Iran is home to one of the world’s biggest crude oil reserves. Globally, it has the second largest natural oil reserves that hold approximately 27.5 trillion cubic metres of natural gas. in 2013, Iran produced 172.6 billion cubic metres and exported 9.584 billion cubic metres.
Despite the resources, the production of crude oil and the growth of natural gas have steadily slowed down. Due the country’s political landscape and with the imposed international sanctions, several oil and gas projects in the country were cancelled which negatively affected its energy sector.
Effect of sanctions on Iran’s natural gas production
The sanctions imposed by the European Union and the United States back in 2011 and 2012 have had major impacts on the country’s oil production. With enacted measures, Iran suffered a huge blow as the sanctions hampered the sale of oil, resulting in huge declines in oil exports. Based on the estimates of IMF, the oil and natural gas export revenues sharply declined by about 10% amounting to $56 billion in 2013. The production growth fell short of the expected value brought about by low foreign investment and lack of technology.
South pars - The world’s largest gas field
In 2014, natural gas production bounced back with the new phase development at South Pars located in the Persian Gulf. South Pars is Iran’s way to fight against the unfavourable sanctions and establishing their prowess in the natural gas sector. Today, it is the world’s largest natural gas field and is set to be largely operational by 2017.
Earlier this year, South Pars’ phases 15 and 16 for gas production with phases 17 and 18 almost complete. South Pars offered the opportunity for domestic companies to take over the production when foreign companies pulled out.
Iran wants to increase South Pars gas production from its current levels of 350 mcm/d to 800 mcm/d by 2019. This requires completing 19 new phases of South Pars (Phases 11 to 29) with investing at least $43 billion. This means that Iran’s natural gas production would stand at least at 1,100 mcm/d by 2019 totally.
The natural gas distribution system
With implementation of the domestic market expansion policy, the country added distribution networks. In 2012, the total urban and rural natural gas distribution network was about 225,000 km. It supplied gas to about 15.35 million industrial, commercial units and households and about 69 power generation plants In 2014, Iran has delivered more than 50 bcm natural gas to power plant section which is about 14 bcm more than the previous year. Since 2002, the natural gas distribution network in the country has only been increasing.
Iran as EU supplier of natural gas
Owing to the recent nuclear deal between The European Union and Tehran, Iran can now export its gas to EU countries which can promote the country as being a major supplier of natural gas. This can also reduce the dependence of European countries on importing natural gas from Russia.
With its 34 trillion cubic metres of natural gas reserves, a level sufficient to satisfy current EU natural gas demand for 90 years. Iran has the highest reserves in the world. Natural gas makes up almost one-third of the Iran’s energy consumption. For the nation to develop this sector by pumping production, increasing exports and commercialising gas globally, the government needs to investment more into it.
There are two reasons for the under-exploitation of Iran’s natural gas resources: the international sanctions regime (that has targeted the country’s energy sector since 2007) and the country’s legal petroleum framework (the so-called ‘buyback scheme’, encumbered by very unattractive terms for international energy companies). However, the Iranian government has been working on the reform of its legal petroleum framework since 2013, mainly following the model adopted in Iraq, with the aim of making it more attractive to international energy companies.
In the short term, the Iranian natural gas industry will most likely focus on the domestic market, and on limited amounts of regional exports. In the aftermath of the nuclear deal, Iran is set to concentrate its energy strategy on the development of the oil sector. In this framework, more natural gas might be utilized for reinjection into oil fields in order to sustain growing oil production and exports. In parallel to this, Iran will try to use its natural gas resources to improve the competitiveness of its economy, through a larger share of power generation based on cheap natural gas, and through further investments in natural gas-fuelled vehicles, in a move to reduce the domestic consumption of oil, which could thus be freed up for additional exports.
Based on country data, the potential is huge and opportunities are immense as natural gas has been identified as the fuel of the future and Iran holds the key to realising this. The major lacunae, and chance, still lies in the areas of foreign investment and technological support.