Out of gas in Iran
Iran’s decision to develop the ONGC Videsh-discovered Farzad-b gas field has made India one of the losers in the energy politics of West Asia
The setback at the Farzad-b gas field in Iran has raised the stakes for India in the operation of Chabahar Port, located in the south-east of Iran on the Gulf of Oman. Last week, after chasing India to develop the field for 13 years, Iran announced that it will develop the offshore gas field, which runs along the country's maritime border with Saudi Arabia, cutting off India’s ONGC Videsh (OVL)'S hopes of landing the lucrative contract.
Farzad-b’s recoverable reserves are about half of total reserves of India, so that made it a big deal. Having led the consortium that discovered the field, state-owned OVL has been chasing the deal despite the two US sanctions on Tehran.
The two berths at Chabahar Port now remain India’s only major investment in the West Asian country. India has a tenuous 10-year lease for those berths of which three are almost over. Also, as India raises the usage of natural gas to 15 per cent of total energy usage, minus Farzad-b, the gas import basket will be even more concentrated with just one country, Qatar — Iran’s closest friend in the Gulf. Doha now meets more than half of India’s gas imports. Unlike oil, which just needs a container to transport, gas needs a concentrated infrastructure of suitable ports with facilities for a range of liquefaction vessels to be shipped since pipelines across oceans make it difficult for the supercooled gas to travel. There are no major competitors to offer matching levels of supply to India. Russia, the largest global producer, sends almost its entire gas to Europe; Saudi Arabia and UAE have developed major facilities to process their gas and can’t spare any more.
The Indian government was aware of these challenges but has found it immensely difficult to balance between US demands to accept sanctions on Iran and keep Iran interested in the OVL contract. With Iran having restarted negotiations with Europe to lift sanctions since the Biden administration is keen on renewing the nuclear deal with Tehran, India is clearly one of the losers in the energy politics of West Asia.
India’s problems are its aversion to link realpolitik with its quest for energy security as far as fossil fuels are concerned. In the treacherous sands of West Asia, it is money or muscle power that keeps oil and gas flowing. India has been short on both.
It has also been surprisingly squeamish about calling Iran’s bluff on pricing. Natural gas has plenty of grades. The better ones with high recoverable percentages of ethane, propane and butane lend themselves to use in high value-added fuels such as automobile fuel, piped gas for cooking and a range of petrochemicals. The lower quality natural gas with high methane concentration, referred to as sour grade, is mostly used as fertiliser feedstock. Farzadb, despite its size, falls in the latter category.
The pricing of this gas cannot be at par with the better quality ones, yet Iran has insisted on it being treated at par with the gas India ships from Qatar. This has been one more reason the price for the extraction from the field could never be settled amicably between the two. In 2017, when OVL offered a $11-billion plan (revised from the original $6.2 billion) to develop the field along with an export facility, Iran argued that the offer priced the gas from Farzad-b too cheaply.
India’s problems are also compounded because despite the two countries almost sharing land borders, they do surprisingly little business with each other. Of the $17 billion of trade between the two in FY19, the last “normal”, ie pre-covid-19 year, almost three-fourth was oil. Despite holding possibly the largest gas reserves in the world, Tehran does not export a single cubic foot to New India. So New Delhi has few leverages to wield.
Iran had been issuing ultimatums since 2012 to OVL to begin work on the giant gas field. India did put in $100 million initially but the first US sanctions brought work to a stop. Once the Us-led alliance lifted the sanctions on Iran in 2015, India signed a revised deal for development of the field, but by 2018 as fresh sanctions were imposed, work stopped again. OVL did itself no good by scarcely moving on the project in the three-year interval between 2015 and 2018. Last year, Iran made it clear India was out of the project. By awarding the development rights of the project to Petropars, a stateowned upstream domestic company, to produce 10.22 billion cubic metres of sour gas from eight wells over five years, the Iranian regime has now drawn down the curtain on the project for India, making it clear that it is annoyed with India for having supported the sanctions.
Early this year, India discovered it can use its clout as the third-largest buyer of oil to bring suppliers to heel. It cut supplies from OPEC by 2 per cent, helped not a little by the second Covid-19 wave. It might need to use such strengths again to renegotiate with Iran over Chabahar, where China is waiting for India to drop the ball to wrest the port and neutralise the risk to nextdoor Gwadar Port, Beijing’s joint venture with Pakistan.
Last year, Iran approved the integration of Chabahar Port with a free zone operating in the area along with plans for opening a branch by an Afghanistan bank. These are the right steps for India Ports Global, a state-owned special purpose vehicle to participate in the Chabahar Port development project, to ramp up its activities, since it started operations from two berths at the Shahid Beheshti Port from December 2018. So far the company, which was incorporated in 2015, has invested $85.21 million in the port out of a proposed $500 million, and India cannot let this money sink like the gas deal. India has secured rights for its navy to call at Changi Naval Base in Singapore, Assumption Island in Seychelles and Duqm port in Oman, but crowning them all is Chabahar. The closure of the Farzad-b chapter must not destroy this ring.
In the treacherous sands of West Asia, it is money or muscle power that keeps oil and gas flowing. India has been short on both