Iran’s Gas Industry on the Verge of Collapse, but Rising Gas Prices Are on the Way

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Iran's Gas industry

By Pooya Stone

Iran’s gas industry is on the verge of complete collapse, gas exports have fallen sharply, and the gas industry is heavily worn out and there is no money to invest in the gas industry. However, the government seems to be looking to raise gas prices in the country.

Supply budget deficit with rising gas prices

The Majlis (Iran’s parliament) Research Center on 26 January announced a dramatic increase in the cost of production, transmission, and distribution of gas along with debt repayment of energy-optimization, gas supply, and gas collection projects. Analysts see this as a prelude to rising gas prices.

An important point in next year’s budget statistics and a report by the Majlis Research Center is the increase in the cost of production, transmission, and distribution of gas by 36 percent to reach nearly 13 trillion tomans.

On the other hand, government debt repayment for gas projects, gas collection, and energy optimization will increase by 100 percent to 8 trillion tomans.

Gas industry burnout

Virtually two-thirds of Iran’s domestic gas sales revenue is spent on production and distribution and optimization projects, and the gas industry needs tens of billions of dollars of capital to be able to prevent South Pars gas production from slipping for the next few years.

Reduction in gas exports to Iraq

The Iraqi Ministry of Electricity announced in January that Iran’s supply of gas to this country had fallen sharply over the past three months. According to the agreement, Iran should export 50 million cubic meters of gas to Iraq. But this figure has so far only been possible on paper.

Iran used to supply 25 million cubic meters of gas a day, but now it has fallen to 4 million cubic meters, Iraqi Ministry of Electricity spokesman Ahmed Moussa told Bloomberg in January.

Reduced gas exports to Turkey

Deutsche Welle also reported on 1 November 2019, “Statistics from the Turkish Energy Market Regulatory Office show that the amount of Turkish gas imported from Iran in August this year decreased by one third compared to the same period last year.

According to statistics, in August Iran exported only 160 million cubic meters of gas per day, while according to the agreement with Turkey, it had to export on average 833 million cubic meters per month.”

A contradiction in the production and export of gas

However, since April 2019, the National Gas Company has stopped publishing monthly gas statistics and Iran’s leaders are providing contradictory information on gas production and exports.

In August 2019, oil minister Bijan Zanganeh announced that South Pars’ daily production capacity had reached 750 million cubic meters, and the country’s exports to Iraq had peaked at 38 million cubic meters in June.

Mehdi Jamshidi-Dana, the director of dispatching the National Iranian Gas Company, announced that domestic gas consumption had reached 513 million cubic meters, while the industrial gas consumption had reached 127 million cubic meters and the power plant had reached 50 million cubic meters.

The sum of these three parts amounts to about 690 million cubic meters, which is less than the declared amount of gas produced by Zanganeh (750 million cubic meters) to 60 million cubic meters, and the government should have no problem exporting gas to Iraq and Turkey, but the spokesman for the Ministry of Electricity of Iraq is talking about the import of only 4 million cubic meters of gas, and the same is true of gas exports to Syria.

The problem of shortage of gas in industrial and power plants

Meanwhile, gas deliveries to Iran’s industrial and power plants have also fallen sharply.

National Iranian Gas Company announced on 12 January that domestic and commercial gas consumption exceeded 573 million cubic meters per day, which would further limit gas supply to the industrial and power plants and consequently reduce exports.

Gas export money is not returned to the government

The problems of the regime in the gas industry do not end here. Bijan Namdar Zanganeh recently announced that Iraq “will not pay us for the gas it receives”.

Zanganeh also mentioned in February 2019 that Iraq had two billion dollars in debt, but that it could not pay because of sanctions. The US has given Iraq several months of exemptions in the last 15 months ago to continue purchasing electricity and gas from Iran, and the latest US exemption is due to expire next month.

The Bank of Iraq is responsible for transferring Iran’s gas and electricity money in Iraqi dinars to an account in this bank, and Iran can only use the money to buy humanitarian goods.

The Bank of Iraq announced in January 2020 that it will suspend financial transfers between Iraq and Iran if the United States does not extend the exemptions next month.

Hamid Hosseini, a spokesman for the regime’s Petroleum Exporters’ Union, also said on 29 January, “Iran’s gas and electricity exported to Iraq will be deposited into the central bank account and sanctions prevent cash withdrawal, and $5 billion will be deposited into the Iraqi central bank.”

The queue to receive gas capsules

The collapse of Iran’s gas industry has put the country in a situation where, in addition to a significant reduction in gas exports, inside Iran, citizens are also facing a shortage of gas.

On 29 January, protesters in Zabul in Sistan and Baluchestan province protested the lack of gas capsules. There have also been reports of liquefied petroleum shortages in other cities across the country. Iran has the world’s second-largest gas resources.

A corruption that swept through the structure of government centers such as oil and gas has prevented the gas carrier network from being updated, and after years of unnecessary use of gas networks, problems are now coming one after another.

The regime to keep the gas system up to date is now facing serious challenges, such as the South Pars gas field, which supplies more than 25 percent of Iran’s gas, will enter its half-life in the next few years and its output is declining rapidly. Unable to invest to stop its decline, the fate of gas exports will become more unclear.

So, when all the ways to make money to offset the budget deficit are closed, there is no other solution for the regime than to gain pressure on the people and rising gas prices.

Like a gasoline price hike in the past which ignited widespread protests in the country, this can be a spark for uprisings and demonstrations on the street in the coming days and month.