Iran is grappling with a severe energy crisis, marked by a substantial electricity deficit and gas shortages, despite being the second-largest holder of gas reserves globally. In the first seven months of 2023, Iran’s Ministry of Energy reported that only 20% of its electricity production growth targets had been achieved.
This crisis has prompted the CEO of the state-run Tavanir energy company, Arash Kordi, to announce the doubling of electricity imports from Turkmenistan over the next 18 months. This move comes as a response to Iran’s pressing energy needs and the persistent challenges it faces in meeting its electricity consumption demands.
Turkmenistan’s Vital Role
Currently importing 350 to 400 megawatts from Turkmenistan, Iran is on the verge of completing a new transmission line that will double these imports, addressing a significant portion of its electricity deficit. Turkmenistan, in addition to being a crucial energy partner for Iran, is also the largest exporter of electricity to Afghanistan, Uzbekistan, and Kyrgyzstan.
Historical Context of Energy Trade
A decade ago, Iran was a net exporter of electricity, exporting 12 terawatt hours while importing 4 terawatt hours. However, in recent years, the country has witnessed a sharp decline in electricity exports and an increase in imports. Last year, Iran’s net export of electricity plummeted to one terawatt hour, reaching zero in the present context.
Unmet Growth Targets
Despite an annual growth rate in electricity consumption exceeding 5%, Iran has struggled to realize its electricity production growth goals. In the first seven months of the current year, only 1,000 megawatts of new and low-efficiency power plants were produced, falling significantly short of the targeted 5,000 megawatts for the entire year.
Gas Shortages and Strategic Negotiations
Iran, facing a daily deficit of over 250 million cubic meters of gas in winters, extensively relies on fuel oil for power plants and industries. To address this, Iranian Oil Minister Javad Oji has resumed gas imports from Turkmenistan and is negotiating a larger gas contract.
Additionally, last week, due to Iran’s inability to deliver gas to Iraq, Turkmenistan signed a gas import protocol with Iraq, leading to a strategic shift in gas dynamics in the region.
Challenges with Key Customers
Iran’s historical gas customer, Turkey, is also facing disruptions, and its 25-year gas import contract is set to expire in three years.
Despite being a significant electricity customer until the mid-last decade, Turkey has diversified its energy sources, with 20% of its electricity now generated from solar and wind power projects. This is despite the fact that the share of solar and wind power plants in Iran’s electricity production is only half percent.
Gas Losses and Financial Implications
Notably, Iran grapples not only with deficits in its energy production but also substantial financial losses attributed to inefficient gas utilization. According to data from the World Bank, the International Energy Agency, and Iran’s Ministry of Oil, an alarming 50 million cubic meters of gas produced in Iran is annually burned and wasted through torches, a consequence of the absence of ‘combined gas’ collection equipment in oil fields.
This mismanagement results in staggering financial losses, estimated at approximately $20 billion annually during the production phase and an additional $8 billion in the transmission and distribution phases.
Former Iranian Oil Minister Bijan Zanganeh emphasized the critical need for a modest investment of ‘five billion dollars’ to prevent the annual flaring of 18 billion cubic meters of gas, averting nearly 50 million cubic meters per day of wasted resources.
Iran has held the dubious distinction of having the second-highest gas losses in the production phase globally for over two decades, surpassed only by Russia.
Addressing this issue requires a comprehensive approach, as Iranian authorities estimate an essential investment of $10 billion to modernize the country’s gas network, thus preventing losses in the transmission and distribution phases.
The cumulative investment required for tackling both production and distribution inefficiencies stands at $15 billion, equivalent to two months of Iran’s oil exports at current prices in a scenario without sanctions.
