OPINION Energy Crisis looms for the Iranian natural gas sector By Dan Tamhar June 2, 2023 Creative Commons/Mohammad Hassanzadeh Javad Owji, Iran's minister of petroleum, said $250bn was needed by the oil and gas sector Gas for domestic market is heavily subsidised Tech investment and collaborative opportunities needed urgently US sanctions lead Iran to turn to Russia While the world’s attention has been focused on the sanctioned Iranian oil industry, another vital part of the country’s energy infrastructure is deteriorating – its natural gas sector. Iran’s domestic economy and its consumers depend far more on gas than they do on oil. But if urgent financial, technical and commercial support is not provided soon, the country faces looming gas shortages, and even a domino-like collapse of its industrial sector. Opec ‘would welcome’ Iran once sanctions lifted Saudi Arabia to invest billions in Iraq, officials say Russia’s Lavrov visits Iran to discuss nuclear deal Iran has the world’s second-largest reserves of natural gas after Russia, with a bank of nearly 34,000 billion cubic metres, according to Opec’s 2022 figures. Most of that is consumed domestically: of the 257 billion cubic metres produced in 2021, only 18 billion cubic metres were exported – mainly to Turkey and Iraq. Iranians consume more than six times the global per capita average, according to official figures. The International Energy Agency confirms that natural gas constitutes a dominant portion of Iran’s energy supply, accounting for nearly 70 percent of the total. A staggering 88 percent of the fuel used in Iran’s power plants is derived from natural gas. Over the last decade natural gas consumption in Iran has grown by 5 percent per year, according to statistics from BP. That growth rate is down to rock-bottom prices. Natural gas has long been subsidised for household and industrial consumers. The tariff for these has been set at between 1.5 and 7 cents per cubic metre, and 14 cents when gas is used as a feedstock for the petrochemical industry, compared with an export price of 30 cents. Reuters/Raheb HomavandiIran faces a significant gas deficit, which poses economic challenges across various sectors Big losses for national gas company This means big losses for the National Iranian Gas Company. The government also subsidises the four million converted natural gas cars on Iranian roads. Drivers pay only 1 cent per cubic metre while consuming 23 million cubic metres daily. When combined with the increase in gas exports, this has led to an imbalance between production and consumption, despite rising production levels. Iran faces a significant gas deficit, particularly during the winter season, with an estimated shortfall of approximately 300 million cubic metres. This has resulted in substantial losses across various sectors of the Iranian economy. Fars news agency estimates that the gas deficit experienced during the winter of 2021 led to a total loss of $23.7 billion in domestic gas sales, exports, petrochemical products, and in other sectors. Tech investment needed Iran also faces technical challenges in gas. The Iranian portion of the South Pars gas field, located in the northern dome of Qatar, currently caters to 75 percent of Iran’s gas needs. However, the Iranian Ministry of Petroleum predicts a rapid decline in South Pars gas production on the Iranian side, with an anticipated annual decrease of 8 percent after 2025. Without substantial investment in the field, including the installation of powerful compressors and the drilling of additional infill wells, Pars Oil and Gas Co. estimates an annual reduction of approximately 28 million cubic metres in South Pars throughput. Last December, Javad Owji, minister of petroleum, said $250 billion was needed in direct investment in the oil and gas sector. Without this, Iran will become a net importer of natural gas and petroleum products, he said. In September 2022, Mohsen Khojasteh-mehr, managing director of the National Iranian Oil Company, said that a minimum of $54 billion was needed to prevent further pressure drops in the South Pars field. Reuters/Sergei SavostyanovRussian President Vladimir Putin met Iranian President Ebrahim Raisi in Tehran last July, when memorandums worth $40 billion were signed with Gazprom US sanctions hinder development Securing financing is not the only obstacle Iran faces. US sanctions hinder the country’s access to technology and the advanced machinery required for significant infrastructure development, including large-scale compression equipment and heavy platforms. To address the gas crisis in the face of US sanctions, Iran has turned to Russia. The plan is to import substantial quantities of Russian gas while pursuing Russian financing and technical assistance to enhance pressure in South Pars and other gas fields. In July 2022, Tehran signed memorandums worth $40 billion with Gazprom, the Russian state gas monopoly. The agreements foresee investment and technical assistance to increase pressure in South Pars, as well as the development of the Kish and North Pars gas fields. Simultaneously, Iran’s Ministry of Petroleum has continued negotiations with Russia to import 10 bcm of gas annually through existing pipelines between Iran and Turkmenistan or Azerbaijan. But limited pipeline capacity between Iran and Russia through Turkmenistan is limited to 55 million cubic metres. This means that the volumes which can be imported from Russia are restricted and fall far short of Iran’s current maximum gas deficit during winter of 300 million cubic metres. The investment and technology required to avert this crisis cannot be fully realised under existing sanctions. Iran must also implement measures to increase the cost of energy in its economy, discouraging excessive consumption, while also keeping a lid on any potential backlash. Iran is at a critical juncture in its natural gas sector. Strategic decision-making and international cooperation are essential to address these challenges. By prioritising investments, securing advanced technology, and exploring collaborative opportunities, Iran can mitigate the gas crisis and create a sustainable future for its natural gas industry, avoiding a domino-like collapse in its industries due to the severe shortage of gas. But it is difficult to see how this comes about without a return to 2015’s Joint Comprehensive Plan of Action, which placed significant restrictions on Iran’s nuclear programme in exchange for sanctions relief.