Free Web Hosting Provider - Web Hosting - E-commerce - High Speed Internet - Free Web Page
Search the Web

Since 1973 when the world received its first petroleum shock from OPEC, the international energy market focused its attention on development of the oil industry. Therefore, other sources of energy have been cast into the margin on the grounds that oil is still the most important energy source in the world. For this reason, the largest portion of the international energy market has been allocated to oil and oil by-products. On the other hand for many years by mixing oil related issues with politics, the attractiveness of oil has been increased among researchers and communities and has drawn a general interest in oil. As a result, despite the fact that in the last 15 years the share of oil has dropped in the energy market to some extent, petroleum continues to retain its appeal. Nevertheless, should we consider the nineteenth century as the century of coal, the twentieth century must be considered a century for oil and due to rising supply of gas in the coming century, the 21st century must be considered as the century of gas.

Considering these facts and the giant gas resources existing in Iran, for the last several years our market administrators have endeavored to increase export of gas to international markets. But one must not forget that contrary to its easy consumption, the production, processing and transfer of gas is a difficult task and requires enormous capital. Moreover, the price of gas in international markets is not high enough to warrant heavy investment and we must not forget that strong rivals such as Russia are competing in the field. Against these factors we may expect a sudden rise of gas prices in the coming years. A combination of all these factors has rendered the question of gas more ambiguous and full information about its production and marketing is indispensable.

With an eye to such matters, Dr. Fereydoun Barkeshli, a senior petroleum analyst, has made a comprehensive analysis of the present condition of gas industry in the world and Iran had suggested the possibility of foreign investment in this field and formation of an OPEC like organization for export of gas.

Text:

Among the main fuels, the production and consumption of gas has had the most growth in the last few years. The volume of known natural gas reserves in the past two decades has climbed to 145 trillion cubic meters from 72 trillion cubic meters in the world which shows a growth of 3.4 percent a year. Due to discovery of new gas fields, Iran alone has increased its gas volume from 19 trillion cubic meters to 27 trillion cubic meters among gas producers (1).

The first conclusion one can arrive at from the above facts is that in the next few decades the world should not worry about shortage of natural gas. However, that which is bothering the sale and distribution of gas is that major gas fields are centered in the ex-Soviet Union and one should seriously consider the geopolitical implications of the regions where the pipelines must cross.

By possessing 56 percent of the total global gas reserves, North America led the global gas market in 1974 but in 1995, i.e. within a time period of approximately two decades, it dropped to 34 percent. During this period the ex-Soviet Union's share of global gas reserves rose to 32 percent. Producers in the Middle East are playing a negligible part in gas production and although their volume of output has risen from 3 to 6 percent, this is very inconsiderable compared to the bulk of gas transacted around the world. For example whilst in the last two decades Iran has rapidly boosted its gas output and consumption, it has no export share in foreign markets and has even ceased to export the little amount of gas which it used to send to Russia prior to the victory of the Islamic Revolution. It must be noted that with the exception of Iran and Qatar, other energy producers are exploiting gas along with oil and in such countries gas is not an independent industry.

As mentioned earlier during the last two decades, Iran's growth in gas production has been the most rapid. In 1995 our country became the ninth largest gas producer in the world (of course in terms of volume of gas reserves Iran is the second largest gas owner in the world).

Production of natural gas in Iran registered a positive growth even in the turbulent conditions immediately after the victory of the Islamic Revolution despite the heavy damages inflicted on that industry during the 8-year Iraqi war. In 1989 Iran succeeded to break the record by raising its natural gas output to 23.2 billion cubic meters against 21.1 billion cubic meters produced in 1978. Since then production grew steady and in 1995 it hit 37.8 billion cubic meters and by March 20, 1997 exceeded 49 billion cubic meters and is expected to climb to 45 billion cubic meters by the end of 1376 (March 20, 1998). In the past 20 years the average growth rate of natural gas production in Iran was 2.4 percent a year. Of course immediately after the victory of the Revolution, production declined and was disrupted. Should we consider 1985 as a base year, the average annual growth of gas production during the years 1985-1995 was 5.9 percent. This is giving a better picture of the production trend in Iran. The objective behind present targets and plans is to make a vigorous increase in production to achieve an annual ceiling of 80 billion cubic meters of gas by the end of the millennium.

