Why does Iran, the world's third largest gas producer, intend to import gas from Russia?

Tehran has announced its intention to import gas from Russia. This caused an uproar in Iranian circles. According to the latest statistics released in 2021, Iran is the third largest natural gas producer in the world after the United States and Russia.

Russia is Iran's main rival in the oil and gas sector. After Western sanctions against Russia, Beijing reportedly switched to buying Russian oil. As a result, Tehran lost China, an export destination for Iranian oil, during the period of Western sanctions. At this point in time, however, Moscow seems to be more interested in friendship than competition in the energy sector.

According to the Iranian Oil Ministry's report, the gas produced by Russia is estimated to be between 75 and 95 billion cubic meters, but the export destination is not specified. In the report, Iran's Oil Ministry described this as a golden opportunity for Iran to import Russian gas through Turkmenistan. It specified that the gas would be transported from Russia to Turkmenistan via the gas transmission line, and then to Iran via two transmission lines with a capacity of 20 billion cubic meters.

Ahmed Asadzadeh, deputy minister for international affairs and trade at Iran's oil minister, said Iran and Russia were in talks with Oman or Pakistan on trilateral cooperation.

Russian natural gas

Iran holds 18% of the world's total gas reserves and has 22 oil refineries that produce 1 billion cubic meters of gas per day. Nevertheless, it announced that the country's natural gas consumption will exceed its production in the coming winter.

In response, Bahman Arman, a university professor and expert on economic affairs, told Al Jazeera that Iran produces less than 200 million cubic meters of gas in winter, so imports from Turkmenistan are needed to make up the shortfall. He also said Tehran would need significant investment to transport Russian gas from northern Russia to the Iranian border, thousands of kilometers away.

On the other hand, IRNA, which has close ties to the government and security agencies, said Tehran was able to buy Russian gas at a "suitable price" and put it into use in the northern region. That way, it does not have to transport gas from the south, where it is produced, to the north. At the same time, it will also be able to export its gas in the south at higher prices to neighboring countries such as Pakistan and Oman, or increase gas exports to Iraq and Turkey.

However, economic expert Bachman Arman believes that Iran's import of Russian gas and then export of it is "nothing more than a joke", in fact, it is related to the fact that Iran's gas exports are either exported on a small and limited scale to Turkey and Iraq through the gas pipeline it relies on, or the gas is converted into liquefied gas.

He stressed that Iran and Russia do not have the technology. In addition, transporting natural gas from Russia to Iran is costly.

In this context, Arman mentioned the role of the United States in this regard. He said Iran has built a 56-inch diameter pipeline to transport natural gas from Assaluya (southern Iran) to Pakistan. This is the largest gas pipeline that can be manufactured in the world, but the United States does not allow Pakistan to import Iranian gas. Tehran also burns natural gas from oil exploration in the waters of the Gulf and Khuzestan province, he said.

Arman believes that Russia has a lot of influence in Iran because Tehran was supposed to create a gas transmission line from Assaluya to the Bazargan border to separate Iran from Turkey and then into Turkey. But the line only extends from Assaluya to Iranian Kurdistan. And according to him, the project is not finished. Because Russia knows that Tehran has the largest gas reserves in the world and can compete with Moscow in the market.

In this context, energy expert Hamid Reda Shakouhi, speaking to Al Jazeera, argued that in the short term, it would be logical for Iran to import natural gas to fill the shortage problems it faces. But in the long term it must invest in gas fields and find ways to increase gas production and reduce consumption. He explained that consumption is not only for households, and Iran must adopt policies to reduce gas consumption in factories and petrochemical enterprises.

This is despite Iran's announcement that Phase 14 of the South Pars gas field will go ahead in 2022. But Shakushi ruled out the possibility that the project would be completed before next winter.

Impact of sanctions

In this regard, the impact of sanctions cannot be avoided. As Arman said, Iran has been trying for more than 30 years to build a natural gas liquefaction plant in the Phase 11 project at the South Pars oil field, but has failed to do so. The reason is that few companies have this technology, although Iran signed a contract with France's Total, but the company pulled out of the implementation of the deal due to Western sanctions.

