Iran faces gas shortage amid cold weather

A sudden energy and economic crisis in Iran has brought new urgency to the problems of importing natural gas from Turkmenistan. Iran's troubles surfaced earlier this month when the official news agency, IRNA, disclosed that major power plants in the northern part of the country were in danger of shutting down because of cold weather and lack of fuel.

March 2, 1998

4 min read

A sudden energy and economic crisis in Iran has brought new urgency to the problems of importing natural gas from Turkmenistan.

Iran's troubles surfaced earlier this month when the official news agency, IRNA, disclosed that major power plants in the northern part of the country were in danger of shutting down because of cold weather and lack of fuel.

The problems, coming in the midst of the worst Iranian winter in the past 10 years, are particularly acute at the Neka power plant near the Caspian Sea. The plant is a primary source of electricity for the northeast region, served by an 800-km pipeline within Iran and a 200-km connection across the border with Turkmenistan.

The report initially blamed Turkmenistan for what it called "fluctuations" in gas supplies to Iran. But analysts immediately discounted the claim, noting that Turkmenistan only started delivering gas to Iran 1 month ago through its new pipeline from Korpedzhe field.

The crisis

One measure of the seriousness of Iran's energy shortages is that Iran's official news agency was willing to report it. The government has been urging its citizens to conserve fuel, and IRNA warned that the situation could cause "irreparable damage to the economy."

It now appears that the problems may go far beyond gas supplies.

Iranian television has since reported that the country is importing increasing amounts of kerosine and even gasoline in order to cope with the crisis. The predicament is highly unusual, considering that Iran is the world's third-largest exporter of oil and has massive gas reserves.

But there have been increasing strains in the region's most populous nation, brought on not only by the harsh winter but by economic problems, U.S. sanctions, and falling oil prices.

Production challenges

Much of Iran's gas remains in large deposits below the waters of the Persian Gulf, requiring foreign investment and technology for development. Over one third of the gas that Iran produces is needed for injection into its aging oil fields, which otherwise lack sufficient pressure to bring the oil out of the ground.

It is estimated that less than half of the gas that Iran now produces is available for domestic use as fuel. As world oil prices decline, the country is also struggling to increase its production in order to maintain the same level of revenue. Reports suggest that Iran has been unable to boost production enough to take advantage of the recent hike in OPEC quotas.

According to Iran News, the country now expects to run a budget deficit of 20,000 billion rials (more than $6 billion, or possibly more than $11 billion, depending on which of the official exchange rates is used). About 150 government projects may be threatened, the paper says, because of Iran's heavy dependence on the economics of oil.

Clearly, the country needs the $2 billion investment by French, Russian, and Malaysian companies in its South Pars gas field in the Persian Gulf in order to develop new gas supplies. But that investment is still the subject of possible U.S. sanctions.

Turkmen factor

While the new pipeline from Korpedzhe field in Turkmenistan is capable of delivering only 2-3 billion cu m of gas this year, Iran's northern cities need 6 billion cu m, Turkmen officials say.

Plans call for eventually raising the pipeline supplies to 8 billion cu m, but the increase requires more pumps and compressors, which have yet to be installed. Iran's demand, as revealed by its sudden shortage, should accelerate efforts to bring needed equipment on line.

Iran's northern cities also could be served by an extension of pipelines from Turkmenistan's Dauletabad gas field, which is the planned source of gas for Pakistan, if a line through war-torn Afghanistan can be built.

Increased sales of electricity from Turkmenistan are also a possibility, using Turkmen gas to generate power.

Foreign investment may be needed to increase Turkmen exports to Iran. But such investments would not face the legal problems of U.S. sanctions, as do similar projects in Iran. Tehran may be temporarily hard-pressed to pay if the difficulties increase, but its potential to increase oil exports should open up opportunities for financing.

Iran's energy shortfall may put Turkmenistan in a better position to negotiate transit fees for the eventual deliveries of Turkmen gas to Turkey through a trans-Iranian pipeline.

Until now, reaching Turkey and Pakistan have been Turkmenistan's biggest goals. But the Iranian market could prove to be equally important, and it is certainly closer to home.

Helping Iran meet its immediate energy needs may also provide Turkmenistan a way to overcome its huge drop in gas exports last year, caused by disagreements with Russia.