Iran needs reform of gas sector

As international companies are awaiting the practical consequences of the implementation of the interim nuclear deal between Iran and world powers, one issue is certain: Gas will be at the core of Iranian developments over the next decade.

With 33.6 trillion cubic meters (about 18% of global reserves) of proven gas, Iran is, next to Russia, one of the top two countries with regard to conventional gas reserves. In terms of natural gas production, the country ranks first in the Middle East, and third in the world after the United States and Russia. Nonetheless, sanctions, mismanagement and wasteful domestic energy consumption have all suppressed the potential of Iran’s gas sector.

Iran currently produces 160 billion cubic meters of gas annually and consumes almost all of this amount domestically. Iran’s marginal gas exports are possible due to its imports from Turkmenistan: Tehran imports about 7 billion cubic meters of gas per year from Turkmenistan and exports about 10 billion cubic meters per year to Turkey. Other export plans are on the horizon, especially gas exports to Iraq as new production comes online.

Iran’s limited gas exports are not the problem. In fact, from a macroeconomic point of view, it may be more valuable for Iran to export gas and energy in other forms, such as electricity or products of so-called gas-based industries (petrochemicals, steel, cement and aluminum). One can argue that, currently, a segment of Iran’s gas export potential is being realized in the form of such products, especially petrochemicals and cement. However, the core problem is the enormously high residential and commercial energy consumption.

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