Simultaneous Risks of Iran's Oil, Gas, and Petrochemical Exports

Iran, with over 33 trillion cubic meters of gas reserves, equivalent to 18% of the world's proven reserves, is still facing a gas shortage. Recent statistics show that almost all of the country's gas production is consumed in three sectors: industry, households, and power generation, leaving no surplus gas. Majid Boujarzadeh, spokesperson for the National Iranian Gas Company, stated that in the 24 hours leading up to December 22, 2023, 569 million cubic meters of gas were consumed in the domestic, commercial, industrial, and power sectors. Gas production in Iran was 485 million cubic meters per day until last winter, but with the early launch of Phase 12 of the South Pars gas field, this figure rose to about 500 million cubic meters, and by the summer of this year, gas production reached approximately 570 to 575 million cubic meters per day. Given this situation, Iran's gas production and consumption have reached a break-even point, while the country needs to inject at least 260 million cubic meters of gas per day into aging oil fields to prevent further declines in oil production. Since 2007, Iran has not launched any new oil production projects, and according to the U.S. Energy Information Administration, most of Iran's active oil fields are in the second half of their lifespan, naturally declining by 8 to 13% annually due to pressure drops. The report states that Iran can only inject 77 million cubic meters of gas daily into oil fields to maintain pressure, while it should inject 260 million cubic meters according to its fifth development plan. Currently, since Iran's gas production is nearly equal to its consumption, there is nothing left for injection into oil wells. The spokesperson also mentioned that 411 million cubic meters of gas are currently consumed in the residential and commercial sectors, with 82 million cubic meters delivered to major industries and 76 million cubic meters to the power sector on Sunday. According to Mojtaba Sheikh Bahai, Deputy for Engineering Affairs of the National Iranian Gas Company, Iran increased its gas production by more than 11 billion cubic meters in the first 260 days of the year. He noted that the share of gas consumption by power plants has also increased by about 8 billion cubic meters. Iran's thermal power plants, which account for over 82% of the country's annual electricity production of 263 billion kilowatt-hours, require 200 million cubic meters of gas daily (73 billion cubic meters annually), but the government plans to supply only 42 billion cubic meters to this sector due to gas shortages, with the remainder supplied by liquid fuel. Last year, only 36 billion cubic meters of gas were delivered to this sector, resulting in the burning of 28 billion liters of diesel and fuel oil for electricity generation. In May of this year, Alireza Ahmadi Yazdi, Director General of the Consumption Management Office of the Iranian Power Generation, Transmission and Distribution Management Company, stated that 547 million tons of pollution from fossil fuels were generated in the country last year, with 222 million tons attributed to pollution from liquid fuel consumption in power plants. According to the World Health Organization, the annual cost of air pollution in Iran is about $16 billion. If Iran could use gas instead of liquid fuel in power plants, it could potentially earn $30 billion from the export of 28 billion liters of liquid fuel and significantly reduce air pollution. One of Iran's plans to reduce dependence on oil revenues is to increase gas production and exports. Last year, Iran added approximately 65 million cubic meters of gas to its production daily, with expectations to add another 100 million cubic meters next year. Iran has contracts to export 45 million cubic meters of gas daily to Iraq, 33 million to Pakistan, and a memorandum for exporting 27 million cubic meters of gas to Oman. Iran exports about 25 million cubic meters of gas to Turkey and buys an equal amount from Turkmenistan. Additionally, Iran has indicated that it is considering the option of exporting gas to Europe. Given the current gas consumption, the country needs an increase of 260 million cubic meters of gas for industrial, power generation, and injection into oil fields; in other words, if Iran wants to meet current domestic needs, it will effectively have no gas for export for several years. David Butler, a senior energy analyst at Chatham House, believes that Iran will have no gas for export for at least the next 10 years. Gas consumption in Iran has increased about 60 times since the early 1980s, indicating a very high growth rate in gas consumption. For instance, household gas consumption in November of this year increased by about 100 million cubic meters per day compared to the same month last year. Total gas consumption in Iran has also shown an increase of over 10% in the past year. Regarding Iran's gas exports, the lack of infrastructure and sanctions are as significant as the gas shortage. Iraq is currently engaged in war, and Pakistan has yet to secure funding for the construction of a gas pipeline despite more than two years since the gas import contract with Iran was implemented. No pipeline has yet been constructed between Iran and Oman either. Mr. Butler states that if Iran could produce at least 20 billion cubic meters of additional gas annually, it could export it to Europe. He noted that Iran could export its gas through Turkey or sell it after converting it to liquefied gas. His reference is to the Trans-Anatolian pipeline, which is expected to connect to the Trans-Adriatic pipeline and transport 10 to 20 billion cubic meters of gas from the Caspian Sea region to Europe annually. These pipelines are likely to be operational by 2019. However, in an interview with Simina Merka, spokesperson for the Trans-Adriatic project, she stated that the project currently plans to deliver gas from Azerbaijan and is particularly unwilling to accept 'sanctioned gas.' The European Union has imposed sanctions on oil and gas imports from Iran. Additionally, until 2008, Iran had signed contracts for the construction of six liquefied natural gas (LNG) production units with a capacity of 70 million tons with foreign companies, the last of which was canceled in 2012. Iran's petrochemical exports currently stand at around $9 billion over the past eight months, despite the lifting of petrochemical sanctions, down from $15 billion before sanctions. Petrochemical products account for about one-third of Iran's total non-oil exports.