Iran-Armenia Gas Pipeline:
Opportunities and Threats
Iran and Armenia have come to extend their economic cooperation in general and
independence in 1991. The two countries signed a general agreement on
connecting the gas networks of them in 1992 and a memorandum of understanding
was signed which led to a sales agreement in 1995. Since the first trilateral
meeting of the energy committee between the Islamic Republic of Iran, the
Republic of Armenia,and the
Hellenic Republic in 1998 the gas pipeline project has been of continuous
interest of the three countries and a pre-feasibility study has also been done
on the project by the Hellenic side.
1-New Developments in Iran-Armenia Economic Cooperation
Iran and Armenia have repeatedly announced their readiness to further
expand relations in all fields and they have recently signed an agreement for
economic cooperation among which we can refer to
Energy matters also featured large during the meetings of senior
officials of the two countries among which we can refer to the agreement on
the feasibility studies of building a hydro-electric power station on the Aras
River that marks the border between the two states.
At the present, the exports of Armenia to Iran is about 18.2 % of its
total exports, while its imports from Iran is about 8.6% of its total imports.
Table (1) presents the volume of export and imports of Iran to Armenia in
(1) – Export and Import of Iran to and from Armenia (1996-99) in U.S. Dollar
2-Energy Status in Armenia: The Scope for Bilateral cooperation
While a modest amount of oil exploration within Armenia was undertaken
in the mid-1990s mostly by Greek and U.S. firms, the Armenian officials
announced in 1999 that exploration activity has ceased due to a lack of funds.
Armenia is highly interested that the main pipeline for oil exports from
Azerbaijan to the Turkish port of Ceyhan be constructed through northern
Armenia. This seems unlikely, however, due to the lack of a final resolution
to the dispute over Nagorno-Karabakh, and Azerbaijani officials have stated
publicly that they would not consider this idea, since the route through
Georgia has already been decided. However, Iran looks into the possibility of
opening a facility in Armenia to refine Iranian crude oil.
(1) - NATURAL GAS COMSUMPTION FORECAST FOR ARMENIA (Billion m3)
Armenia recently has been exploring the option of using other gas
suppliers, mainly Islamic Republic of Iran.
Almost all types of stations are used to
generate electric energy, including thermal power plants, hydroelectric
plants, and the nuclear power plant. Currently, the breakdown is the
following: 40% nuclear, 40% thermal, and 20% hydroelectric sources
All of thermal plats have exceeded their projected operating life spans,
are inefficient, and require renovation. In addition, acquiring fuel for these
plants remains a challenge.
Nuclear power and hydropower are Armenia's only indigenous sources of
energy. Armenia has several hydroelectric plants on the Razdan River, with
plans to develop additional hydroelectric projects.
Faced with an acute energy crisis, Armenia resumed operation at
its Metsamor nuclear power plant at Yerevan in late 1995. Metsamor was
closed in 1989 because of seismic and safety fears and the controversial move
to reactivate it was taken largely out of desperation. While European
countries have pressed Armenia to close the plant by 2003, recent statements
from the Armenian government have stressed that this will be contingent on the
country securing an alternative source of energy
Currently, Armenia is connected with all of its neighboring countries by
means of electric transmission lines. The only exception was Iran, but a 230
KV line was put into operation in 1997. This allows Armenia to import and
export electric energy from and to its neighbors.
Since Iran and Armenia have linked their electric grids, this allows for
power sales in both directions, driven by seasonal differences in demand
between the two countries. It is said that Armenia and Iran will nearly double
seasonal swaps of electricity in which they have engaged since connecting
their power grids several years ago. Table (2) presents the electricity trade
between the two countries in 1999-2000.
Table (2) – Electricity Trade 1999-2000 (MWH)
of the Pipeline for the Two Sides
seems that the most important energy issue for Armenian government is that of
securing fuel (natural gas, fuel oil, LPG, and nuclear fuel) and developing
local energy resources. The latter means that hydroelectric and alternative
(including solar, and geothermal) energy sources have to be developed.
Sometimes, they are expensive, but they consider them to be their priorities
as far as security is concerned. In thinking about routes to import fuel (gas
and oil pipelines), they consider not only the Northern, but also the Southern
gas pipeline. This is the reason why they are actively involved in the Baku
– Ceyhan, Trans-caspian, Inogate, and other projects. They see major chances
to diversify energy routes. This is why the construction of the Iran-Armenia
gas pipeline has become an extremely important
issue for energy officials of Armenia. On the other hand if we look at the
long distances covered by Turkmenian gas to get to Armenia, it becomes obvious
why the construction of the Iran-Armenia gas pipeline is so important for
Armenia was considered as a transit country
for energy resources (namely, gas) as early as 1995, when Iran was assessing
the routes it can use to export gas to Europe. Studies have shown that the
European market has practically no serious competition. In other words, it
will not have any major problems with suppliers of gas, because the European
market is quite large and tends to get larger. In this sense, Iran is being
thought of as a possible observer in the Inogate project. This is a project of
the EU whose objectives is to build new routes for gas and oil pipelines to
Europe. Iran is also studying these possibilities, one of which involves
Armenia. Armenia is not only a direct buyer of Iranian gas but also it is a
transit country for Iran-EU gas pipeline. Besides, Tehran is willing to
consider sending gas to Georgia as well as Armenia. If in the future Georgia
wishes to buy or serve as a transit corridor for Iranian gas, the pipeline to
Armenia might be extended.
Characteristics of the Pipeline
The entire pipeline is 141 km long, out of which 100km lies across Iran
territory and the rest of 41km lies within Armenia. The 141-kilometer
(48-mile) pipeline should cost some 120 million dollars. The starting point of
the pipeline in Iranian territory is near to Tabriz and the ending point is on
the Iranian-Armenian borders.
