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Afshin Javan and Gholam Hossein Hassantash

Eghtesad & Energy - http://www.iraee.org/

Iran and Bahrain inked a protocol for energy cooperation in October when Iran’s minister of petroleum visited the Persian Gulf Arab state. Bahrain is keen to invest in developing Iran’s gas and its purchase. To that effect, Iran agreed in principle to deliver one billion cubic feet of gas a day to the sheikhdom.

The memorandum they signed envisaged that Iran could increase its gas delivery if Bahrain demanded more. It has been also mentioned in the preliminary accord that the massive offshore South Pars Gas Field was the best source for Iran to pump gas to Bahrain. The Islamic Republic favors neighbors over other countries as far as its gas exports are concerned. Energy talks between Tehran and Manama were launched in 2006 and the two countries signed a memorandum of understanding when President Mahmoud

Ahmadinejad visited that country in November 2007. The question here is to know how come a country with easy access to gas from other Persian Gulf Arab countries is such willing to buy Iran’s gas. The question becomes much more serious in view of Bahrain’s friendly ties wit the United States, specifically their cooperation in aluminum industry. Bahrain’s Alba supplies raw materials for US aerospace industry.

Has Washington given the nod to Manama for purchase of Iran’s gas? Does Bahrain seek to diversify its sources of energy for security reasons? Or are ancient cultural bonds involved in Bahrain’s interest in Iran’s gas? According to a latest report from the International Energy Agency in 2008, Bahrain sits atop around 125 million barrels of crude. Its economy is heavily oil-dependent and two thirds of its government revenues come from sale of crude and oil products.  

India represents the main market for Bahrain’s oil. Bahrain also holds proven reserves of 3.25 trillion cubic feet of gas with its annual natural gas consumption standing at 11 billion cubic meters. In 2006, Bahrain consumed its total output for domestic purposes. British Petroleum estimates indicate that Bahrain’s gas reserves would be over in seven years if the current trend of consumption keeps on.

One can easily understand Bahrain needs natural gas to develop its power plants and heavy industries and supply fuel to its giant aluminum plant. Anyway, are Bahrainis ready to become dependent on Iran’s gas against the backdrop of their alliance with the US? Bahrain has been seeking to import gas from the six-member Gulf Cooperation Council since 2002. The council groups Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

In 2002, Bahrain reached agreement with Qatar for 500 million cubic feet of gas, but the agreement is expected to be finalized in 2010. Up to that time, they need Iran’s gas. Bahrain and Qatar have been engaged in border disputes in recent years and they may run into trouble in energy cooperation. Pundits do not rule out the possibility that Bahrain might be seeking to cause rivalry between Iran and Qatar in order to bargain over price.  

Bahrain’s national gas company Bangas was established in 2000 to supply gas to industries. The company is owned by the Bahraini government (75%), Arab Petroleum Investment Cooperation (12.5%) and Bahrain’s Coltex, an affiliate of a US company. Therefore, Bahrain might be seeking to win concessions from the US through its overture to Iran. Gas exports to Persian Gulf countries can result in improvement of trade between Iran and its regional neighbors.

The Persian Gulf market is lucrative for Iran’s gas mainly because their consumption hits its peak in the summer when Iran experiences its lowest gas use. But the South Pars field should not fall prey to sluggish talks. Bahrain would never value the interests of its co-religionist to those of Iran and protracted talks might play into the hands of Qatar in extracting gas from the South Pars, shared between Iran and Qatar. Qatar has certainly well thought-out plans for development of South Pars in the coming years and management of time is a very significant factor for Tehran.

The pricing formula is very important. Gas has to be sold at reasonable and fair price to Bahrain to avoid problems emerging in Iran’s deal with the UAE’s Crescent Petroleum.

OIL AND GAS REFINERY IN ASSALUYEH - IRAN. ASSALUYEH IS LOCATED NEAR 'SOUTH PARS' - THE WORLD'S LARGEST GAS FIELD.

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