Arman also said that Iran has not explored any gas, oil or iron fields since the 1979 revolution until today because it does not have the necessary technical conditions. And before the revolution, all of these areas of Iran were explored by American companies.

He explained that in order to maintain the gas pressure in the South Pars field, which is 700 million cubic meters per day of production, Iran needs to invest $80 billion. At the same time, Iran does not have the technology and does not have access to it due to sanctions and its crisis relationship with the West.

He also said that after the Paris Treaty, which stipulates the reduction of greenhouse gas emissions, Iran decided to convert its natural gas in Khuzestan (produced with the extraction of oil) into liquefied gas and use it for petrochemical companies. But because of sanctions, Iranian companies are unable to import the necessary equipment, so the billions of dollars worth of gas continues to burn.

Bachman-arman said Iran was forced to import natural gas because of sanctions. "It is very unfortunate that the country with the largest gas reserves in the world is forced to import gas." They also shut down their steel mills during the winter months, so currently two of Iran's biggest steel mills, 'Foolad Mobarakeh' and 'Foolad Khuzestan', do not use stoves as a necessity."

In this regard, Shakushi pointed out that Iran lacks a gas pressurization platform, so it cannot extract from the Farzad gas field with Saudi Arabia, nor can it start the Phase 11 project of the South Pars offshore gas field, because Total pulled out of the project. He also explained that Iran imported the technology from the West because Russia and China did not have the technology either.

Iraq and Turkey

Turkey is one of the two main export destinations for Iranian natural gas. According to Iranian official sources, the volume of natural gas exported from Iran to Turkey in the first half of 2022 increased by 11% compared to the previous year. According to Tehran, it negotiated with Ankara on an agreement to export natural gas to Turkey with the aim of extending the agreement to expire in 2026 after 25 years.

Hamid Reda Iraqi, the former head of Iran's National gas company, ruled out the possibility that Iran would be able to strike a better deal with Turkey. As in previous years, annual gas exports are likely to remain between 7 and 9 billion cubic meters, which is attributed to the country's demand for natural gas.

On the other hand, Tehran has announced talks with Afghanistan, Pakistan and Oman on the export of natural gas to these countries. It is worth mentioning that the agreement to export Iranian natural gas to Oman was signed in 2005, but has not been implemented for 18 years. At the same time, the agreement was supposed to start in 2008 with exports of 30 million cubic meters and reach 70 million cubic meters in 2012. One of the deals that has yet to come to fruition is a gas export deal with Pakistan and India.

In this context, Bahman Arman explained that the agreement between Iran and the UAE has been suspended and the agreement with Oman has never been implemented. He also stressed that Iran's main exports of natural gas are only to Turkey and Iraq. He also said Ankara could not import more than that amount of Iranian gas because of its small economy. As for Iraq, he said that Iran's western neighbor has declared that it will no longer need Iranian gas in the next three or four years, as it has begun to expand its gas fields.

Stockpiling and production

According to the Iranian Oil Ministry, Iran has 34 trillion cubic meters of recoverable natural gas reserves. In addition, according to the Organization of Petroleum Exporting Countries (Opec) report, Iran is in second place with 33.72 trillion cubic meters of reserves, after Russia. According to BP, its reserves are 33.5 trillion cubic meters, the largest in the world.

According to the Iranian state news agency (IRNA), Russia will export 12 times more natural gas than Iran in 2021. Russia has 19.5 percent of the world's gas reserves, while Iran has 17.3 percent.

The news agency also said that Iran's gas consumption is equivalent to 42.2 percent of the total consumption of the European continent with 748 million people, or 48.4 percent of the gas consumption of China with 1.4 billion people.

According to official sources, Iran has 38,000 kilometers of gas pipelines and exports 17 billion cubic meters of gas in 2021. In the first half of 2022 (1401), Iran's natural gas exports increased by 22% compared to the same period in the previous year.

According to the latest statistics of the National Iranian Gas Company, Iran's daily consumption of natural gas in March 2021 was 745 million cubic meters.