Half a century later today, Iran is making fresh attempts to increase gas production from the new phases of the supergiant South Pars gas field in a bid to export more gas and win a higher share in this profitable and strategic business.
In order to get further familiar with Iran’s gas policy, Iran Petroleum has conducted an interview with Mohammad-Reza Qodsizadeh, director of planning at National Iranian Gas Company (NIGC).
Q: Why did Iran change policy in the past decades and favored domestic development of gas to the export of this energy commodity?
A: In the aftermath of the [1979] Islamic Revolution in Iran, the country was facing numerous problems including embargoes and repercussions of the [Iraqi imposed] war. Therefore, Iran’s gas industry shifted its outward-looking view to an inward-looking one. In other words, plans were made for natural gas to make up the main energy commodity in the country. Huge natural gas deposits, profitability of replacement of liquid fuel with gas and public satisfaction were among other reasons of switching attention from outside to inside to the gas industry.
Q: Does it mean that Iran’s gas industry would have remained export-oriented had the Islamic Revolution and the Iraqi war not occurred?
A: No! In my opinion it was reasonable to develop gas industry inside the country and the Revolution and the war accelerated this process. Over the past decades, supplanting liquid fuel with gas has earned Iran significant economic benefits.
Q: What is the current status of gas supply in Iran?
A: Gas makes up a 70% share in Iran’s energy mix now. More than 1,000 cities and 20,000 villages are benefiting from this energy. We hope that during the 6th Five-year [Development] Plan, all Iranian cities and villages will be benefiting from gas. Of course, gas supply in hot areas will be developed at a slower place.
Q: Some Iranian villages are located in remote mountainous areas and gas supply to these villages via pipeline would not be economical. What is NIGC’s plan for energy distribution in these villages?
A: In this regard, the policy of governments and the ruling establishment in Iran is important because administrations are tasked with supplying energy to people and it is people who would choose their energy of choice based on their economic status. In Iran, gas has so far been supplied at subsidized and unreal prices. The reason for inclination for gas is easy access and its low price. Meantime, most villages and cities in Iran receive gas via pipeline.
Of course, we have currently plans for some hot and remote areas where gas consumption is low. We plan to use liquefied petroleum gas (LPG) in these areas. Such projects are under way in some provinces like Khuzestan, Isfahan and Sistan and Baluchestan.
Q: Given the low oil prices, are gas supply projects still profitable in Iran?
A: Sure! What has changed due to the slump in oil prices is the length of the time of return on investment because we believe that using natural gas will have economic justification under any circumstances. Therefore, low oil prices could not much affect gas distribution network development in Iran. Oil prices are low now and we have more than 20 cents per cubic meter of gas that would replace liquid fuels like gasoil. A weak point of this industry is the low price of gas. This issue leaves no motivation for the application of state-of-the-art technology for efficient fuel and using other fuels.
Q: Given the increase in gas production in the country following the startup of new phases of South Pars, what is the status of fuel supply to industries and power plants and what are your future plans in this regard?
A: Every year, as gas production from South Pars increases and gas supply projects come on-stream, liquid fuel consumption in the country, particularly at power plants and major industries, drops. Gas supply to Iranian power plants has reached 90% and according to plans liquid fuel consumption at power plants is expected to reach zero in five years. In the [calendar] year 1394 (which ended in March), more than 57 bcm of gas was consumed at Iran power plants. If they were to consume liquid fuel we had to spend at least $20 billion. Natural gas consumption has grown on average 10% a year. Given gas distribution in Sistan and Baluchestan Province, we predict power plants’ consumption to reach $60 billion by yearend.
Q: What are NIGC’s new plans for enhancing gas exports?
A: In case of optimal use of gas in different sectors, it will be possible to increase exporting this energy carrier or electricity. Gas is a national wealth belonging to all generations and its consumption must be efficient.
Over the coming two years, gas supply to households in Iran will be slowed down sharply because we have reached a stage of saturation in this sector. After that, by increasing the number of cultural and education projects we plan to make gas consumption efficient in Iran, in a bid to have a bigger share of global gas trade.
