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Iran’s growing gas output vs. dwindling prices: any practical use?

Commentary Materials 11 February 2017 15:15 (UTC +04:00)
Iran has been ramping up its natural gas output as part of efforts both to increase its income and catch up with the countries with home it shares gas fields
Iran’s growing gas output vs. dwindling prices: any practical use?

Tehran, Iran, February 11

By Mehdi Sepahvand –- Trend:

Iran has been ramping up its natural gas output as part of efforts both to increase its income and catch up with the countries with home it shares gas fields. Iran shares gas fields with neighbors such as Qatar, Saudi Arabia, Kuwait, and Iraq. Iran currently produces over 600 mcm/d of gas.

Recently, Deputy Oil Minister Hamidreza Araqi said within the 6th Development Plan (2017 to 2022), Iran intends to achieve the export of 200 mcm/d of gas. But, as much as the country’s gas output increases, the revenue is falling. According to official reports, Iran’s gas export price plunged from $450 per thousand cubic meters in 1H14 to about $250 currently (a 44 percent decrease).

A proper strategy the country has adopted to make the best it can of the situation is to use gas domestically as much as possible, replacing it for much liquid fuel previously used in various sectors, from power generation to industries and transport. However, Iran is going to produce more than that and it would have to find some use for the gas overseas. Iran is also considering the generation and export of electricity produced in gas-powered plants. The profitability of this is, however, the subject of much debate. Naturally the use we are talking about would, due to market situations, not be instantly lucrative, but will give the country political advantages, and via that, economic gain in the future.

A case in point was mentioned last year by Deputy Oil Minister Amir Hossein Zamaninia when he said Iran wants to use gas export to create “political cohesion” with other countries. The reality is that Iran’s economy at present does little to create such cohesion. Recently Dr. Mahmoud Sariolghalam, professor of International Relations at the School of Economics and Political Science in Shahid Beheshti University, said the fact that Iran is easily put under sanctions is because strong interests in preserving economic ties with Iran do not exist for the countries that impose the sections.

“A great part of respect extended from one country to another comes from need, not ethics,” he said, adding many countries that politically violate the interests of the U.S., for example, are not so easily put under sanctions by Washington because the States need them on economic grounds. This is while, according to the World Trade Organization, in 2016 Iran’s trade value stood at $63 billion, sharing 0.4 percent of world trade.

On the export front, Iran is looking forward to adding Oman to its customers in mid-term. There are a number of projects underway, but their fates are not so clear. The Iran-Oman natural gas pipeline first proposed in 2013 is on track to come on-stream by 2020, authorities have said. Through this project, Iran will export 28 million cubic meters of natural gas per day to Oman - part of it will be consumed by the country, while the rest will be turned into LNG and exported on behalf of Iran. Also, it has been said that a long-awaited gas pipeline project between Iran and Pakistan will complete by 2018. Iran plans to deliver 21.5 mcm/d of gas to Pakistan through the project. Nonetheless, Iran has said it is ready to start exporting 25 million cubic meters (mcm) a day of gas to Iraq via a 270-kilometer pipeline. The amount would increase to as high as 35 mcm/d during summer. Iran also exports about 27 mcm/d of gas to Turkey.

Iran is also considering a long-term project to export gas to Europe, either via pipeline or as LNG. This, however, is subject to development of two important players’ gas exports to the continent, one being Russia, which already enjoys good footing in the European market, and the other being the U.S. with its newly out unconventional resources.

As the market indicates, the export of gas may not be quite a money-making business for Iran, the prices falling as the market is becoming more and more saturated. Yet if Iran stops extracting gas, the countries which share many of its gas fields will just take away the resources. In such circumstances, therefore, Iran can use the export of gas for reasons other than direct economic gain, namely strengthening of ties with other countries and creating cohesion.

Follow the author on Twitter: @mehdisepahvand

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