Iranian gas policy attacked

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Analysis: Iranian gas policy attacked
Parliament researchers in Iran urge scrapping of Gas Export Policy. Energy analyst Samuel Ciszuk reports

Iran's influential Research Centre of Parliament has said that potential gas exports ‘are 10 years away’, while a former oil minister claims that the current policy will lead to a ‘catastrophe’, in a weekend of unusually candid challenges to government policies.

Iran's former oil minister, Kazem Vaziri Hamaneh, is reported to have warned President Mahmoud Ahmedinejad of a looming ‘catastrophe’ in the country's energy sector, in his official parting speech during the hand-over ceremony to his successor, caretaker Oil Minister Gholamhossein Nozari.

Warning that the country's high energy consumption created a dangerous situation, Vaziri Hamaneh told the audience that "if we do not find a solution to the energy problem in the next 15 years, the country will face a catastrophe", Iran's student news agency ISNA reported. "I am ready to prove that if the fuel situation continues along current trends we will face an energy crisis in the future," he said. "The current pattern of consumption is a disaster for the country." He also confirmed rumours that he had been sacked by President Ahmedinejad, launching a scathing (in Iranian terms) attack on the president's policies and terms of rule by saying that in the "two years of Ahmedinejad's government, oil managers had been forced to pay for all mistakes made in the past. And I say here if these group's pressures are not stopped, the industry and the country will face crisis."

Vaziri Hamaneh's uncharacteristically candid parting speech (19th August) shows that the technocrat minister, faithfully running his master's errands for well over a year and a half, has not done so without a certain measure of frustration. Iran recently enforced a hugely unpopular fuel-rationing scheme in an attempt to curb wasteful consumer patterns, for which the Oil Minister became the public face, although it seems that his and his ministry's experts were largely overridden when it came to how the scheme should be designed in order to succeed in reversing the country's high fuel consumption growth.

Iran, which suffers both from falling oil export levels of up to 5 per cent annually due to maturing oilfields and inadequate investment in enhanced oil recovery (EOR) technologies and field upgrades, has come to supply its population with hugely subsidised fuels that have to be imported due to the country's lack of sufficient refining capacity.

The recent rationing scheme, while lowering consumption, has failed to bring demand down to the level of domestic production and the lack of a facility for consumers to buy gasoline (petrol) outside the quotas at market prices, advocated by the oil ministry experts, has failed to give the population a grasp of the real value of gasoline. Clearly, by making the point now, Vaziri Hamaneh wants to stimulate media and parliamentary debate on the issue, as Iran still has to budget for gasoline imports at the value of billions of US dollars per year, while export revenues and output are shrinking rapidly.

Iran's oil ministry was also indirectly criticised by the president during the fuel-rationing protests for not building more refineries, while virtually all export revenues have been spent by the president on regional infrastructure and industry projects as part of his populist securing of countryside votes, or on the country's vast offshore gas production projects. This seems to be at the heart of Vaziri Hamaneh's criticism of Ahmedinejad's treatment of his ministry's officials.
A critical parliament

The Iranian parliament's research centre this weekend delivered a further blow to the president's grandiose push for Iranian gas export capacity by claiming that Iran would not have enough gas to sustain exports for another 10 years.

"It seems that for at least the next 10 years there will not be any extra gas for export. Iran is advised to remove gas export from the country's policy due to the limited production capacity," Agence France-Presse (AFP) reported it as saying.

Iran currently exports only small levels of gas to Turkey, offset by a similar amount being imported from Turkmenistan to cover supply shortages in northern Iran, although several vast export schemes are being pursued. US-led financial sanctions against Iran over its alleged nuclear weapons programme and its uranium enrichment has severely hurt its gas development, depriving it of technology access, investments, and credits, and placing the programmes years behind schedule. In a climate of sliding oil export revenues and rising fuel consumption costs, the research body takes the line adopted by a seemingly growing body of parliamentarians, who assert that Iranian gas should be used to supplant the fuel import needs as much as possible, as well as increased volumes being used in reinjection to maximise the oil output. Since oil is easier to market and harder to sanction, and Iran would lessen its vulnerability to gasoline import sanctions, this argument has a national security dimension quite apart from its economic benefits.

Outlook and implications

The criticism seems to herald a new and more unified push by factions opposed to Ahmedinejad's policies in parliament, and it remains to be seen if this debate might come to include Iran's powerful clerics surrounding Supreme Leader Ayatollah Ali al-Khamenei. For Ahmedinejad, the position might be a very hard one from which to climb down, since the development of Iran's gas fields and export capability has been portrayed by him as a matter of national pride and symbolic of Iran's advancement under the Islamic Republic.

As the country is increasingly short of funds, however, and its gas development projects are severely lagging behind, there is a case for a readjustment of the oil and gas policies, both from an economical and security point of view. Iran's showcase development of LNG and gas-to-liquids (GTL) capacity already seems to have stalled due to the lack of international technology and investment, but the country could reroute the gas into its own network instead and promote its use in the country's old and decrepit electricity and heat-generating systems, offsetting oil production and maybe even halting the output fall by reinjecting greater volumes, in order to raise oil export revenues that the United States would not be able to deny Iran through sanctions.

Ahmadinejad has a lot invested in the gas development and export projects, especially since he has pinned much of his high-profile regional diplomacy and policies on them, and it will be very hard for him to turn the policies around. Unless international investments start flowing in, however, Iran's expansionist oil and gas policy literally risks running out of fuel before then, with less oil and no gas being monetised despite huge investments having been made, causing a major meltdown of the Islamic Republic's energy sector and policies.

Samuel Ciszuk is Middle East energy analyst with Global Insight.