IRAN/ENERGY: AN IRANIAN DELEGATION IN ISTANBUL

C O N F I D E N T I A L SECTION 01 OF 03 ISTANBUL 001015 SIPDIS SIPDIS LONDON FOR GAYLE; BERLIN FOR PAETZOLD; BAKU FOR HAUGEN; DUBAI FOR IRPO E.O. 12958: DECL: 11/26/2017 TAGS: ENRG PREL ECON IR TU SUBJECT: IRAN/ENERGY: AN IRANIAN DELEGATION IN ISTANBUL PITCHES IRAN'S OIL AND GAS SECTOR ISTANBUL 00001015 001.2 OF 003 Classified By: Deputy Principal Officer Sandra Oudkirk;reason 1.5 (d). ¶1. (C) In the best of Iranian bazaar tradition, an Iranian delegation representing Iran's oil ministry and energy industry attending a November 15-16 energy conference in Istanbul tried hard to portray Iran and its vast oil and gas reserves as a stabilizing force for regional energy markets and energy security. Masoud Hojjat, the CEO of Iran's state-owned Tavanir Holdings electricity generation and distribution company, told conference attendees -- mostly European and Turkish energy companies, and Turkish officials -- that the "unbundling" of Iran's electricity sector has increased efficiency and offers safe investment opportunities, identified Iran's total installed electricity generation capacity as "the largest in the Middle East" at 46,342 megawatts (mW),described Iran's existing electricity connections with all seven neighboring states, and said the GOI is committed to significantly expanding Iran's electricity grid to support more regional electricity cooperation, including with the UAE and Russia. Iranian Oil Ministry Under Secretary Ali Kordan said Iran wants to share its vast oil and gas wealth with the region, "to help promote regional stability, energy security, and peace." Kordan highlighted the vast size of Iran's energy reserves, painted a promising picture of its future production goals, acknowledged that to reach those goals Iran needs considerable foreign investment, and downplayed (to some skepticism) the impact to date of sanctions on Iran's economy. Turkey's Energy Minister endorsed Kordan,s call for regional energy cooperation, while EUR DAS Bryza reaffirmed the USG's opposition to significant investment in Iran's energy sector. Comment: Outside the conference room, Turkish energy company executives admitted to Istanbul Iran watcher that the Iranian speakers, rhetorical efforts to oversell Iran as a force for stability in the region stretched belief. Nevertheless one executive pointedly underscored that "with such huge reserves, we cannot ignore Iran as a source of supply." ¶2. (SBU) An Iranian delegation representing Iran's oil ministry and energy industry participated actively at the November 15-16 "7th Meeting of the Energy Arena" hosted by a consortium of Turkish public and private energy companies in Istanbul, Turkey. (Overall conference proceedings and remarks will be reported septel). In the best of Iranian bazaar tradition, the delegation came ready to pitch their product -- Iranian oil and gas, hand in hand with "regional peace" and energy market stability -- to an audience mostly comprised European and Turkish energy companies, and Turkish energy officials. Ready to Serve the Middle East's Electricity Needs -------------- -------------- ¶3. (SBU) Masoud Hojjat, the CEO of Iran's state-owned Tavanir Holdings electricity generation and distribution company, speaking in passable English, told the conference attendees (his powerpoint presentation has been emailed to NEA/IR) that: -- The "unbundling" and incremental privatization of Iran's electricity sector has increased efficiency and resulted in promising investment opportunities. Currently, Electricity generation, transmission, and distribution management and operations have been "unbundled" into separate companies, with construction and operation of new power plants turned over to the private sector. -- Iran's total installed electricity generation capacity is "the largest in the Middle East" at 46,342 megawatts (mW), and is likely to reach 50,000 mW by next summer. This grid is "highly developed and highly reliable" and allows Iran to export electricity for most of the year (except peak summer months). -- Iran relies on a diversified source of power generation: 43% from steam-fired power plants, 21% from natural gas-fired combustion turbine power plants, 21% from "combined cycle plants", 11% from hydro power plants, and 1% from diesel fueled plants. He noted that about 7% of power generation was controlled by the private sector, a figure he claimed will rise quickly as new power plants replace old ones. -- Iran's transmission network consists of 12,314 kilometers of 400 kilovolt (KV) transmission lines, and 25,114 kilometers of 230 KV lines. -- Iran already has established electricity connections and electricity exchanges with all seven of its neighboring ISTANBUL 00001015 002.2 OF 003 states: two lines to Armenia with a capacity of 300 mW; 3 lines to Azerbaijan with a capacity of 250 mW; two lines to Turkey with a capacity of 70 mW; three lines to Turkmenistan with a capacity of 300 mW; two lines to Afghanistan with a capacity of 40 mW; one line to Pakistan within a capacity of 40 mW; and two lines to Iraq with a capacity of 150 mW. -- The GOI is committed to significantly expanding Iran's national electricity grid to allow for expanded regional electricity cooperation, including plans for: indirect interconnection with Tajikistan; a submarine DC link between Iranian and UAE power grids to allow Iran to export up to 1100 mW of electricity to the UAE; and expanded interconnection with Turkey to allow for 2000 mW exchanges. -- According to current patterns of domestic electricity consumption, Iran's industrial sector consumes 32.41% of total supply; residential consumes 33.19%; agriculture consumes 12.39%; commercial consumes 12.33%, and "other" consumes 9.67%. -- Peak demand in the summer of 2007 reached 34,894 mW (compared to Iran's generation capacity of 46,342 mW),using up to 60% of Iran's spare capacity. Iran anticipates that peak power demands will increase between 5-8% annually, reaching around 88,000 mW by 2020. As a result, the GOI is planning to install and operate 24,000 mW of new capacity by 2011, via gas