Iran faces winter shortages as gas output slows

Tamsin Carlisle

• Last Updated: November 19. 2009 7:20PM UAE / November 19. 2009 3:20PM GMT

Iran, which has the world’s second-largest gas reserves, will be unable to raise output in the next three years and will need more gas from abroad to meet rising domestic demand.

The projection, reported by the semi-official Mehr news agency, suggests Iran will continue to face winter gas shortages as usage of the fuel increases.

It also implies that countries seeking to import gas from Iran will remain disappointed.
“The gas production capacity in this year [ending March 20] would be the same as the last year’s,” said Mohammad Owji, the head of the National Iranian Gas Company, in the Mehr report. “It is predicted there will be no output increase in the next three years.”

Despite having nearly 30 trillion cubic metres of proved gas reserves – an amount exceeded only by Russia – Iran has pumped less of the fuel than it consumed in seven of the past eight years, including last year.

Nevertheless, Tehran was confident that gas supplies would be sufficient to meet demand this year and failed to allocate money from its annual budget to import diesel as an alternative fuel for power generation.

However, officials have predicted in recent months that Iran could run short of about 200 million cu metres of gas per day this winter. That has led the government to seek more imports from Turkmenistan. Mohammad Forghani, the Iranian ambassador to Turkmenistan, told Bloomberg News yesterday that his country would more than double its imports of Turkmen gas to 20 billion cu metres next year, after expanding a cross-border pipeline.

Apart from being bad news for Iran’s roughly 70 million people, the looming gas shortage will not please the customers and shareholders of Dana Gas, a Sharjah-based company that has been waiting more than three years to market supplies of Iranian gas in the UAE.

Under a contract signed in 2001 with Dana’s biggest shareholder, the private Sharjah company Crescent Petroleum, the National Iranian Oil Company (NIOC) was supposed to start the gas exports in late 2005. Recently, however, NIOC has said it may not proceed with the stalled project and Crescent has initiated international arbitration to protect itself.

“We continue not to include the project in our forecast,” Scott Darling, an analyst with Nomura International, wrote last week in a report on Dana.
NIOC “is likely to put off investment in other pipeline projects from Iran at a time when the country needs to maximise its gas value”, he added.

Tehran has agreed to build a major pipeline to supply gas to Pakistan in the past year, and has expressed interest in exporting gas to Europe through the proposed Nabucco pipeline, which is scheduled for completion in 2014. It has also signed a preliminary agreement with Oman for the joint development of a gasfield with a view to exporting gas to the Arab state through an undersea pipeline.

Still, it is unlikely for at least the next few years that Iran will have sufficient gas available to fill the proposed pipelines. That is partly because US and UN sanctions over its controversial nuclear programme have hampered access to western technology and investment, slowing the development of its gas reserves. Analysts have also blamed bureaucratic red tape for the slow progress of development, while noting that generous Iranian fuel subsidies have done nothing to curb domestic demand.

The Iranian parliament last month voted to adopt a five-year plan to bring fuel prices gradually into line with international markets, approving the broad outlines of a government proposal to recoup some of its roughly US$90 billion (Dh330.57bn) of annual spending on food and fuel subsidies.

This month, however, parliamentarians rejected a plan to compensate only poor families, opening the door to what could be the most serious challenge to the Iranian president Mahmoud Ahmadinejad since the wave of protests that followed his re-election last summer.

tcarlisle@thenational.ae