In the demand sector, average global consumption of natural gas in the last two decades was 2.6 percent a year, but the geographical distribution of gas was not alike in all parts of the world. The growth of gas consumption in North America has neared zero point whereas consumption in the Middle East has climbed beyond 8.5 percent a year. During the 70's Iran consumed 50 percent of the total natural gas produced in the Middle East, but this consumption rate dropped to 24 percent in 1984 and again gathering force it rose to 32 percent in 1995. Considering the expanded plans for consumption of gas in urban areas, production and distribution of gas within the country is expected to grow rapidly in the coming years, but by gradually saturating overpopulated towns, domestic consumption is expected to slacken, because it is not economical to supply gas to far fetched small populated regions. Of course one should add the large bulks of gas injected to oil wells as another sort of consumption, although such an exploitation is not really considered as consumption.

There are two opinions held with regard to the method of distribution and consumption of gas. Some believe that conversion of gas to electricity in power plants and distribution of electricity in the country is a proper method of use of gas. They maintain that in such a method the risk of catastrophe during natural disasters such as earthquake is far less. However, other experts agree to the direct distribution and consumption of natural gas by the present methods.

Many Iranian and foreign analysts believe that despite wide interest shown in consumption of natural gas because of being a clean fuel, from economical point of view, export of Iranian gas is not feasible. Because development of gas fields and construction of pipelines and facilities for conversion of natural gas into liquefied gas for transportation by ships is too costly and domestic capital is not enough to fund such expensive projects. Meanwhile, with an eye to the domestic conditions in the country, foreign investors are not overzealous to invest in Iran. The method of pricing in the international gas market is such that reduces the incentive for international trade of that product. As a consequence, although Iran sits on the second largest gas fields in the world, by relying on domestic capital and facilities, the Iranian gas industry must meet domestic requirements by injecting gas into oil wells and supplying its industries and households in the coming years so that more oil can be saved for export.

On the other hand, despite some expertise opinions to the contrary, Iranian officials consider export of natural gas as a national strategy and requirement and they are zealous to internationalize our gas industry. The contract concluded between Iran and Turkey and the trilateral Iran-Turkey-Turkmenistan gas agreement is aiming that strategy. Of course experts believe that the income from export of gas will cover only Iran's foreign diplomacy expenses and it will fetch no economic benefit. As a result, a question that our gas industry is faced with is to what extent can the internationalization of Iranian gas be taken seriously.

The fact is that after the victory of the Islamic Revolution and until the end of the Iraqi war, Iran did not show any interest in absorbing foreign capital to enlarge its oil and gas industry. In fact when President Clinton took office and the preliminary debates on economic blockade of Iran by the United States began, the subject of attraction of foreign capital was treated more seriously in Iran.

In all probability, had Iran started earlier to ponder on the acquisition of capital from international companies in its oil and gas industries and succeeded to procure the needed capital, the present U.S. sanctions against Iran would have lost its meaning. In other words, for a long period and before the U.S. Senate had voted for the sanctions, Iran had not prepared itself to counter the aftermath of such an unforeseen situation and after the blockade Tehran began its campaign to attract foreign capital. In the meantime, despite Iran's present willingness to absorb foreign money, she has no specific rules and regulations to absorb that capital. The Iranian `petroleum law' which covers gas as well, has been drafted in a manner that blocks all avenues for participation of foreigners. Therefore, it would be perhaps necessary to separate the oil law from the gas law.

