Corporate Debt Review

The Frankfurt Gambit

Choosing Our Battles in Germany

For almost forty years, I paralleled a career as a university professor with my work in international energy. I would often counsel my graduate students on two rules they needed to recognize early on.

First, pick and choose your fights. Second, learn to work with people you do not like personally.

I am once again testing the latter.

As you read this, I am settling into the first evening of meetings here in Frankfurt. The venue is a summit on Iranian natural gas and LNG (liquefied natural gas) that I will address on Wednesday. But the real interest focuses upon a series of side bar meetings being held at the margins of the summit.

The genuine and substantive results usually happen during such meetings at international gatherings. This was certainly the case in late September when clusters in the shadows surrounding the International Energy Forum Ministerial summit in Algiers made the real news.

The same was the case with an OPEC special session in Doha, and OPEC/non-OPEC meetings in Vienna and Istanbul earlier this year. The real work takes place out of camera range. Ask anybody who attends the World Economic Forum assembling each January in Davos, Switzerland.

Frankfurt, however, is a bit different. For one thing, the meeting has been advanced to determine whether a viable strategy can emerge to introduce Iran into the broader global market for piped and liquefied natural gas.

Last year, such a meeting had been planned for London but was scrapped when the British government declined to issue travel visas for many of the main Iranian participants. The geopolitical environment has not improved since then, although the Germans take a different view.

For another thing, it will require something major from Tehran to allow any short-term progress. That’s why there must be a “gambit” emerging this week. For players of chess, the concept is well known – a sacrifice (usually early on) to provide an advantage later.

In the case of the Iranians, this is going to have to revolve about fundamental contract terms…and it will not be possible without some heavy-weight outside financial commitments.

Risky Business

Frankly, that’s where I come in. The organizers requested I address the issue. As such, my presentation is entitled “Managing Financial Risk in Developing Iranian Global LNG Trade.” It will parallel much more detailed suggestions I will advance in the side bar sessions with both European and Iranian actors.

My plenary session address will take place here:

Meeting Hall, Kempinski Hotel Frankfurt

Just to be clear, I am not an advisor to Tehran, but do provide advice to a range of global energy folks who have some decided interests in the Iranian market. Nonetheless, this is not going to develop beyond ad hoc unconnected deals unless the risk issue can be managed.

The application of natural gas either via pipeline or tanker would allow Iran to ramp up development of the massive offshore South Pars field, the largest in the world, and tap an already available world market. But this is not possible without significant outside investment.

Once again, detailed risk analysis becomes mandatory.

When I structure such analysis anywhere in the world, there are eight main categories to be considered: operational; political/geopolitical; market, project infrastructure; taxation/royalties; regulatory; trade; and finance.

Clearly, the second factor from the above list is becoming (once again) a huge impediment. Tension levels are spiking between Washington and Tehran, leading to Iran as one of seven countries on Trump’s no visa list. In response, Iran has announced no visas for Americans.

Iran So Far Away From Easy Answers

My LNG focus in Frankfurt was to be the first phase of a broader focus. But the tit-for-tat on visas has created a personal problem. I was to appear at the annual Iranian Oil Summit in Tehran. Matters may settle before that summit convenes in May, but I wouldn’t bet on it.

Which means the tactics must change even though the window won’t remain open for long. Because the Iranian energy situation is getting worse. Years of Western sanctions have exacerbated field and infrastructure problems. For example, several years ago, pressure at major oil fields declined to levels at which associated gas could not be recovered. That in turn has led to lower rates of secondary recovery. Meanwhile, lack of access to outside technology and expertise has led to a spiraling decline in production efficiency.

Throughout the last five years, the single biggest problem experienced by Tehran has been the lack of access to Western banking. This has resulted in barter, indirect finance, and currency surrogates. All of these workarounds have increased the cost of selling hydrocarbons and reduced the resulting revenue. When a drastic decline in sales is factored in – also a result of sanctions – the domestic economy imploded.

The nuclear accord brought about the prospect of Iran finally returning to the global oil and gas market. Tehran was quick to declare that it intended to return to pre-sanction levels of oil production and exports.

That level has essentially been reached and Iran has signed on to the historic accord between OPEC and non-cartel producers to cut (cap in Iran’s case) crude oil production. That agreement commenced in January and production cuts appear to be holding. A rise in global oil prices has resulted.

Yet for Iran, time is not on their side. The downward curve in field operations has not been reversed, while moves to augment a recovery in oil with a ramping up for natural gas has also been stymied.

Which brings us back to the summit this week in Frankfurt and the gambit Tehran needs to play. Nothing Iran has in mind is possible without considerable outside finance, both private and institutional. Much of that must be in areas beyond single projects. There, foreign operating   partners will be shouldering the costs.

Once again, that’s what I am here to discuss. I have a private/institutional flexible structure in mind, one that has been on the agenda of sessions I have advised over the past several months in London, Abu Dhabi, and last week in Paris.

But Iran must move in specific ways to provide a lowered risk environment.

This may well turn out to be an exhausting week.

About the Author


Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk management, emerging market economic development, and market risk assessment.

He serves as an advisor to the highest levels of 27 countries, including the U.S., Russian, Kazakh, Chinese, Iraqi, and Kurdish governments, to the governors of several U.S. states, and to the premiers of two Canadian provinces. He’s served as a consultant to private companies, financial institutions and law firms in 29 countries, and has appeared more than 2,300 times as a featured radio-and-television commentator. He appears regularly on ABC, BBC, Bloomberg TV, CBS, CNBC, CNN, NBC, Russian RTV, and the Fox Business Network.

A prolific writer and lecturer, his six books, more than 2,700 professional and market publications, and over 650 private/public sector presentations and workshops have appeared in 47 countries.