Eurasia Daily Monitor
March 21, 2007 — Volume 4, Issue 56
IRAN-ARMENIA PIPELINE: CLUES TO GAZPROM’S POLICIES IN EUROPE AND ASIA
by Vladimir Socor
On March 19 Presidents Mahmoud Ahmadinejad of Iran and Robert
Kocharian of Armenia inaugurated the operations of the Iran-Armenia gas
pipeline (Armenpress, IRNA, March 19, 20). The project had received the
Kremlin’s green light. Although its scope is modest in terms of volume and
market potential, its commissioning reflects two incipient trends of
Eurasia-wide and potentially global impact, in some ways as their harbinger:
First, Gazprom’s looming deficit of gas; and, second, Russia-Iran relations
in the context of the much-discussed `cartel for gas.’
It is unprecedented for Russia to yield a part of the gas market in a
former Soviet country to a supplier from outside Gazprom’s sphere of
influence. This policy choice to de-monopolize is almost certainly not a
willing choice. It seems to reflect calculations that Gazprom may soon be
unable to meet all of its supply commitments to internal and external
markets from the almost-stagnant production in Russia.
Thus, it may make sense for Gazprom to plan a partial retrenchment
from some of its markets, if three prerequisites exist: non-lucrative supply
contracts (low-priced gas in a small market), strong Russian influence in
that country irrespective of gas dependency, and an alternative supplier
that cannot impinge on Russian interests in that country or farther afield.
All those prerequisites exist in Armenia. In such a situation, Russia
could share that country’s market with a third country, such as Iran, whose
gas export policies it hopes — with some justification — to be able to
control in the short and medium term.
In a generally little-noted though momentous event (see EDM, March 6),
Gazprom declined to present its overdue prognosis for gas output beyond 2010
during the Russian cabinet of ministers’ March 2 session. Prime Minister
Mikhail Fradkov had to urge in front of television cameras, `The situation
should not be over-dramatized.’ That same day, Russia’s Chamber of Accounts
criticized Gazprom for under-investing in exploration, field development,
and infrastructure maintenance in Russia while over-investing in
acquisitions unrelated to production. This public turn of events seems
indirectly to confirm the forecasts made last year by Vladimir Milov, Alan
Riley, and David Clark that Gazprom faces a gap between its production and
its supply commitments after 2010.
Iran’s entry in Armenia as a gas supplier courtesy of Russia seems
also to be a harbinger of that trend. It also sheds light on Moscow’s view
of possible coordination of gas export policies with those of Iran. The
government in Tehran has not abandoned its hopes to achieve a transit route
for its gas into the South Caucasus and farther into European Union
territory, with Armenia as the first way station on that possible route.
Moscow, however, strongly opposes such a prospect.
Thus, Gazprom took major precautionary measures against an expansion
of Iran’s role and indeed against any independent Iranian gas-export policy
in Armenia or beyond. It imposed from the outset on Yerevan — against
Tehran’s will — to reduce the Iran-Armenia pipeline’s diameter from the
originally designed 1,420 millimeters (the size of major gas export
pipelines) to 700 millimeters. This measure precludes any transit of Iranian
gas to third countries through this pipeline, confining Iran to the Armenian
market.
Moreover, Kocharian agreed with Russian President Vladimir Putin last
year to hand the new pipeline’s section on Armenian territory over to
Gazprom via the ArmRosGaz company, in which Gazprom and its offshoot Itera
hold a combined 68% interest. In return for that and other property
handovers, Russia sells gas to Armenia at the deeply discounted price of
$110 per 1,000 cubic meters until 2009. Controlling the pipeline and
distribution network within the country, Moscow can exercise all but
discretionary control over the access of gas from a third-country
supplier — a situation that Moscow seeks to achieve in certain European
countries as well, albeit without price discounts.
By blocking the access of Iranian gas to Europe, the Kremlin
demonstrates its unwillingness to share European markets with Iran through a
`gas cartel’ or in any other form. However, Moscow is signaling almost as
clearly that it seeks joint-venture deals to develop Iran’s vast, untapped
gas fields and direct their output toward Asian markets, away from Europe,
where Gazprom wants to cement and expand its predominance. This strategy can
only succeed if Russia retains its present monopoly on the transit and
marketing of Central Asian gas, particularly from Turkmenistan.
Most likely, `Iranian’ gas to be supplied to Armenia will originate in
Turkmenistan for the time being. Iran imports small volumes of Turkmen gas
to supply the northern part of the country, which is distant from Iran’s
main fields. The Iran-Armenia pipeline runs for 101 kilometers in Iran from
Tabriz to the Armenian border and for another 40 kilometers in Armenia from
the border town of Meghri to Kajaran. The next planned section, to be built
by 2008-2009, should run for another 100 kilometers toward central Armenia,
there to link up with the existing distribution network, controlled by
Gazprom as well (Mediamax, Noyan Tapan, IRNA, March 19-20; see EDM, November
3, 7, 2006)
Armenia consumes approximately 1.5 billion cubic meters of gas
annually, due to increase through the country’s gasification and
electricity -generation programs. Iran is to supply some 400 million cubic
meters annually in the first stage of the project and up to 2.5 billion
cubic meters in the second stage, beyond 2010. By that time, Armenia’s
consumption will have increased significantly, even as Gazprom’s overall
capacity to meet supply commitments internally and externally is likely to
have declined.
–Vladimir Socor