Iran Discovers Natural Gas Reserve, but Sanctions Make its Utility Uncertain
Iran has discovered a new natural gas reserve, according to a report from its oil ministry on Oct. 13. The underground field located in the southern province of Fars near the Persian Gulf, holds 19 trillion cubic feet (tcf) of the resource which Tehran estimates could produce 400 million barrels for a total of $40 billion. The new field, named Eram, adds to an already-large natural gas supply, which is second only to Russia.
“We have the potential to identify more undiscovered oil and gas reserves (in the country) by using geophysical exploration techniques and discovery drilling and will definitely add to Iran’s national wealth,” said Reza Dehghan, deputy managing director for National Iranian Oil Company (NIOC).
As United States oil sanctions continue to strangle the Iranian economy, the discovery of more natural gas reserves could help revitalize the struggling nation. Amid a sharp decline in energy exports, Tehran is hoping to increase trade by leveraging its wealth of natural gas. The US Energy Information Administration reports that Iran uses 6.9 tcf of the 9.5 tcf it produces annually, but if production can be boosted, several international customers could benefit, namely China and India. In 2017, three-quarters of its exports were destined for Turkey; other buyers include Armenia, Iraq, and Azerbaijan.
In 1995, Iran and Pakistan signed a deal to create an oil pipeline that would run to India. The project has experienced many setbacks, however, mainly from Pakistan refusing to complete its portion of the pipeline. Although the Iranian section is complete, the Pakistani portion appears to be indefinitely held up despite some deals negotiated in the past 10 years. Consequently, India decided it would pursue an under-sea route directly between the two nations.
The Iran-Pakistan pipeline, if revived, would also facilitate easier exportation to China, a market which, like India, is expected to grow two to three per cent per year.
“Gas is the most important energy of the world in the future and Iran possesses the world’s largest gas fields,” Iranian First Vice-President Eshagh Jahangiri told a Chinese delegation. “And we are ready to export gas to China through the Iran-Pakistan gas pipeline.”
For its part, China has publicly supported continued trade with Iran even as sanctions and a US-China trade war cause instability. Importing natural gas would be one way to get around sanctions and help the Iranian economy. The Asian market is collectively in dire need of a natural gas boost, a stimulus that could only come from Iran or Russia. The Asian Development Bank reported that the supply-demand gap during peak hours has increased annually since 2014.
Some countries, like Pakistan, have passed legislative measures to conserve energy and at one time, were eager to import from Iran. This may be one reason it continues to renege on its deal to complete a pipeline to India, so that it can keep Iranian natural gas for itself instead. Under a 2013 plan, it would have imported 22.5 million cubic meters per day.
Like Pakistan, India too has faced shortages, which it has attempted to stymie by purchasing reserves from Qatar via an undersea pipeline. At one point, the US convinced New Delhi to abandon its plans in 2013 to import from Iran by swaying it with a civil nuclear deal.
In China, the situation is different, however. Demand is predicted to triple over the next 20 years, according to the Middle East Policy Center. Importing from Iran would require the completion of the Indian section of the pipeline, however, but would be an innovative way to thumb its nose at US sanctions. Beijing’s willingness to do so is questionable though as it recently left the South Pars natural gas field which is shared by Iran and Qatar. The abandonment of the world’s largest field was as a result of increasing US sanctions.
Alternatively, Iran could horde the reserves for itself. According to NIOC, it is substantial enough to power Iran for 16 years. There is the lingering question of exactly how Iran could wield its discoveries in the face of sanctions, which apply to natural gas just as much as crude oil. Absent buyers who are willing to defy the sanctions, Tehran could instead focus on growth at home as it reinforces its energy independence.
Currently, buyers of Iranian natural gas included Iraq and Turkey, the former of which has received a renewed sanctions waiver to continue its imports. In September, Turkish President Recep Tayyip Erdogan said trade between the two countries would continue, although overall imports were down.
Aside from sanctions, another issue facing Iran is the development of refining facilities. As illustrated with the South Pars project and China’s exit, US sanctions have an effect not only on trade, but also development. For Tehran, this means that development of new fields must be undertaken without the assumption of help from international partners.
Iran has the natural resources to boost its economy, but to do so must find willing partners and complete pipelines to transport them. Both are severely lacking at the moment, which casts a shadow on the recent discovery of the Eram reserve field. While it is welcome news for Tehran, questions abound on how it can capitalize on the discovery.