Energy & Mining

Piping hot

The pipeline network

With more than 34 trillion cubic meters under its domain, Iran owns the world's largest natural gas reserves. The country is in a race to increase its presence in the market but needs to develop the necessary infrastructure to realize sales.

With the execution of a score of new projects, Iran’s aggregate gas pipeline length is expected to double to more than 70,000km, making it the third-largest transfer network after Russia and the US. To this end, the Ministry of Petroleum has claimed that USD55.8 billion in investment is required to implement gas transit pipeline projects by 2025. Becoming a regional gas hub through exports to neighboring countries is part of an ambitious plan to connect to Europe and Asia. Iran has signed a raft of initial agreements with a number of neighbors in recent years, and the end of sanctions is an opportunity to engage in gas trade with the Islamic Republic.

Persian Gulf countries are big consumers and potential customers of Iran’s gas production, except for self-sufficient Qatar. Oman took the lead in 2013, when Muscat and Tehran signed a deal to export Iranian gas to the Sultanate through a 400km gas subsea pipeline. The USD60 billion contract will last 25 years, and both countries agreed to transfer 28 million cubic meters of gas daily to Oman’s shores. The Iranian Offshore Engineering and Construction Company (IOEC) completed the draft study in early 2016 and announced that the project will be operational by end of 2017. The plan of the Sultanate is to use Iranian gas for domestic needs as well as exporting it to global markets after having it liquefied in its plants.

On the other side of the Islamic Republic, Pakistan has committed to the IP (Iran-Pakistan) project, a 2,700km gas pipeline from Iran’s South Pars fields in the Persian Gulf to Pakistan’s major cities of Karachi and Multan, and then further to New Delhi, India. Although Iran’s offer to cover 60% of the construction costs through experienced EPC contractors, such as SADID Industrial Group or Tadbir Energy Development Group, the IP gas pipeline still needs USD2 billion in investments, which is expected to come from renowned multinationals. Leading companies including Gazprom, Petronas, Total, and Royal Dutch Shell have already negotiated exporting gas from South Pars to Pakistan. The pipeline will be able to carry 110 million cubic meters of gas per day, and it is expected to greatly benefit South Asian countries, which do not have sufficient natural gas to meet their rapidly increasing domestic demand for energy.

Pointing upward, Turkey is Iran’s biggest gas customer, importing 30 million cubic meters a day under a 25-year deal signed before sanctions imposed on Tehran. The Tabriz—Ankara pipeline is a 2,577km natural gas pipeline that runs from northwest Iran to Turkey’s capital. This is the first step for Iran to reach northern markets; however, as the Iran-Europe pipeline project is unlikely to initiate in the short-term, the only option for Iran to sell to the European market seems to export its gas in LNG by vessels. On a smaller scale, Iran also exports gas via pipeline to neighboring Azerbaijan and Armenia.

For the immediate future, Iran will build an extensive network of pipelines with a total length of 5,000km in its territory over the next five years. A USD27 billion investment is needed for the construction of a domestic gas distribution network that will connect the rich fields of the south, such as South Pars, to sea ports like Chabahar and the other major projects in the country that need gas. Iran’s government has indeed acknowledged the importance of having a great distribution system within its territory in becoming a gas hub between north and south.

Over the next five years, Iran seeks to raise gas production to 1.2 billion cubic meters a day from the current 800 million cubic meters. Huge reserves, vast processing and transfer networks, easy access to major markets, potential for piping gas to Europe and the Persian Gulf states, and swap arrangements with neighbors suggest a bright future ahead for the gas giant.

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