Gazprom Takes Control Of Armenian Gas Pipeline.

Gazprom has bought control of a natural gas pipeline being constructed between Iran and Armenia, in an attempt to protect its European gas market from an unwanted competitor such as the state-owned National Iranian Gas Export Co. (NIGEC). Last year Gazprom signed an agreement with the Armenian government, under which Armenia would have to pay only $110 per 1,000 cubic metres of gas - less than half the market price - in return for Gazprom taking a 45% stake in a joint venture called ArmRosGaz, which controls both Armenia's domestic gas distribution business and the soon-to-be-completed gas pipeline from Iran.

During the recent visit of President Kocharian of Armenia to Moscow, Gazprom raised its stake in ArmRosGaz to 58% by buying an additional $119m of shares in the company. Gazprom now has control over the Iran-Armenian pipeline, which would have been the first to supply Iranian gas to Europe and could have become a rival source of gas for Western European markets. These markets are increasingly dependent on Gazprom. Alexander Medvedev, deputy chairman of Gazprom and head of the group's export unit GazExport, was recently quoted as saying of the Armenian pipeline: "It's a profitable project for us. We hope to use the joint venture to become involved in extraction and development [of Iranian gas], and possibly help supply gas through the joint venture to Western Europe, as well as Pakistan and India".

The idea is that, in return for Russian help to get Iranian gas to Europe, Tehran would give Gazprom a stake in a proposed pipeline to supply Iranian gas to Pakistan and India. Medvedev's remarks seem to indicate the desire in the Kremlin to make Iran an energy ally and partner, rather than a competitor, in the gas sector.

Recently Valeri Yazev, the chairman of the state Duma's committee on energy, called for a gas alliance between Russia and Iran. Iran is estimated to have 27,000 BCM of natural gas - 18% of the world's gas reserves - making it the second-biggest supplier of gas in the world after Russia. About 62% of Iran's potential gas reserves remain undeveloped. Valeri Nesterov, oil and gas analyst at Troika Dialog, says: "If Gazprom didn't have a controlling stake in the Iran-Armenia project, it would be much easier for Iran to use it to compete with Gazprom's supplies to Western Europe. But Gazprom tries to avoid competition as much as possible".

European states increasingly are considering Iran as an alternative supplier to Russia. Another possible pipeline under consideration for Iranian gas is the Nabucco project, which was approved by the European Union this year. Nabucco, which will cost about $4.7 bn, will take gas from the Caspian region and bring it to West Europe. OMV of Austria is the main backer of the project, construction of which is scheduled to finish in 2011. The pipeline initially will take gas from Azerbaijan, but several European energy ministers have called for it also to take Iranian gas. The project was originally designed to take Iranian gas, though the focus switched to Azeri gas when Iran clashed with the International Atomic Energy Agency (IAEA) over its nuclear ambitions.

In New Delhi, Indian Petroleum Minister Murli Deora on Nov. 7 said Russia was keen to participate in all aspects of the proposed $75 bn Iran-Pakistan-India gas pipeline. He said: "During my interaction with Russian Industry and Energy Minister Viktor Khristenko during the recent visit to Moscow, it was conveyed that Russians would be interested to participate in the technical and financial aspects of the proposed Iran gas pipeline". Deora was talking to reporters on the sidelines of an event organised to sign the production sharing contract for nine coal-bed methane exploration blocks.

Deora added: "I have conveyed Russian interest in the project to the Pakistani energy minister and will be discussing the matter with my Iranian counterpart too". Despite no positive signals from Iran on the finalisation of the contract for supply of 5 million tons/year of LNG and lack of accord on the gas price issue, India is "hopeful" that the pipeline project will materialise. Indian Petroleum Secretary M.S. Srinivasan said the date for a trilateral ministerial meeting will be finalised once the consultants - Gaffney, Cline & Associates - appointed by Iran after co-ordination with India and Pakistan submit their report on gas pricing.

Gas pricing and the project's structure are two major issues that have been evading a consensus with Iran, which is keen on getting a better price for the fuel while India and Pakistan insist on an affordable pricing structure