GAS I: Iran claims a place in the race

01 November 1996

SOME time before the end of the century Iran will have in place a short pipeline for the import of natural gas from neighbouring Turkmenistan. At the same time, a much longer pipeline is due to open in the west for the export of Iranian gas to Turkey and, eventually, to Europe.

It seems rather odd that the country with the world's second biggest gas reserves should also need to import it. Equally remarkable is the absence of gas-rich Iran from the list of gas exporting countries - at least until completion of the proposed pipeline to Turkey.

Iran's gas sector is full of such contradictions. Yet, after years of relative inaction, economic and political pressures are forcing the country to resolve them. Natural gas is now projected to provide $3,000 million in annual export earnings by the turn of the century. It will also be used to reduce domestic reliance on oil, and enhance the recovery of crude oil from maturing oil wells. Juggling these plans, especially at a time of financial problems, will not be easy.

When the revolutionary government came to power in 1979, it reversed the former Shah's strategy of devoting almost all investment in gas to export projects. Instead, it launched a massive plan for domestic utilisation. This meant stopping a number of proposals for LNG supplies to Japan and the US, the suspension of supplies to the then Soviet Union through the IGAT-1 trunkline, and halting construction of the northern sector of a second export line, IGAT-2.

Over the next 15 years the number of Iranian cities and towns receiving piped gas supplies duly rose from almost none to more than 200. The volume of gas used to generate electricity rose by more than 100 per cent. Since the end of the 1980-88 Iran-Iraq war, overall domestic gas consumption has doubled to about 40,000 million cubic metres a year (mcm/y).

Gas refining capacity has also expanded considerably. The 80 million cubic metre-a-day (mcm/d) Nar-Kangan project, dating from before the revolution, was implemented, and the first phase of the nearby Agar-Dalan refinery, which will eventually treat 40 mcm/d, came on stream in 1996. These are in addition to expanded facilities at Sarakhs, in the northeast, and Salakh, near Bandar Abbas on the Gulf coast.

The Oil Ministry still has a long way to go to achieve its domestic gas utilisation targets. The national pipeline network is sometimes unable to meet peak demand in Tehran and some other regions. The trunkline network needs further substantial investment because the gas fields are huge distances away from population centres.

More of the country's gas resources also need to be harnessed. The immense reserves amount to at least 21 million million cubic metres (mmcm), and could be as high as 27 mmcm, but they are mostly untapped. Of the two big new projects, North and South Pars, the first has been delayed indefinitely and the second will take several years before first-phase production.

Pars prospects

National Iranian Oil Company (NIOC) announced in August that local firms had started work on the first phase of the offshore South Pars field and that foreign bids for the $900 million second phase were being evaluated. The leading bidder was Royal Dutch/Shell, whose officials have confirmed that negotiations are continuing despite threatened US sanctions.

Iran suffers from a high waste factor in its use of associated gas. The proportion of gas being flared has gone down to one-fifth of total production, from one-third in the late 1980s, but this is only because utilisation has nearly doubled. Every year, about 12,000 mcm of associated gas is still being flared off.

Iran's oil fields also require large amounts of gas for reinjection as they are run down. No confirmed figures are available, but utilisation in 1995 could have been about 5,000 mcm. Usage is expected to rise to several times this amount. For example, the Bibi Hakimeh gas injection project started in mid-1996 requires just over 1,500 mcm/y of gas - in this case associated gas from a nearby oil field.

Despite the gas it requires for domestic use Tehran has in recent years been looking at export projects, because it expects both economic and political benefits, and because it feels under pressure to act.

Politically, officials see export and transit pipelines as a useful way of creating organic ties with neighbouring states, particularly with the southern CIS states. US pressures to isolate Iran have only lent greater urgency to these plans.

Turkmenistan, which has some of the largest gas reserves in Central Asia but no export route, has been offered an export line across Iran to Turkey and Europe. This would be a huge undertaking against financial and political obstacles, not least overt US hostility. But, in order to get things moving, as well as to meet local gas shortages in the north, the oil ministry is rushing through with a modest 200-kilometre pipeline that would link the Turkmen gas fields with Iran's pipeline network. The 40-inch line is to start transporting 1,500 mcm/y of gas in late 1997; capacity is to increase to an eventual 8,000 mcm/y.

Beyond promoting itself as a transit route, Iran has been offering and negotiating a multitude of pipeline projects to supply Pakistan and India in the east, and Turkey and Europe in the west. Even those emirates of the UAE that need gas have been offered Iranian supplies.

These offers are being made against a backdrop of rival gas supply and transit schemes, including Qatari and Omani supply proposals for India and transit proposals for Turkmenistan via Russia and Afghanistan. Tehran feels it is in danger of being left behind unless it takes a lead.

If Iran can achieve its ambition of exporting gas worth $3,000 million a year in hard currency by 2000 it would be equivalent to 20 per cent of its current oil revenues. But there may also be other benefits for Iran if some of its proposals mean it can develop its infrastructure and export routes cheaply by pooling resources with others. This would be the case, for example, if it can team up with Turkmenistan to supply Turkey and Europe.

The Turkey deal alone is expected to be worth $1,000 million in extra annual revenue - or $23,000 million over the 23-year period of the agreement. According to the documents signed on 12 August, the two countries will build a pipeline running almost 1,400 kilometres from Tabriz to Ankara at a cost of $1,000 million-1,500 million. Some 272 kilometres of the line will be on the Iranian side of the border. Supplies of gas are to start in 1999 at a rate of

3,000 mcm/y, rising to 10,000 mcm/y. Capacity will reportedly be easily expandable to 22,000 mcm/y.

Sources say that the National Iranian Gas Company started placing orders this year for equipment for a third trunkline, IGAT-3, from the southern fields to the Turkish border. The line can be laid at minimal cost, they say, since it will run along the IGAT-2 route.

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