Al Monitor| Nikolay Kozhanov: Statements by Iranian officials on Tehran’s intentions to enter the European gas market still remain part of the political game played by Islamic Republic authorities to make the West more inclined to lift sanctions and restore its economic ties with Iran. To date, however, these statements seem to have had more effect on the behavior of the Russian government and its hydrocarbon companies than on European companies.


Since the late 1990s, Iranian authorities have been promising to help European countries decrease their dependence on gas supplies from Russia. Between 2006 and 2015, at the least, international sanctions were a major obstacle blocking implementation of projects that were supposed to ensure Iran’s access to the European gas market. European corporations, fearing being hit by Western sanctions, did not dare to develop a presence in the Iranian oil and gas sector beyond mere talks and discussions. Nevertheless, the adoption of the Joint Comprehensive Plan of Action and the beginnings of a gradual lifting of limits on cooperation with Iran clearly demonstrated that the core of the issue was not rooted exclusively in the sanctions but rather also involved Iran's energy infrastructure. Iranian natural gas still will not reach the European Union market in the medium term.

Although Iran possesses the largest reserves of natural gas in the world, its extraction capacities and gas transport infrastructure are still underdeveloped. Consequently, Iran is unable to immediately increase its exports abroad. The output of Iran’s gas sector is about 251 billion cubic meters per year, of which it exports only about 6 billion cubic meters. At the same time, Iran also needs to import relatively the same amount from Turkmenistan to meet export obligations (which are reportedly twice as big as Iran’s export capacities) and satisfy the needs of its northern provinces during winter. Iranian sources told Al-Monitor on condition of anonymity that the estimated investment needed to develop Iran’s capacities to extract the natural gas and deliver it to external markets is immense — dozens of billions of dollars — making it difficult to accumulate the necessary funds and implement planned projects in a short period of time. Even in the best-case scenario, it will take Iran three to five years to reach an output of 307 billion cubic meters.

Nevertheless, such an increase in output does not mean that the export capacities of Tehran will rise adequately. This is largely determined by the structure of domestic energy consumption in Iran, which is dominated by gas. While promising to supply European countries with gas, the Iranian authorities set the satisfaction of domestic gas needs as their real priority. And these needs are high and still growing. For the last several decades, the Iranian government has been actively promoting the idea of the substitution of other energy resources with natural gas. Consequently, the share of natural gas in the country’s energy consumption basket is about 60%, while oil’s share is below 40%. The government also continues to subsidize natural gas prices to its population, which also leads to a high level of consumption of this resource.
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