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