Iran, according to the BP Statistical Review 2015, is currently placed first with 34 trillion cubic meters of gas reserves, followed by Russia (32.6 trillion cubic meters) and Qatar (24.5 trillion cubic meters).[i] Having possessed tremendous amount of gas, hypothetically, Iran can easily meet its both domestic needs and external gas demands. Nonetheless, Iran has been importing natural gas from its North–Eastern neighbor, Turkmenistan, to ensure sufficiency of gas supplies to its Northern regions. Despite the fact that gas trade between Turkmenistan and Iran has been mutually beneficial, it is expected to considerably decrease within a few months. Rapidly dropping gas trade, however, may not be the end of export-import relations between these two countries.
Having experienced negative consequences of an extensive dependence on the Russia-controlled gas pipeline networks to move energy to external markets; Turkmen authorities have been constantly searching for export routes diversification possibilities since the collapse of the Soviet Union. The first pipeline to move Turkmen gas to external market avoiding Russian territory was the Korpedzhe–Kurt–Kai pipeline (Turkmenistan–Iran gas pipeline), built in 1997 with the capacity to transport 6–8 billion cubic meters of gas annually.[ii] Placing much hope for the continuation of gas trade, leaders of these two countries agreed to increase the capacity of gas supply up to 20 billion cubic meters by putting into operation another gas pipeline, Dauletabad–Sarakhs–Khangiran, capable of transporting 12 billion cubic meters of gas, which was commenced in 2010.[iii]
The Deputy Minister of Oil and Gas Industry and Mineral Resources of Turkmenistan, Kurganguly Yaziev, mentioning gas export diversification routes currently prioritized by the government, among other corridors (Turkmenistan–China: 65 billion cubic meters; Turkmenistan–Russia: 10 billion cubic meters, but the existing pipeline capacities allow exporting up to 45 billion cubic meters; Turkmenistan–Afghanistan–Pakistan–Iran: 33 billion cubic meters; Turkmenistan–Europe: 30 billion cubic meters through the Trans–Caspian Gas pipeline), highlighted the Iranian direction with 20 billion cubic meters.[iv] The Iranian direction has always played an important role in Turkmenistan’s foreign energy policy. The Turkmenistan–Iranian gas trade was not only the first successful attempt to diversify Turkmenistan’s complete dependence on Russia, but also contributed to the Turkmen budget, which is highly dependent on gas export revenues, when the volume of export to Russia, Ukraine, Armenia and Georgia started decreasing in the end of 1990s and during the gas supply disruption to Russia in 2009. But, while Turkmenistan is capable of transporting 20 billion cubic meters to Iran the volume of transported gas never reached its full capacity. According to BP Statistical Review Iran imported only 6.5 billion cubic meters of gas from Turkmenistan in 2014.[v] On top of that, the Iranian authorities have recently declared that they will soon completely stop importing Turkmen gas.
It has been economically more cost efficient for Iran to import gas from Turkmenistan than to build in-country pipelines to move its own gas from the fields in the South to the consumers in North and increase gas production capacity. For a country with tremendous gas potential, however, it was a matter of time till it starts to develop its potential. Thus, over the last several years, Iran has been implementing its gas expansion (production capacity and infrastructure) program, which would soon allow it to meet its gas demand entirely from its own sources.[vi]The National Iranian Oil Company, on the one hand, and Khatamol Anbiya and Iranian Offshore Engineering and Construction Companies, on the other, signed an agreement in 2006 for the development of the onshore and offshore sections of the South Pars gas field.[vii] In 2014, Iran produced 172.6 billion cubic meters of gas, while the consumption rate accounted for 170.2 billion cubic meters.[viii] This implies that Iran still consumes almost as much gas as it produces. The Iranian government was planning to reach the volume of gas production sufficient to meet its export obligations as well as domestic consumption needs by the end of 2015 with putting into operation 15th and 16th phases of the South Pars field. The South Pars is the largest gas field in the world. Around 3700 square kilometers of territorial waters in the Persian Gulf, out of 9700 square kilometers wide total area of the South Pars field, belongs to Iran, while the remaining is owned by Qatar. The South Pars is divided into 29 development phases and contains 40 trillion cubic meters of natural gas, which is 8 percent of the world’s reserves.[ix] Gas expansion program to develop Iran’s huge potential is expected to turn the country into self-sufficient gas supplier.
