From the Iranian border to the Persian Gulf we’re ready to invest ourselves,” Khaghani said, without specifying an amount.

For the proposed Kazakhstan-Turkmenistan-Iran pipeline, Khaghani said Iran would invite international oil companies working in the region to help with construction.

Iran’s oil and gas industry will need to attract investmentof as much as $12 billion a year to increase output, he said.

Turkmenistan Requirement

Turkmenistan’s oil and gas industry also requires additional funding after years of underinvestment during the rule of President Saparmurat Niyazov, who died in December.

The country needs $3.5 billion just to sustain this year’s gas production target of 80 billion cubic meters, said Jennifer Coolidge, a Turkmenistan specialist at Oxford University in England. If Turkmenistan is to boost its annual gas output to 130 billion cubic meters, it will require as much as $9 billion of investment a year, she told the conference.

“Then, and only then, can we discuss pipelines in other directions,” she said, including the U.S.-backed link connecting Turkmenistan and Azerbaijan across the Caspian Sea.

Russian gas-export monopoly OAO Gazprom is counting on 50 billion cubic meters of Turkmen gas, or about 80 percent of the country’s total output last year, to help meet its export contracts to Europe. President Vladimir Putin signed an agreement last month calling for existing pipeline capacity from Central Asia to be increased by 20 billion cubic meters by 2012.

Iran wants its northern neighbor to increase annual volumes to 14 billion cubic meters, from 8 billion cubic meters now, Khaghani said. “Turkmenistan so far has been unable to meet that commitment,” he said.

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