Russia will invest $44 billion in the gas pipeline in Iran: where does the money for the project come from?

Yekaterina Maksimova

The Russian side will invest $40 billion in the construction of a gas pipeline and installations for the production of liquefied natural gas in Iran, part of the investment ($4 billion) will be directed to the development of an Iranian field.

Who will pay for the construction in Iran

Alexander Frolov, Deputy Director General of the National Energy Institute, suggested referring to the memorandum on energy cooperation, which was signed by representatives of PJSC Gazprom and the National Iranian Oil Company (NIOC) back in the summer. "In this regard, it is obvious which Russian company is likely to act as the main investor and operator of the project on the part of the Russian Federation," Frolov explained.

According to him, the terms of implementation of such projects (from feasibility study to implementation) take at least 5-6 years. "This is a project for the next decade," said the deputy general director of the National Energy Institute.

In his opinion, PJSC Gazprom will finance the Iranian project at the expense of borrowed funds. "These will be bank loans. Perhaps, some financial organizations in the Russian Federation will be created for the project. Crediting from financial institutions located in the Asia-Pacific region is also possible," Alexander Frolov believes.

Why Russia needs Iranian gas

The future model of Russian gas exports was clearly outlined by President Vladimir Putin in the spring of 2022. In short, the main trend sounds like this: "Russia goes to the East." And in the coming years, the country will reorient oil and gas exports from the European market to the fast-growing markets of the south and east.

At the same time, Alexander Frolov notes that the project between Iran and Russia is of interest to the Russian Federation both from a commercial and strategic point of view.

In the first case, the expert recalled that, within the framework of the previously concluded memorandum, the parties discussed the possibility of swap operations (that is, Iranian gas is marked as Russian, and Iranian as Russian - ed.) when sent to the markets.

As for the long-term strategy, Iran, given its geographical location, can facilitate the access of Russian gas to the markets of Pakistan and India. Simply put, we are talking about gas supplies through the pipeline, bypassing the stage of LNG production.

"For Russia, Iran is interesting as a key partner that will increase the efficiency of theoretically possible pipeline projects, as well as expand LNG projects. Iran's participation will make it possible to multiply the possibility of the pipeline, extend it to the Russian Federation and, in fact, unite three major gas suppliers to Pakistan and India. And the "troika" of major suppliers is the Russian Federation, Turkmenistan and Iran," Frolov explained.

It is worth recalling that at the moment there are various projects that allow increasing gas supplies to Pakistan and India. These are the long discussed TAPI pipeline through Afghanistan (Turkmenistan-Afghanistan-Pakistan-India) and LNG projects.

According to Alexander Frolov, Russia's direct access to the markets of India and Pakistan is a long-term and strategic goal. "These are potentially gigantic markets, comparable in capacity to the Chinese market, which Gazprom has already refocused on. Yes, it is unlikely that they - India and Pakistan, will be able to reach Chinese indicators in the coming years, but if a powerful source of gas opens up in front of them in the form of " troika "Turkmenistan, Russia, Iran, then, I believe, they will be able to implement the plans in the economy that they had before," Frolov concluded.

Novye Izvestia reported that against the backdrop of a special military operation, Gazprom had practically zeroed out gas supplies to Europe. Until February 24, the Russian giant corporation supplied gas to the eurozone via the Nord Stream (capacity of 55 billion cubic meters per year) , the Yamal-Europe gas pipeline (capacity of 32 billion cubic meters per year), the Turkish Stream gas pipeline (capacity of 16 billion cubic meters per year). Also, gas on two branches was in transit through Ukraine.

The Nord Streams were disabled on September 26 due to a series of explosions. "Yamal-Europe" was stopped due to sanctions imposed by the EU against Russia.

Gazprom, having finally lost the European market, in the first 9 months of 2022 reduced gas production by 17.1% (to 313.3 billion cubic meters). This is the worst figure in recent years. Gas exports to the EU countries over the nine months of this year decreased by more than 40% (this is minus 58.9 billion cubic meters of gas).

Against this background, the corporation reports on the growth of gas exports to China via the Power of Siberia gas pipeline. In 2022, judging by the plans, Power of Siberia supplies are expected to reach 15 billion cubic meters of gas, but this figure is likely to be exceeded. And by 2024, deliveries through the Power of Siberia gas pipeline should amount to almost 40 billion cubic meters per year.