The prospects of Tehran doubling its production capacity and freeing up gas for the export market within five years are marginal at best
Iran has major plans to boost gas production. In October, in a bid to meet growing domestic demand and to supply gas-hungry Europe, Tehran announced plans to spend $200bn on building refineries, developing reserves and constructing pipelines. Its aim is to boost gas production from its current 600 million cubic metres a day (cm/d) to 1 billion cm/d by 2014.
At 948 trillion cubic feet, Iran has the second-largest gas reserves in the world after Russia. On paper, the Islamic Republic has more than enough gas to be one of the world’s major exporters.
But industry observers have raised doubts over whether Iran’s ambitious plans will ever come to fruition. These doubts centre on the country’s current gas production level, which some analysts suggest is closer to 500 million cm/d. They say 600 million cm/d is the target rather than actual production capacity.
“Iran’s parliament has made progress towards removing the heavy subsidies on domestic gas supplies”
The prospects of Tehran doubling its production capacity and freeing up substantial gas for the export market, all within five years, are marginal at best.
For Tehran to come close to meeting its targets, it will need to overcome four major barriers: domestic gas subsidies, demands to use gas for re-injection in maturing oil fields, political obstacles to attracting foreign finance, and an unappealing contract model for international companies.
Iran’s parliament has made progress towards removing the heavy subsidies on domestic gas supplies. In October, MPs ratified a bill calling for domestic gas prices to rise to 75 per cent of export prices by 2015. But the implemen-tation of the bill will be painful, as the Iranian people – in common with consumers in the GCC countries – view subsidised gas prices as their birthright.
Until this mindset changes, Tehran will face an uphill struggle to meet its ambitious targets.