Flaring Billions Of Dollars Of Natural Gas In Iran’s Oil Fields
One of the worst practices in Iran’s energy sector is flaring and venting of huge volumes of Natural Gas, which the Iranian Oil Minister, Bijan Zanganeh, has recently described as if the country was “burning gold and Dollar.”
When crude oil is produced, the process releases natural gas as a by-product, which is called ‘associated gas’ and is mainly methane. In the past the associated gas was burned or ‘flared’ because there was little market for the gas and hence there was limited incentive to collect it. Over the years, however, natural gas has become a valuable resource in power generation and as a feedstock for the Petrochemical industry. Furthermore, flaring of the natural gas causes huge amounts of pollution and releases large amounts of greenhouse gases such as Carbon Dioxide in the atmosphere and hence regular gas flaring has been banned in many countries (except in an emergency or for safety purposes and not on a daily basis). Iran not only flares a valuable natural resource, but also by doing so contributes to global warming. In addition, the burning of this untreated associated gas from Iranian oil fields produces Sulphur Oxides that cause acid rain and local pollution issues. Acid rain causes damage to trees, vegetation and can make surface waters acidic.
Over the last 20 years, although the global production of oil has grown by roughly 30%, the amount of associated flares has decreased by 15%, a positive sign that the global oil industry is becoming more efficient in its operations and has decided to lower its environmental footprint. But not in Iran. In 2019, four countries were responsible for almost 50% of all the flared gas globally and unfortunately, Iran was in this top four global list. Anyone who has travelled to the oil producing provinces such as Khuzestan or lives there can attest to the massive gas flares that burn day and night. Despite the pollution issues that were highlighted above, Iranian government has not acted and continues to flare gas. In the absence of a strong environmental protection agency in Iran and the lax approach of the oil ministry, it is easier to flare the associated gas than to collect, treat and make good use of the gas. A number of gas gathering projects have been implemented but these are clearly not enough.
To show the dire situation in Iran and the poor management of the oil ministry in terms of gas flaring, we can look at Figure 1, which shows gas flaring data from a World Bank blog that highlights six major oil producing countries (Russia, Iraq, USA, Iran, Nigeria & Saudi Arabia).
Iran is in the global top four places for gas flaring. As can be seen, its annual gas flaring (13.78 Billion M3 in 2019) is more than six times higher than Saudi Arabia (2.2 Billion M3). The technologies for gas gathering and flared gas minimisation have been around for decades. In fact, before the Islamic Revolution, during Shah time, Iran embarked on a major gas gathering campaign that reduced gas flaring and used part of the associated gas to feed the gas export volumes to the Soviet Union. The IGAT1 (Iran Gas Trunkline), was a 42 inches (1,070 mm) in diameter gas pipeline, which was constructed from Bid Boland Refinery in Khūzestān Province to Astara on the border with the Soviet Union (current day Republic of Azerbaijan) and was completed in 1349 . This gas sales contract provided Iran with a $900 Million credit line from the Soviet Union in exchange for 15 years of gas supply. Shortly after the Iranian revolution, gas exports to the Soviet Union were stopped by Islamic Republic.
A quick comparison of the oil production of these six countries listed below shows that Iran has one of the lowest oil production rates, as shown in Table 1. (source link)
Meanwhile , Iran produced less crude oil than these five countries but appears to be flaring a lot more gas compared to its oil production. This analysis can be better explained in Figure 2, which shows the amount of natural gas that is flared relative to the crude oil that is produced. (Source: World Bank Data & Majlis report)
As can be seen, Iran’s amount of flared gas relative to its oil production is the highest among these countries (i.e. highest gas flaring intensity). As a comparison in Figure 2, Saudi Arabia is 21 times more efficient than Iran in terms of managing its flared gas volumes. Like Iran, where NIOC dominates upstream oil production activities, Saudi Arabia’s upstream production is dominated by a single national oil company (Aramco). So, why is it that Saudi Arabia has managed to curtail its gas flaring so impressively and Iran is so much behind?
It is not that the authorities are not aware of the scale of the gas flaring problems. There is a detailed Majlis report, which was published on 1/6/1396. This report discusses the problems associated with gas flaring in Iran and compares key countries with gas flaring problems, including Nigeria. Looking at the Majlis report, we can compare the gas flaring intensity between Iran and Nigeria as shown in Figure 3:
As can be seen in this figure, Nigeria has reduced its gas flaring intensity from 20.22 (M3 Gas/Barrel oil) in 2008 down to 8.93 in 2015, more than halved in seven years. This is very impressive when you consider the major security issues that exist in the Niger Delta (Nigeria’s main producing region, sort of equivalent to Iran’s Khuzestan).
Unfortunately, during the same period in Iran, the gas flaring intensity has increased by almost 30%. The Majlis report recognised that there are structural problems in Iran that need to be corrected before we could see a reduction in gas flaring. For example, in Nigeria there is a vibrant indigenous private sector as well as International oil companies that have been incentivised to invest in gas gathering and gas utilisation projects (e.g. gas to power projects). Furthermore, there are penalties for those companies that do not reduce gas flaring.
However, in Iran the organisation that is in charge of upstream gas production (NIOC where almost all of the gas flaring takes place) reports to the Oil Minister, who is also a key player in setting energy policies. The Majlis report also recognises that Iran lacks a strong independent organisation that could collect the required penalties from the Oil Ministry. Furthermore, the local private sector is not effectively present in the upstream production sector in Iran and the international oil companies are reluctant to invest in Iran because of the sanctions. As a whole, Iranian government has created a convoluted system that is not capable of reacting fast enough to the gas flaring problems. This is recognised by the Majlis but there is inertia against making structural changes to the overall system.
The World Bank has an international initiative to reduce gas flaring with the objective of eliminating routine gas flaring by 2030. They have set up a “partnership”, which is called Global Gas Flaring Reduction (GGFR) and includes countries, oil companies (e.g. BP & Shell) and organisations (e.g. The European Union). Interestingly, Nigeria is an active member of GGFR but Iran is missing from this partnership. Even our neighbour Iraq has joined GGFR, why doesn’t Iran join the GGFR partnership?
Iranian authorities may think that Iran is awash with natural gas and hence it can afford to flare associated gas. However, even if we ignore the environmental damages that gas flaring can cause, the Iranian authorities need to consider the blackouts that are often happening in Iran. If we look at Iran’s total electricity usage, which is 287,378 GWHr per year (1399 data) and consider that the latest estimate for Iran’s population is around 84 Million people, then the per capita electricity consumption is 3,421 KWHr per year. Therefore, based on the estimated 13.78 BCM/Y of flared gas, the government could provide electricity for around 25 Million people in Iran. This means enough electricity for almost 30% of the population!
In short, the data suggests that not only Iran has not improved its gas flaring intensity, but in fact it has got worse over the years and has certainly fallen behind most of its peers. The negative environmental impact of gas flaring coupled with the wasting of such a valuable national resource continues on a daily basis without a proper government policy to tackle this problem in Iran. So, whilst millions of people in Iran are suffering from power cuts, somewhere in Iran large volumes of gas are being burnt that could be turned into electric power.