The inauguration of these phases of the South Pars field, however, has been postponed. Ebadollah Abdollahi, the commander of Iran’s Khatamol Anbiya Construction Headquarters (belongs to the Islamic Revolutionary Guard Corps), who is responsible for implementing the project, highlighted that these phases will start operating in four months from now. When these phases come on stream Iranian daily gas production capacity will reach 52 million cubic meters and make the country independent of importing gas from abroad.[x] Despite the fact that Iran itself will soon be able to meet gas needs of the Northern regions, the Iranian government has not abandoned its desire to use the Iran–Turkmenistan gas pipelines.
Azizollah Ramezani, international affairs director of the National Iranian Gas Company has recently highlighted that “We propose that gas be transferred from Azerbaijan and Turkmenistan to Iran and then be exported from there to Europe through Turkey. This is the most cost-effective way of transferring gas to Europe.” However, Ilham Shaban, the director of the Azerbaijan Centre for Oil Studies in Baku, argues that there is no major pipeline network, which could transport imported gas from Turkmenistan to Europe via Iran and through Turkey. There are two pipelines to transport Turkmen gas to the Northern regions of Iran and there is one pipeline to move gas from Iran to Turkey with the capacity of 10 billion cubic meters.[xi] Nevertheless, existing gas pipeline infrastructure allows indirectly transporting Turkmen gas to Europe.
So Iran aims to reach self-sufficiency in gas supplies by developing its yet unexploited potential. While this would lead to a rapid drop of the Turkmenistan–Iran gas trade, there are still some prospects for future cooperation between these two countries in the gas sector. There may not be a specifically designed pipeline network connecting Turkmen gas with the European markets through Iran, but there is clearly a possibility to engage in swap gas trade to benefit all parties involved. Within such gas trading arrangements Iran will take full advantage of existing pipelines and gain from gas transit and swaps. Turkmenistan, in its turn, will get access to the European gas market avoiding the Russian territory. Turkmenistan’s current gas production capacity does not allow it to keep up with gas demand in all directions prioritized by the government. Thus, Turkmen authorities have been reducing the volume of its gas export to Iran to comply with gas supply obligations towards the Chinese direction, which is expected to reach 65 billion cubic meters with the construction of the line D of the Central Asia China Gas pipeline by 2020. However, excessive dependence on solely Chinese market is turning Turkmenistan extremely vulnerable to the threat of gas supply disruptions by a single customer. In this regard, already existing gas pipeline infrastructure to transport gas to Iran remains an important component of gas export routes diversification strategy of Turkmenistan. These major factors imply that both Iran and Turkmenistan would be interested in continuing gas trading arrangements in the future.
[i] BP Statistical Review of World Energy June 2015, https://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-revie….
[ii] “Saparmurat Niyazov Inaugurates Gas Compressor Station at Korpeje Natural Gas Field,” Turkmenistan.ru, September 14, 2005, accessed June 20, 2014, http://www.turkmenistan.ru/?page_id=3&lang_id=en&elem_id=7108&type=event….
[iii] “Turkmenistan, Iran Launch Gas Pipeline,” Pipeline and Gas Journal 238, no. 1 (2011), accessed September 1, 2012, http://www.pipelineandgasjournal.com/turkmenistan-iran-launch-gas-pipeli…
[iv] Kurganguly Yaziev, “Potential for the Gas Export of Turkmenistan.”
[v] BP Statistical Review of World Energy June 2015, https://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-revie….
[vi] “Turkmenistan Boosting Gas Exports to China,” Energy Global, February 11, 2015, accessed April 15, 2015, http://www.energyglobal.com/downstream/gas-processing/11022015/Turkmenis….
[vii] “Iran to Become Self-Sufficient in Gas Production by Next 4 Months,” Natural Gas Europe, December 26, 2015, http://www.naturalgaseurope.com/iran-to-become-self-sufficient-in-gas-pr…
[viii] BP Statistical Review of World Energy June 2015.
[ix] “Iran to Become Self-Sufficient in Gas Production by Next 4 Months.”
[xi] Ilham Shaban, “Iran’s Proposal to Deliver Caspian Gas to Turkey,” Natural Gas Europe, February 3, 2015, http://www.naturalgaseurope.com/irans-proposal-to-deliver-caspian-gas-to-turkey
*To be publish in the February 2016 No. 2 issue of the “Asya Avrupa: Haber-Yorum” journal.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.