UKRAINE IN QUEST FOR IRANIAN GAS
by Vladimir Socor
Eurasia Daily Monitor — The Jamestown Foundation
Wednesday, July 27, 2005 — Volume 2, Issue 145
Ukraine’s National Security and Defense Council Secretary, Petro
Poroshenko, and Naftohaz Ukrainy chairman Oleksiy Ivchenko paid
little-noted visits to Iran on July 12-14 and July 24-25,
respectively. The visits in quick succession evidenced Kyiv’s sense
of urgency about reducing its dependence on Russian energy supplies,
as well as its medium-term ambition to increase Ukraine’s role as an
energy transit corridor to European Union countries.
Poroshenko and Ivchenko held talks with Iran’s Oil Minister Bijan
Namdar-Zanganeh and Deputy Oil Minister Hadi Nejad-Hosseinian.
Poroshenko was also received by Iran’s newly elected President Mahmud
Ahmadinejad. Poroshenko and Ivchenko recalled that President Viktor
Yushchenko had in 2000, while prime minister, initiated discussions
with Iran for energy supplies to Ukraine. Prime Minister Yulia
Tymoshenko has also spoken more than once recently in favor of
discussions with Iran for oil and gas supplies as a national
priority of Ukraine.
The Tehran meetings discussed options for delivery of Iranian natural
gas to Ukraine and farther afield into Europe. Three possible transit
routes were considered: a)
Iran-Armenia-Georgia-Russia-Ukraine-Europe; b)
Iran-Armenia-Georgia-Black Sea-Ukraine-Europe; and c)
Iran-Turkey-Black Sea-Ukraine-Europe. The South Pars field in
southern Iran is the likely source of the gas.
Under any of these versions, Iran would finance the pipeline
construction on its own territory. Presumably, this would enable the
countries participating in such a project to steer clear of violating
the Iran-Libya Sanctions Act of the United States, which penalizes
any sizeable foreign investment in energy projects on Iran’s
territory.
It was agreed during these meetings to form expert groups, exchange
information on feasibility of projects, identify participant
companies and the shape of a possible consortium, select a transit
route, make preliminary calculations on investments, determine
volumes of gas for delivery to Ukraine and EU countries, and set
prices for the amortization period.
A six-party meeting among the aforementioned countries has been
scheduled to be held in September in Tehran. Meanwhile, Ukraine
proposes moving ahead bilaterally with Iran to select a transit
route. Ukraine and Iran can then invite other countries to
participate, depending on the choice of route. Ukraine and Iran are
tentatively considering volumes of 20 to 30 billion cubic meters of
Iranian gas for use in Ukraine and another 20 billion cubic meters
for transit via Ukraine to European Union countries.
Each of the three transit options poses daunting problems. The route
out of Iran through Armenia will probably be opposed by Gazprom. The
Russian company will certainly defend its position in Ukraine and
Europe. The Kremlin has ample means to pressure Armenia to act as a
buffer, rather than as a conduit for competing gas. Moreover, it is
Gazprom policy at present to restrict access of Iranian gas in the
South Caucasus as well. At Moscow’s insistence, the Iran-Armenia gas
pipeline now under construction will have a small diameter, so as to
keep its throughput capacity to a minimum, supplying only part of
Armenia’s needs, and precluding transit. Should Moscow eventually
relent, or Armenia act independently, then the pipeline should
continue via Georgia to the port of Supsa, and from there on the
Black Sea floor to Feodosia in Crimea.
The route out of Iran through Turkey seems less subject to Russian or
other strong-arm political interference. Moreover, an Iran-Turkey gas
pipeline already exists, running westward, and is being underutilized
because the Turkish gas market is oversubscribed. Turkey considers
buying Iranian gas in order to resell it to European countries, but
Tehran is only interested in Turkish transit services for Iranian gas
to reach Europe. Laying a pipeline north-westward across mountainous
Anatolia to the Black Sea coast, and then a seabed pipeline to
Crimea, is a proposition that investors will receive with great
caution.
Construction of a large-capacity transit pipeline through Ukraine
will then be necessary in any case, as there is no spare capacity
in Ukraine’s existing gas pipelines. Ukraine’s Fuel and Energy
Ministry has drawn up a preliminary plan for construction of a 60
billion cubic meters a year pipeline, at an estimated cost of $5
billion.
Iranian gas is high-priced already at the country’s border, as
Armenia has learned. If Tehran does not lower the price, and when
inordinate transportation costs are added, Iranian gas might price
itself above Ukraine’s paying ability and out of competition on
European markets.
(Iran Daily, July 16; IranMania, July 17; Interfax-Ukraine, July 15,
25; Mediamax, July 26; Kommersant, July 27)
–Vladimir Socor