The EU Is Still Keen To Buy Iranian Gas Despite Nuclear Row.

The EU is keen to start buying natural gas from Iran to diversify supplies away from Russia, despite a European Commission freeze on Iran gas talks due to the international row on Tehran's nuclear ambitions. Iran is slated to pump between 7-10 BCM/year of gas to the EU from 2011 under the so-called Nabucco project, which is planned to have a pipeline running from the Turkish-Iranian border to Baumgarten, Austria.

Negotiations on this have been going off and on between the European Nabucco consortium and the state-owned National Iranian Gas Export Co. (NIGEC). There was to be an initial agreement for 3-5 BCM/year to be signed before end-2006. The Nabucco consortium belongs to five private European firms led by Austria's OMV, with Azerbaijan, Egypt and Iraq sketched in as other potential suppliers on top of Iran.

The pipe would bring in 31 BCM/year of natural gas, with 15 BCM siphoned off to Turkey, Bulgaria, Romania and Hungary and the rest sold across Europe via the Baumgarten hub. The EU has funded the Nabucco feasibility study and given verbal backing for the scheme but is not involved in the consortium's negotiations with individual suppliers. The Austrian government is giving more concrete support, by preparing legislation to give Nabucco exemptions from an EU law guaranteeing access to pipelines for third parties - such as other EU companies or countries. The exemption is set to give the consortium "exclusive rights" to run "a big part of the capacity only for their needs", an Austrian Economy Ministry official explains, adding that exclusivity is needed to help Nabucco secure bank loans for the 4.6 bn investment.

Iranian diplomats have indicated that the European commission shelved 2002 plans to sign a trade agreement and to open an energy co-operation office in Tehran, following the eruption of the International Atomic Energy Agency (IAEA) dispute on nuclear power in 2003. "They are quiet, not doing anything, not going ahead. They have put everything behind this IAEA discussion", Iranian envoy to the EU, Mohammed Rezayat told reporters earlier this year. He added: "Later, they will understand that this kind of political obstacle will harm their economy". He explained that Pakistan, India and China were much more active in terms of developing new Iran gas links to Asia, but he said Brussels and Tehran had a long history of good relations that should see them past the IAEA blip.

Rezayat says: "This problem is temporary. The IAEA situation may come to a good conclusion and the negotiations will begin again". Rezayat defends Iran's right to develop nuclear power in order to stave off an energy crisis when the country's oil and gas resources run out in 30 or 40 years' time, saying: "Then we would have to come to the EU and other countries and beg for energy". The Iranian envoy insists Tehran could be a trustworthy energy partner for Europe, despite cultural differences between the two powers as seen in Iranian protests over the Danish Mohammed cartoons. "What you accept in your society, may not necessarily be accepted in other countries. Insulting the prophet cannot be called democracy. [But] If you make an agreement to sell gas for 20 years you cannot turn it off saying you have been insulted. It doesn't work like that".

Iranian gas fits in with the EU's new energy supply diversification strategy. Russia currently provides 25% of EU gas consumption, but confidence in Russian energy flows were shaken when Gazprom turned off the tap to transit state Ukraine in January. Iran has the world's second largest gas reserves after Russia, with 27 TCM of gas in the ground and in the Caspian Sea. "This is another way to try and get Caspian gas to Europe while avoiding the Gazprom system", International Energy Agency gas expert Daniel Simmons says, adding: "There would not be so much interest in Nabucco if other companies were allowed to export gas from Russia - there is a lot of interest in diversifying away from Gazprom's monopoly".