The starting point of the Armenian pipeline is at the Iranian-Armenian
borders, near Megri. The ending point of the last new pipe section is
connected to the existing gas pipeline network in Ararat. Armenia will begin
the construction by building a section of the pipeline between its southern
towns of Megri and Kajaran.
It is likely that an international consortium -- including Russia's gas
giant Gazprom, France's Gas de France, Iran's National Gas Company and
Armenia's energy ministry -- be created for the building of the pipeline.
According to the schedule, the construction was supposed to start
January 2001.It is expected that Iranian gas will start flowing into Armenia
in 2002. Once the first phase of the pipeline is brought on line, Armenia will
be able to receive 1.5 million cubic meters of Iranian gas daily, which is
half the current volume of fuel deliveries from Russia. The capacity of the
pipeline will increase to 4-5.5 cmpd if all of the three phases of
the project come to an end.
Viewpoints Towards The pipeline
Originally intended to serve as an alternative
source of energy for resource-poor Armenia, the pipeline in question has
acquired a geopolitical dimension. Armenia looks at the pipeline not just
within the Iran-Armenia framework but also hope that it could be extended
westwards. The two countries envisage that Armenia will not be the final
destination of the gas pumped from Iran. EU energy officials now view Iran as
a potentially strategic supplier of energy resources.
The European Union favors extending the projected pipeline to Georgia's
Black Sea coast from where it could be shipped to Europe. Laying pipeline
through the Black Sea seabed, means that it would reach Europe either through
Russia or Turkey. The Russian and Ukrainian pipeline networks could be used
for transit. So Armenia may
become a small portion of Iran-Europe gas pipeline which may be very important
for Armenia in two respects. First, Armenia's political weight will rise and
second, which is of no less importance, the availability of gas supplies may
give a strong impetus to the development of domestic industry.
Aside from possibly bringing gas to Europe, the EU
also probably hopes the pipeline will allow Armenia to close its Medzamor
nuclear power plant.
Russia also supports the pipeline; some experts say one explanation for
this support is that Russia may not want to increase its own deliveries of gas
to Armenia and risk Armenian debts piling up. If Medzamor shuts down, Russia
would have to supply more gas unless some of the sourcing could be shifted to
Iran. The Russian interest also suggests another possible explanation. It
could deal a blow to the Trans-Caspian pipeline project advanced by the United
States. The U.S. effort to pump natural gas from Central Asia and Azerbaijan
to international markets ran into trouble last year as Turkmenistan began
dragging its feet. The Iranian pipeline would give the Turkmen’s a new
avenue for exporting their vast hydrocarbon resources.
the U.S. remains opposed to the Iran-Armenia project claiming that it's a
mistake to depend on Iran for energy resources -- whether it's oil or gas.
Against the Pipeline
point to the development of the project is the price of gas, which is higher
than what Armenia pays for Russian gas deliveries. Our viewpoint is that
Yerevan and Tehran will agree on it after the pipeline is brought on line. But
Armenian officials once declared that the pipeline's construction will not
start until the price dispute is resolved. Unfortunately, It seems that the
meeting of the Armenia-Iran commission has produced no agreement on the issue
and negotiations are still going on. Armenia argues that it has
the CIS market, and pricing should be determined in accordance with this
market. However we believe that there
is not a globally recognized price for gas. The Commonwealth of Independent
States has their own price for gas and Europe has its own, too. The price of
Iranian gas to Armenia should be finalized during the negotiations.
Developments in the Construction of The pipeline
A senior Armenian official has recently declared that construction of
the pipeline would begin this year hoping that it would be completed in the
shortest possible time. He has announced that a consortium to build the
pipeline is planned among Russia's Gazprom natural gas company, France's Gas
de France, the Armenian energy ministry and Iran's national gas company.
On the other hand European Union plans to assign 30 million Euro for
preparation of technical and legal documentation for the project of the
Iran-Armenia gas pipeline construction. European
Union approves the project although it argues that highly paid lawyers will be
required for preparation of its legal documentation; However, it is ready to
bear these expenditures. There are two main routes for exporting Iranian gas
to Europe; Iran-Turkey-Greece and Iran-Armenia-Georgia-Ukraine. It is
noteworthy that the European Union gives preference to Iran-Armenia-Georgia
pipeline, because European Union has some concerns regarding the safety
operation of the Armenian nuclear power plant. If the Iran-Armenia gas
pipeline is constructed Armenia will have an alternative source for energy
generation to meet its demands.
On the other hand, Gazprom has declared that is prepared to supply pipes
and the requisite equipment to build a gas pipeline between Iran and Armenia.
The supplies are expected to cover 60% of the total project cost. Meanwhile,
Mitsubishi has also expressed its interest in the project. Russian, Iranian
and French companies have already signed on to the project, and a major
Chinese gas company has recently indicated its interest in the project.
Finally, French and Greek investors have also decided to help financing the
8- Concluding Remarks
Iran-Armenia gas pipeline is a rational choice and a necessity for the region. It is beneficial for both countries and can be a reliable route for the export of Iranian and Turkmen gas to Europe. Armenia can boost its economic and industrial development through utilizing this pipeline and strengthen its political stability and position as a player in the international energy transmission structure. It can also get rid of its environmentally threatening nuclear plant. The pipeline can also be beneficial to Georgia and EU. The relatively low cost of the project and the support of Europe and Russia to this pipeline have made its future highly promising. We expect that Iran’s gas will flow to Armenia in the near future and to Europe in the later stages.
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