Iran’s gas consumption is out of control, minister says

Iran, the holder of the world's biggest gas reserves, is on course to become the world's largest importer of natural gas by 2025 unless it can rein in rampant domestic demand, the country's energy ministry has warned.

Domestic consumption is surging as the gas network grows and more gas is needed to sustain output from ageing oilfields.

The country faces severe shortages because production has failed to keep pace with residential and industrial demand.

Iran sits on the world’s largest gas reserves, according to estimates by BP, and Iranian energy officials have boasted for years about becoming a top gas exporter soon. But unless something drastic is done to control use, which has forced Iranian power plants to burn billions of dollars of relatively costly liquid fuels, domestic consumption threatens to spiral out of control.

“Should the current energy consumption procedure not change, by 2025 Iran will be the largest natural gas importer in the world,” Hamid Katouzian, the head of Iran’s Ministry of Petroleum Research Centre, was quoted by the Mehr news agency as saying on Saturday.

Thawing relations with the West since the president, Hassan Rouhani, came to power in the middle of last year have revived hopes that Iran may one day help meet growing gas demand around the world.

But slow progress in developing those reserves over the past decade has stunted gas exports.

One of the biggest problems Iran faces is that its fossil fuel-fired power plants have efficiency rates of just 13 per cent, compared to between 60 and 70 per cent achieved by modern plants in other parts of the world, Mr Katouzian said.

In an effort to restrain rampant consumption growth, the previous government of Mahmoud Ahmadinejad began slashing subsidies on a range of fuels in late 2010.

The partial subsidy cuts were successful in rationalising fuel use and reducing waste, but a second wave of price hikes planned for the middle of 2012 was shelved out of concern it could prove too painful for a population already suffering a sharp drop in living standards.

Iran’s finances have been under intense pressure over the past two years because of international economic sanctions imposed over its disputed nuclear programme.

Over the past six months the new government has been increasingly critical of cheap energy policies that have exacerbated consumption growth and strangled state energy company investments.

Mr Rouhani’s government is preparing a politically risky increase in domestic fuel prices, trying to lighten the burden of multibillion-dollar subsidies on an economy severely damaged by western sanctions.

Mr Katouzian said he hoped parliament’s plans for cutting energy waste would help prevent Iran from becoming the world’s biggest gas importer a decade from now, but added all industry leaders and Iranian households would have to cooperate.

Meanwhile last week, data showed Asian buyers increased purchases of Iranian crude oil by 22 per cent in January from a year ago as the grip of sanctions imposed since 2012 loosened following a landmark agreement in November to curtail Tehran’s nuclear programme.

The Opec member’s oil sales in January to its four biggest buyers topped 1 million barrels per day (bpd).

China, India, Japan and South Korea together bought an average of 1.25 million bpd in January, government and industry data showed. They bought 1.03 million bpd in January 2013.

Increased crude exports from Iran may cap oil prices after other Opec producers such as Saudi Arabia and Iraq raised output to fill the gap created by the western sanctions and outages in North Africa and the Middle East.

“Iranian exports are increasing and that means more supplies are coming into a market that is already well supplied,” said Jonathan Barratt, the chief executive of the commodity research firm Barratt’s Bulletin in Sydney.

“We are at the top end of the price range.”

The import figures confirm data from sources who track tanker movements that show Iran’s exports have been rising since the nuclear deal was struck in Geneva.

Japan, the world’s fourth-biggest oil importer, purchased 210,517 bpd from Iran in January, compared with 239,085 bpd in January 2013, trade ministry data showed on Friday.

China, Iran’s largest oil client, took 564,536 bpd of the crude, up 82 per cent from January 2013.

India’s imports from Iran more than doubled in January from December, reaching the highest since February 2012, as one state refiner returned from a three-month break as a buyer.

* with Reuters

Follow us on Twitter @Ind_Insights