The Slow Death of Iran’s Giant Gasfield is Causing Massive Power Cuts
Power cuts resulting from gas supply shortages have resulted in multiple power cuts in provinces throughout Iran this year. Natural gas supply cuts in factories and petrochemical plants have affected Iran’s ability to meet its petrochemical output goals because of feedstock shortages. In recent months, the government has announced emergency national holidays because of “extreme hot weather,” but many experts believe these closures are the government’s way of rationing electricity. Twenty years ago, Iran produced excess electricity and was keen to export it. Why, then, has Iran’s electricity shortage become so severe?
- Around 20% of Iran’s electricity is supposed to be provided by hydropower, but the lack of rainfall in recent years has reduced this capacity.
- Iran has not invested in other renewable energy sources, such as solar and wind. For example, in one of IOD’s previous articles, we showed that the UAE, which has no hydropower energy, has three times the renewable energy production capacity of Iran.
- Instead of investing in renewable energy sources, Iran has invested billions of dollars in its nuclear power stations, which have also brought about international sanctions. However, at the moment, only 1-2% of Iran’s electricity is nuclear-generated.
- Iran relied heavily on gas imports from Turkmenistan for years, especially to meet the gas demand in the northeast (Khorasan and Golestan provinces). However, Iran did not pay its bills on time, so Turkmenistan filed a legal case against Iran (See IOD article on Turkmenistan gas). In recent weeks, Iran has claimed that Turkmenistan will restart its gas supplies, but the exact rate and its continuity during winter months is not yet established. Nonetheless, any gas imports from Turkmenistan will put a huge burden on Iran’s foreign cash reserves, as the payments to Turkmenistan must be made in hard currency.
- One of Iran’s greatest achievements, once a source of pride for the government, was that it managed to replace the burning of high-sulphur fuel oil, or Mazut, in power stations with burning gas. However, in recent years, as gas supplies dwindled, the government returned to burning Mazut in its power stations, resulting in chronic air pollution issues.
However, the most dramatic reason for the electricity shortage is the rapid decline of the South Pars gasfield. To put it into perspective, Iran’s account for more than 17% of the world's total gas reserves and are 10 times higher than the entire gas reserves of Europe. The South Pars gasfield alone accounts for around 30% of Iran’s gas reserves (see Figure 1), but also provides close to 70% of Iran’s total domestic gas needs. Hence, any production problems in South Pars can result in a major drop in Iran’s gas supplies.
South Pars started production around 30 years ago. As the field gets older, production decline should be slowed or prevented in the following three ways:
1. Stop water ingress: As gasfields become mature, aquifer water comes into the well and tends to slowly choke the well’s gas production. In such cases, the well has to be re-entered using an offshore rig and repairs are carried out to stop the water ingress. In Iran, there is a shortage of offshore workover rigs and the major global service companies (Schlumberger, Halliburton, Baker Huges and Wetherford) have left Iran because of U.S. sanctions. Therefore, there is a shortage of technology to effectively stop water ingress in wells.
2. Drill new wells: Another solution is drilling new wells in parts of the reservoir that have not been produced, in effect starting new phases of South Pars. However, due to lack of foreign direct investment and the sanctions, new phases of South Pars have not been forthcoming. (The French firm Total, which was supposed to develop Phase 11 of South Pars, dropped out in 2017.) The drilling of infill wells in existing phases of South Pars has also slowed down due to lack of funds and shortage of offshore drilling rigs.
3. Install gas compression facilities: The most effective way of maintaining gas production in mature gasfields is the installation of gas compression facilities. South Pars is a shared field with Qatar’s North Dome. Qatar has already initiated gas compression projects to maintain the production levels of the North Dome and to increase the ultimate gas recovery rates. South Pars, meanwhile, has been losing pressure and is in desperate need of gas compression. According to industry reports, Iran needs $28 billion to maintain the reservoir pressure (and hence the gas production rates) at the South Pars gasfield. Without foreign direct investment, the Iranian government does not seem to have such funds available. Even if the government made the funds available, such massive gas compressors can only be supplied by a handful of companies in the world, most of which would not supply them to Iran because of the sanctions. We also need to consider that installing offshore gas compression platforms and facilities may take around 4 years, so even if Iran starts the projects now, the benefits would not be immediate.
In summary, the shortage of gas in Iran is a complex structural problem. Iran invested heavily in developing the South Pars gasfield 20-30 years ago, but has neglected it in recent years. Considering that gas disruptions have occurred every winter, they are not likely to be resolved in the foreseeable future and are likely to lead to further power cuts.
