Special Report: Oil & Gas - Region's domestic needs hit export plans

30 October 2008

Iran’s export plans neatly encapsulate the problems faced by many of the region’s gas producers. Heavily subsidised prices for domestic consumers are a big burden on the Iranian government, as they are in Egypt. But both governments have created an expectation among consumers of cheap energy.

In the Middle East as a whole, decades of gas subsidies for consumers and industry have stifled further investment in gas production.

The rewards for private investors are unattractive, because of the low tariffs charged, meaning there is little appetite to take on capacity-boosting projects.

These domestic challenges sit alongside the attractions of a growing export market.

Iran has a long-term plan to grow its share of the global gas market from 1 per cent to 10 per cent.

With the country being home to the second-largest reserves in the world, on paper this looks feasible.

But Tehran needs to get its domestic gas supply and pricing right first.

Cairo is in a similar situation. An initial attempt to wean its industries off gas subsidies has not been received well, with the government already hinting that it may rethink its planned phasing out of subsidies.

If the progress with this attempt to deal with domestic gas pricing is anything to go by, the region’s gas export ambitions are a long way from being realised.

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