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Iran’s Pipe Dream to Export Gas to Europe

January 26, 2023

The European Union’s sanctions on Russian gas imports in reaction to that country’s invasion of Ukraine last year rekindled Iran’s long-standing ambitions to export natural gas to Europe. But these ambitions were yet again thwarted by Iran’s escalating diplomatic rift with the West. These tensions caused the European Union to forgo the pursuit of an energy deal with Iran in favor of an agreement to buy more expensive and less accessible gas from Azerbaijan.
Iran has the second-largest gas reserves in the world after Russia, and already exports gas to the only country that sits between Iran’s borders and Europe, Turkey. However, in a recent move to wean Europe from Russian gas supplies, the European Union (EU) has signed a gas supply contract with the Republic of Azerbaijan whose gas must pass through Georgia before reaching Turkey.


Map Link  (Source: Southern Gas Corridor project)

Chart 2 shows that Iran’s gas reserves are significantly higher than Azerbaijan’s. Iran has almost 13 times more gas reserves than Azerbaijan. Furthermore, Azerbaijan’s gas production is from more expensive deepwater offshore fields, while Iran’s fields that are either onshore or in shallower waters, making it cheaper to produce.

Chart link

Natural gas prices in Europe  have increased dramatically in the past year because of the Ukraine crisis. Wholesale gas prices have grown by more than 150% between January and September 2022. On some days, the prices exceeded €300/MWh, while in January 2021 gas prices were below €20/MWh. The real prices at which Iran sells gas prices to Turkey are not officially announced, but experts interviewed by IOD estimate them to be around $4-5/MCF (€14-17/MWh), which is significantly lower than current European wholesale gas price.