Iran imports some 800 mn cfd from Turkmenistan: equivalent to 6% of its gas demand. Exports to Turkey are about 1. For a time, Iran completely stopped exporting to Turkey, saying that the gas was needed at home to meet a surge in demand caused by an unusually cold winter.

This is not, however, the first time that Iran has interrupted supplies to Turkey. In January 2006, it sharply reduced its exports, whilst in December of that year it stopped exporting altogether until the following month. In both instances, the Iranians cited colder than normal weather.

Tehran had hoped to avoid any further such interruptions by signing an agreement with Turkmenistan to increase its exports to Iran by 75% to 1.4 bn cfd from the start of 2008. Then, in a surprise move, the Russian agreed to pay an extra 50% for their imports of Turkmen gas by the second half of 2008. Turkmenistan, for its part, went back to the Iranians and asked for a price increase, which the Iranians rejected, claiming the two countries had earlier agreed a price-freeze. At this point, Turkmenistan announced that it needed to carry out urgent repairs to the export pipeline serving Iran and, on 29th December, stopped exporting gas.

Iran’s problems go much deeper than the loss of Turkmen supplies. At the heart of the country’s troubles lies the fact that Iran has been unable to develop new gasfields quickly enough to meet rapidly rising domestic demand, which has doubled since 2000. This failure is all the more serious when it is considered that Iran’s proven reserves of 974 trillion cf are the world’s second-largest and that they provide sufficient gas for more than 100 years’ production at present rates.

Iran has undoubtedly been inconvenienced by a US investment boycott, but there has been plenty of other foreign interest in developing the country’s several large fields, notably the South Pars field lying under the Persian Gulf, where reserves are put at 375 trillion cf, making it one of the world’s largest. The government decreed that it should be developed in about 30 phases and began awarding contracts to foreign and domestic companies but only small volumes of gas have actually been produced.

South Pars was supposed to produce gas for the domestic market and for export, and one reason for the delays to so many phases has been the inability of the authorities in Tehran to agree with the foreign investors what proportion of their output should go to exports and what should remain at home. Some nine development phases are being held-up at present and several more phases have yet to be awarded. Nor is the situation likely to be improved by growing foreign hostility to Iran’s nuclear programme, which has already led to calls within the EU for European companies to disengage from gas developments in Iran.

Iran’s consumption of gas is reported to be running in excess of 13 bn cfd and there are reports that demand exceed 15 bn cfd during January 2008’s cold spell. Whilst there has undoubtedly been a shortfall in production, Iran also suffers from poor distribution, which has suffered a shortage of investment in recent years.

The shortage of gas has led to a shortfall in deliveries to power stations. In order to prevent large scale power cuts, several generating stations have had to switch to oil. The larger units have been able to run on surplus heavy fuel oil, but many plants have had to turn to gasoil, some of which has had to be imported. Industrial users have also had their gas supplies cut.

Perhaps the most serious consequence of the lack of gas, in the long term, is reduction in the amounts of gas being reinjected into oil reservoirs. Iran’s oil production is concentrated in mature oilfields that require large volumes of gas to be reinjected in order to be able to maintain reservoir pressures. Without the gas, not only will oil production fall, but the amount that can be ultimately extracted from the reservoirs will also decrease.

Iran produces about 4 mn bpd of oil. The plan is to raise this to 5 mn bpd by 2015; but this will require almost double the current volumes it receives for reinjection. To achieve its stated goal of producing 5 mn bpd by 2015, NIOC will probably need some 15-20 bn cfd. Iran’s total production in January was 16 mn cfd, according to the Oil Ministry.

The Ministry says that more gas will become available from South Pars by the summer. There should also be a dip in domestic demand from the peak winter season. Supplies nevertheless remain precariously balanced. Turkmenistan is likely to prefer to maximize its exports to Russia rather than Iran unless Tehran agrees to pay more for its gas. Moreover,. Iran’s own consumption continues to grow rapidly.

Iran in any case is proceeding to promote export sales of its gas despite not being able to bring new fields on-stream quickly enough to meet the growth in domestic demand. This year, it has already agreed to start supplying Syria with 105 mn cfd of gas from the end of 2009. It also wants to begin exports to Pakistan by 2012. This would be by means of a 2pipeline from South Pars to Pakistan and thence to India. There are also plans for LNG exports of up to 2.7 bn cfd from Phase II of South Pars. Few, if any, of the gas export schemes are likely to be commissioned on schedule, as delays continue to dog much of the South Pars project. Meanwhile both domestic and export customers are likely to go on facing shortages and interruptions to supply.