The regional and international development of Iranian gas does not seem to benefit any great power. The United States does not wish Iran to export its gas to Turkey and Europe because Washington detests stable supply of energy to Europe. Nevertheless Iran's emergence as a second world gas supplier has attracted the strategic attention of Europe and Turkey which Washington resolutely objects. Because the U.S. itself is the largest supplier of gas to Europe and does not favor a strong rival such as Iran to penetrate its traditional market. Meanwhile it should be noted that Russia does not show much concern over Iran's willingness to supply gas to Pakistan and India and the Indian subcontinent is not considered as Russia's natural sphere of gas supply. But despite increased demand and excessive need for imported energy in future, due to money shortage and tensions and political instability in that subcontinent, India and Pakistan are not considered as reliable customers for Iran. In the meantime Qatar has an eye to the subcontinent and must be considered a rival.

Anyhow, the above facts have augmented Iran's will to export its gas and its willingness to internationalize its gas industry but an essential problem continues to remain in force. Due to rising domestic consumption, in order for Iran to internationalize its gas its needs to acquire enormous capital which domestic sources are unable to supply.

Considering the feasibility of foreign investment for development of the gas industry, one must compare it to the expansion of Iran's oil industry. During the development of the oil industry, that industry was also in need of foreign capital but due to low international oil prices before the first petroleum shock in 1973 (when the Middle East oil wells were closed to West in protest to Israel's occupation of Arab territories) such an investment was not deemed feasible. On the other hand oil and gas industries do not undertake the whole cost of such operations and the major capital is supplied by credit institutions and banks.

Undoubtedly due to its vast reserves, Iran has the potential to raise its gas production to meet the increasing domestic demand for export and with the present rate of exploitation, our natural gas reserves will hold for another 100 years. In addition, vast parts of Iranian territory have remained unexplored. As a result, the possibility of discovery of new gas fields is not remote. Nevertheless the existence of energy resources in a country is not considered a capital source. That which is considered capital is a nation's ability to exploit, refine and distribute the gas. Right now nations with giant gas reserves are not in the same condition as in the 50's when OPEC had not been established. Meanwhile establishment of a gas-oriented OPEC does not seem to be remote and it is necessary for countries such as Iran and Russia to cooperate with each other in that domain instead of competing with each other.

The present low price of gas in the international level does not mean that its cost will remain at the same level in the future. In the same manner that in the 50's and 60's oil prices were low and before the 1973 shock no one anticipated such a sharp rise in oil prices, internationalization of Iranian gas will provide a new opportunity for the Iranian economy to expand and prepare itself to enter the twenty first century and to raise the interest of foreign investors despite the U.S. threats and sanctions. In such a drive Iran can overcome its present difficulties and limitations by introducing sagacious and daring policies. History has shown that the question of energy cannot be analyzed and addressed by short term perspectives.

1. Contrary to oil statistics which due to political considerations within the OPEC format is often exaggerated, the statistics published about the volume of gas reserves is more correct and scientific.

2. If we consider the fact that during the period in question crude producers and exporters had concentrated their whole energy on the expansion of oil industry, it would be remarkable to note a 100 percent growth of gas production in such countries.

3. It is interesting to note that despite great exertions for discovery of new gas reserves in the North Sea and the belief that the gas industry should grow more vigorously in that region, in 1995 Norway which is a major gas producer of the North Sea region, was the tenth largest gas producer after Iran.

1. Iran energy balance sheet published by the department of energy of the Ministry of Energy in 1976.

2. A Glance at International Gas Market, by Jamal Hashemi, Planning and Budget Bulletin, No. 4, July/August 1996.

3. OPEC Statistical Bulletin, OPEC Secretariat, Vienna, 1995.

4. BP Statistical Yearbook, 1995.

5. The Journal of Energy and Development, World Oil and Geopolitics to the Year 2010, Houshang Amirahmadi, 1996.

6. World Energy Outlook, International Energy Agency (IEA), Paris, 1995.