The Iranian alternative

One country holds the key in the EU's battle to secure alternative and secure sources of energy: Iran. With over 28 trillion cubic metres (cm) of natural gas in the ground -- around 15% of the known resource in the world -- Iran's reserves are only exceeded by Russia's 47.65 trillion cm. In theory, Europe is blessed to be within pipeline distance of both countries, as well as the large exporters of natural gas in North Africa. In reality, Iranian is out of reach.

For Iran, the failure to capitalise on its proximity to Europe is a catastrophe. The country remains a large crude producer (about 3.7m barrels a day), but its oil industry is in terminal decline. Its natural gas reserves, on the other hand, could provide the basis for exports to rival Russia’s. Instead, they amounted to a paltry 5.69bn cm in 2006 -- putting Iran about 20th in the world ranking of natural gas exporters. Even Argentina and Oman, hardly world energy heavyweights, exported more gas. And, by comparison, Russia exported over 150bn cm.

That only tells part of the story, because Iran intends to increase production and exports over the next few years. A long-discussed plan to build a pipeline to Pakistan and India remains on the table. A multi-phase development of its South Pars field -- the Iranian section of the giant gasfield, the world's largest, that it shares with Qatar in the Persian Gulf -- has been underway for years. Iran hopes eventually to export liquefied natural gas (LNG) from South Pars. It already produces some gas and condensate from the field for the local market.

Europe's biggest gas hope?

South Pars has been afflicted by technical and other problems. Total’s plans to develop an LNG project there have stalled over a dispute about contractual terms. In the meantime, the French company says the cost of the project has doubled since 1997. Shell and Repsol also want to export LNG from South Pars, but have been unwilling to sign contracts while Iran's dispute with the West over its nuclear programme persists. The same goes for Austrian energy company OMV: interested but, as yet, reluctant to sign a final agreement about an LNG project. Russia's Gazprom, meanwhile, has added South Pars to its list of international targets for gas projects, saying it would like to develop two or three phases of the field. And Chinese companies -- up to now more interested in oil contracts than gas -- are waiting in the wings.

Neither Gazprom nor the Chinese companies will bring to the Iranian gas sector the expertise in LNG that the country needs. For all their problems in the past few years, the Western majors retain their advantage in that sector. Yet the US-led sanctions against Iran have in practice, if not in principle, prevented them from committing to the country.

For Europe, it could all amount to a colossal missed opportunity. The progress of Russian and Chinese companies in Iran is particularly galling, given that the country provides the best source for the EU to meet its strategic goal of diversifying natural gas imports away from dominant suppliers like Russia.

The sticking point, of course, is Iran's nuclear programme. This week, the International Atomic Energy Agency, the UN’s nuclear watchdog, said that it had information showing that Iran had continued with its enrichment programme after 2003. The date is important, because the National Intelligence Estimate, published in Washington last year, claimed that US spooks had concluded that the programme had ceased in 2003. Iran maintains that it wants to develop nuclear technology for civilian uses. The UN Security Council is expected soon to endorse a tighter package of sanctions against Iran.

With the remaining lifespan of the Bush White House now counted in months, now is the time for the EU to press for a new, more conciliatory agenda