According to [2020] Vision Plan, Iran must have a share of above 10% in the global gas trade. Currently, our main customer is Turkey besides Armenia and Azerbaijan. Our gas export is expected to increase soon from the current 35 mcm/d to more than 200 mcm/d. Our target markets are Turkey, Iraq, Oman, Kuwait and Pakistan. In case international conditions improve, Iran will be able to partly supply the gas needs of Europe. The reason is that Europe plans to diversify its sources of energy, and gas is considered a clean fuel in Europe.
Our priority for gas exports is to use pipelines. Due to the existence of gas distribution network in Turkey, pipeline is the best way for gas exports to Europe. Of course, gas could be exported in the form of liquefied natural gas (LNG), too. For instance, India which has political disputes with Pakistan favors this method.
Q: Which stage are gas exports to Pakistan in now?
A: Iran has a contract with Pakistan for gas exports. This country was supposed to start recovering gas in 2015 because we had prepared the necessary infrastructure for that purpose, but due to financial reasons it has failed to build pipeline in its own territory. Now we are waiting for decision making by the two countries' officials.
Q: Would you please tell us about NIGC’s plans for expanding gas distribution network and building gas pressure booster stations in the country?
A: As gas production increases mainly from the jointly operated South Pars gas field, Iran is planning to expand its domestic network. Iran’s gas production is forecast to exceed 1 bcm/d by 2025. Based on planning for the transfer of this amount of gas, three new trunklines are envisaged, one of which (Iran Gas Trunkline 6) is mostly ready. IGAT-9 and IGAT-11 will be constructed to supply the country’s needs in central and eastern areas. Once these trunklines become operational gas supply in the country will be sustainable. Based on the 6th Five-Year Plan, 28 gas pressure booster stations are envisaged. Every year five stations will be built as the pipeline construction makes progress.
Q: Given the extent of the gas industry and its need for new projects and application of technologies in this regard, how does NIGC plan to attract domestic and foreign investors?
A: One of the great advantages of Iran is the existence of potential for development. Many countries like Turkey and Malaysia do not enjoy such potential. Realizing the development objectives in this big industry largely depends on the settlement of issues between Iran and big world powers. Fortunately, due to its gas deposits and unique geographical position, our country can easily introduce itself as the energy hub in the world.
There are currently many investors wishing presence in Iran’s gas industry. But they will step into Iran when they are assured of return on their investment. Therefore, the necessary infrastructure must be provided for this purpose.
In the gas sector, if we manage to get foreign finance for our export projects like IGAT-9 and finalize gas export deal with Europe we would have done a great job. This issue is nearing finalization with regard to Iraq.
Q: In your opinion, which one is important under the present circumstances: oil or gas?
A: It is difficult to answer this question, but gas can become national development engine and create more jobs than oil might do. Given the country’s huge gas reserves, in the long term gas will push Iran’s economy ahead.
Q: Given the decline in oil prices in the world, what do you think of the prospect of gas market?
A: It seems that oil prices will be back to a reasonable level in the near future. But as far as gas projects are concerned I would like to note that they are still economical even with $40 oil. By efficient use of gas we have to move towards its exports because besides the economic aspects of the issue it will boost Iran’s national security.
Q: Do you think any sector of gas industry still remains to be developed after 50 years?
A: Yes, of course. There is great potential with regard to building high-pressure pipelines. If we can bring gas production to one billion barrels, many capacities need to be created for development.
Q: How much investment does NIGC need annually for developing its infrastructure?
A: It will need at least $20 billion in investment over the coming five years.
Q: This industry is now half a century old. How do you assess the capability of Iranian contractors and manufacturers involved in this industry?
A: At present we have almost no problems with regard to the supply of necessary commodities by domestic companies. Significant efforts have been made during years of sanctions so that domestic manufacturers would build rotary equipment like turbocompressors. It is noteworthy that our main challenge now is investment.
Iran Petroleum
Your Comment