Gas exports to endanger Iran’s energy security

Gas exports to endanger Iran’s energy security

By Dalga Khatinoglu

Iran sits on the world's largest natural gas reserves. The country's estimated reserves are around 33.6 trillion cubic meters or 18 per cent of the world's total proven gas reserves.

However, the development rate of the country's gas projects is slow, and gas accounts for a major share of Iran's energy conumption. Iranian Oil Miniser Bijan Namdar Zanganeh puts the figure at 70 per cent.

During the past month, several reports suggested that the capital, Tehran, and other cities across the country were facing gas shortage. Also it was reported that LNG distribution at the gas stations have been halted and the government was forced to feed liquied gas to power plants instead of natural gas.

In the latest case, Iranian media outlets reported that the oil ministry has ordered the petrochemical complexes to lower their production rate to the least possible, or even halt production until further notice.

Ahmad Mahdavi, the Director General of Petrochemical Employers Association told Mehr News Agency on Feb.4 that the damage of decreasing or halting the petrochemical production during last 40 days is estimated at $1.5 billion.

Iranian petrochemical complexes daily need some 30 to 35 million cubic meters of gas, but the gas supply to petrochemical complexes was reportedly decreased to 15 million cubic meters in the past week.

Iran also decreased supplying gas to power plants to 50 million cubic meters per day. It is while the country's power plants daily need 135 million cubic meters of gas. Iran also cut gas supply to some cement producing factories.

Iran's domestic LNG consumption is around 17 to 20 million cubic meters.

Based on the official reports of the oil ministry, the country's total gas consumption on Feb. 4 was around 570 million cubic meteres. Households' consumption accounted for over 518 million cubic meters of the mentioned figure.

Iranian oil officials previously said that the country imported around 7 million cubic meters of gas from Turkmenistan during the warm months of the previous year. However, the Mehr News Agency reported last month that the figure has risen to 22 million cubic meters.

Reza Araqi and Abdolhosein Samari, managing director and deputy director of National Iranian Gas Company, has repeatedly put Iran's total gas refining capacity, including imported gas from Turkmenitstan, at 600 million cubic meters per day. The figure also includes 7 million cubic meters of gas pumped each day from Iran's only active gas storage facility, Sarajeh, to the country' national gas netwrok.

Iran is obliged to export 30 million cubic meters of gas per day to Turkey. However, the country has managed to export only 25 million cubic meters of gas per day to its western neighbor in the past few years.

So, not considering its gas swap with Azerbaijan and bartering Iranain gas with Armenian electricity, Tehran has only 575 million cubic meters of gas per day to meet its domestic demands.

Industrial sector and the need to inject gas to oilfields

With a sharp rise in Iranian households' gas consumption, the country has only 57 million cubic meters of gas per day to feed to its industrial units. Iranian petrochemical complexes and power plants need 175 million cubic meters of gas per day, while other industrial units need 65 million cubic meters.

On the other hand, the oil ministry has planned to inject at least 200 million cubic meters of gas per day to the old oilfields, which account for 80 per cent of Iran's total oil output. It is while, even in the warm months, Iran manages to inject less than 90 million cubic meters to the old oilfields and in the cold months there is practically no extra gas to be injected to the oilfields.

According to the U.S. Energy Information Administration (EIA), Iran's old oilfields annually lose around 8 to 13 percent of their production capacity.

Iran eyes to increase its gas production at the giant South Pars gas field to 700 million cubic meters per day from the current figure of 285 million cubic meters, but even in the best scenatrio, the development project will take five years.

Gas export contracts

In addition to the gas shortage, Iran has two gas exports contracts with Iraq, one with Pakistan, and a gas exports memorandum of understanding with Oman. The country also has to annually export of 10 billion cubic meters of gas to Turkey based on the contract signed in 1996. So excluding the MoU with Oman, Iran is obliged to export at least 140 million cubic meters of gas per day to neighboring countries in the short term.

Iran has to spend billions of dollars to construct necessary infrastructure for exporting gas to Iraq and Pakistan. The country also is in dire need of increasing the rate of gas injection to its oilfields.

Tehran's domestic gas consumption increases by 7 per cent each year as well.

It seems that in warm months, Iran has more gas to export since the households' consumption falls. However, last spring, the country was forced to feed 6 billion liters of liquid fuel to its power plants instead of gas.

Tehran fed 23.257 billion liters of liquid fuel in total to its power plants in the previous Iranian calendar year (which ended March 20, 2013). The figure is expected to rise to 29 billion liters worth $22 billion in the current year.

Iran's attempt to fulfill its gas exports obligations will severely endanger the country's energy security, especially in the cold months. Also it will limit the country's ability to inject natural gas to its old oilfields, as well as its ability to provide enough gas to feed its industrial units.

By comparing global prices of oil and gas, considering the nearly 80 percent share of oil in Iran's total exports, and the annual natural reduction in the country's oil output, the best choice for Iran in the medium term is to inject more natural gas to its old oilfields.

By increasing LNG output, Iran also can decrease its gasoline consumption and save billion of dollars annually.

Based on the official reports released by Iran's Department of Envionment, the country's air pollution damage, mainly caused by consuming liquid fuel in power plants and automobiles, is estimated at around $8 billion per year.

If Iran manages to implement its long-term programs and absorb enough capital, and if the sactions are lifted completely, the country may be able to become an important player in the world's gas market by 2025. But before that, such an achievement is not likely.

Dalga Khatinoglu is Trend Persian Service head

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