Will Natural Gas shelter Iran from Oil Price Crisis?

By Reza Yeganehshakib, for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.

After years of negotiations with six world powers, Iran celebrated the official lifting of international sanctions on Jan. 16. Having long awaited this moment, the Islamic Republic acted quickly thereafter, commencing efforts to expand its share of the global energy market and engaging in intensive negotiations with possible clients as well as global oil and gas giants to boost production and develop new means of delivery, including new pipelines and liquefied natural gas (LNG) facilities and tankers. While opportunities abound, however, Iran will have a tough time achieving its goals given the plunge in prices for oil and natural gas.

Absent a good grasp of the current energy market and its problems, and given the existing issues afflicting its own oil and gas industries, Iran will not be able to simply boost gas production and expect success in the market. One of the defining features of the current global gas market is how supply is outstripping demand. A key factor in lowering demand for energy, and particularly natural gas, is the current slow growth of the global economy.

This appears to be the aftermath of the 2007-2008 global financial crisis and the 2009 recession, with the effects of the latter clearly lingering. As a result, demand for energy has not increased at the anticipated rate. In addition, recent technological advancements that have increased energy efficiency are resulting in lower fossil fuel consumption across the board, suppressing growth in demand.

In a climate where supply is outstripping demand, competition among exporters is naturally fierce. Thus the reality is that Iran faces very tough competition with established rivals, including Russia, Qatar and Turkmenistan. None of these countries has suffered from sanctions the way Iran has, and they have had ample time to establish themselves as significant producers and exporters. Of note, because of sanctions, Iran has not had access to needed foreign investment, financing and advanced technology, leaving plenty to be desired for its gas industry.

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