turbine, hydro-electric, and nuclear power (from which Iran plans to produce 1000 Mw at the Bushehr light water reactor). By 2020, Iran plans to have total installed generation capacity of 125,000 to 130,000 mW. Iran's hydrocarbon sector -------------- ¶4. (SBU) "A Peace Industry": Oil Ministry Under Secretary Ali Kordan, speaking in Farsi, offered a strategic vision of Iran as eager to use its vast hydrocarbon resources as a force for regional peace and stability. "In this era of globalization, economic cooperation is necessary to survival, and helps create an environment of peace." Noting that oil accounts for 40% of the world's energy consumption, and underscoring that oil production costs are likely to remain low for the foreseeable future, Kordan predicted that oil and to a lesser extent gas will remain the key guarantor for energy security among all states in the region for at least the next 20 years, speculating that over 60% of the world's energy needs in 2030 will be met by these hydrocarbons. ¶5. (SBU) You can't ignore our reserves: Warming up to his sales pitch, Kordan cited OPEC statistics identifying Iran's National Oil Company (NIOC) as the third largest in the world and second largest in OPEC in terms of oil reserves (138 billion barrels). Turning to production estimates, he said Iran plans to reach 5.3 million barrels/day by 2013 (a 3.2% annual increase). He claimed that 6.5 billion barrels of oil have been discovered in situ in underground reserves. Kordan reconfirmed Iran's preference to increase natural gas production, dedicated almost entirely for domestic use, which would free up more oil for export. He cited a national production goal of 1300 million cubic meters (mcm) per day. Kordan highlighted the critical role that the South Pars gas field will play in Iran's future gas production, describing the 24 phases planned for the field (currently five are on-stream, seven are under construction, and six are under bid),and Iran's production goal of 751 mcm/day by 2014. Beyond South Pars, Iran is extending its domestic pipeline system to the east and northeast of the country, and is studying at least six LNG terminal projects. Kordan added that Iran is taking steps to solve its "flaring-off" problem, having completed two collection projects at major wellheads, and working on two further projects, at a cost of three billion USD, which will result in the collection and effective use of 288 million cubic feet (mcf) of natural gas annually. ¶6. (SBU) But we need your investment: Kordan acknowledged that to reach its production goals, Iran will need massive foreign investment: 140 billion USD by 2014. Kordan said Iran looks to Europe and Asia to provide that investment, and in turn to benefit from it. "Our natural gas can help meet European and Asian energy demands and guarantee energy security." He added that the GOI has established a "South Pars Special Economic/Customs Free Trade Zone" to encourage foreign investment. Kordan noted that Iran exports natural gas to Turkey -- "Iran and Turkey are neighbors and brothers; our joint investments in the field will continue to grow and grow" -- and is pursuing plans to dramatically increase that cooperation. Iran's pipeline project with Pakistan is "under ISTANBUL 00001015 003 OF 003 study and likely to commence soon." Iran also sees Kuwait, UAE, and Bahrain as "potential valued natural gas customers." Kordan also pitched Iran's natural gas transport advantages: "Our unique location and unmatched resources make Iran critical for natural gas transport, for example from the Caspian." ¶7. (SBU) Never mind the sanctions: Kordan dismissed the USNC sanctions regime against Iran as "meaningless", prompting skeptical looks and a few audible snickers among the audience. "Last year was one of the most prosperous ever for Iran's hydrocarbon sector, enjoying 9% growth. For example, $3.6 billion was invested last year in South Pars. Over $20 billion of foreign investment has been made in Iran's hydrocarbon sector." Iran's hydrocarbon sector, Kordan asserted, was too important to the world economy to face any real risk of international sanctions. Turkish and USG responses -------------- ¶8. (SBU) Turkish Energy Minister Guler agreed with Kordan that Turkey and Iran were linked by history and geography, and that energy cooperation among all states in the region was beneficial. He argued that Turkey must place top foreign policy priority on ensuring energy security, and must look more to Turkey's east and south for energy supplies. "Opposing parties may try to stop us, but we will never consider such artificial barriers to be real barriers." ¶9. (SBU) EUR DAS Matthew Bryza followed Guler, and in response to both Kordan,s and Guler,s remarks supporting regional energy cooperation with Iran, restated the USG's strong opposition to foreign investment in Iran's energy sector, reminding the conference attendees that the Iran Sanctions Act provides for the USG to sanction foreign companies which invest over $20 million in that sector. "Some day we hope the situation in Iran will be different. However, despite the positive spin of the Iranian Energy Minister's remarks, now is not the time to be investing in Iran." Comment -------------- ¶10. (C) The Iranian delegation came to the conference with one obvious goal: to pitch Iran's hydrocarbon sector as vast and accessible, as a safe and profitable investment, and a regionally stabilizing commodity. In both Iranian speakers, presentations they largely preached to a converted choir primarily of energy company executives, although some of the more fanciful Iranian claims (e.g., the UNSC and multilateral sanctions so far have been economically meaningless) did provoke audible skepticism. Indeed, outside the conference room several Turkish energy company executives admitted to Consulate Istanbul's Iran watcher that the Iranian speakers, rhetorical efforts to oversell Iran as a force for stability in the region stretched belief. Nevertheless one executive pointedly countered that that "with such huge reserves, we can't ignore Iran as a source of supply." WIENER