The Oil Ministry and the National Iranian Gas Company are putting pressure on steelmakers and mining firms to cut their gas consumption.
According to a report by the Persian daily Jahan-e Sanat, Chadormalu Mining and Industrial Company has been asked to keep its gas consumption below 30,000 cubic meters per day until further notice.
Since the quota is less than 1% of the heavyweight mining firm’s gas consumption under normal conditions, the restrictions lead to cessation of production in Chadormalu, inflicting huge losses in lost production.
The report also noted that certain companies have been restricted for longer periods, while others will be less affected.
It went on to say that producers of direct-reduced iron are the prime target of new restrictions due to their energy-intensive nature, adding that since DRI is a strategic product in the steel industry, the measure will impact the entire steel production chain and lead to a massive decline in the output of steel products and a price hike.
With the decline in temperature across Iran, high gas consumption in households has set a record.
According to Oil Minister Javad Owji, daily household gas demand has surpassed 650 million cubic meters, showing a 40% or 140 mcm rise compared with the same period of last year.
Energy experts, including Owji, believe that as long as prices are not adjusted upwards, the problem of overconsumption and waste will persist.
Iran is the fourth largest gas consumer in the world after the US, China and Russia.
For the same reason, the National Iranian Gas Company’s officials, including Managing Director Majid Chegini, believe that a rise in tariffs for heavy consumers is the most effective short-term solution to curb consumption.
Iran offers natural gas to households and businesses at highly subsidized rates, which experts blame for the illogically high level of gas consumption in the country.
Referring to massive subsidies paid to consumers, Chegini said households are normally charged less than $3 per month for consuming 500 cubic meters of gas.
“If the same volume of gas is exported, the company can earn at least $200,” he added.
Owji noted that the current volume of consumption has been unprecedented in fall.
“It’s like we have an early winter now,” he was quoted as saying by the Oil Ministry’s news agency Shana.
Rising usage over the past winter forced NIGC to cut gas supplies to power plants across Iran, causing brief but recurrent power cuts in large cities across the country.
Oil Ministry authorities have warned there could be a shortage of nearly 200 mcm of gas in the coming winter, as demand is expected to increase by about 10% compared to last year.
NIGC has the capacity to pump nearly 1 billion cubic meters of gas per day to the national network. The government has devised plans to ensure power plants in Iran have access to adequate supplies of fuel over the winter to prevent any electricity outage in the country.
The Oil Ministry’s proposal to hike natural gas tariffs in the household sector was recently ratified by the Cabinet, based on which the commodity’ price will rise on average by 40%.
Cement factories in Isfahan Province were among the first producers whose gas supply was cut, as consumption in the area soared beyond expectations.
Following plans to sustain natural gas supply to households in the winter, the National Iranian Gas Company has cut gas delivery to cement factories, the head of Cement Employers Association said.
“Most manufacturers have started to tap into alternative fuel [mazut], so production level has not been negatively affected yet,” Abdolreza Sheikhan was also quoted as saying by ISNA on Friday.
Referring to massive power outages in summer, the official warned that production will halt as soon as power supply id cut.
According to Mostafa Alavi, the head of Isfahan Province Gas Company, cement factories in the region were among the first to face gas outage, after consumption soared beyond expectations.
“Daily gas demand in the region has exceeded a massive 76 million cubic meters, up 20% compared to last year,” he added.
Giving a breakdown on demand in the province, Alavi noted that of the total daily consumption, steel mills, thermal power plants and industries account for 12 mcm, 13 mcm and 6 mcm respectively.
“Households constitute 60% or 45 mcm of the demand and as long as the figure does not decline, gas delivery to other sectors will be curtailed,” he said.
According to the official, cement manufacturers should either lower production levels or tap into liquefied mazut.
Most producers have chosen the latter option.
The Oil Ministry reportedly compensates cement producers’ financial losses through discounts in mazut bills.
Advantages of cuts in gas delivery notwithstanding, the policy can exacerbate the air pollution crisis in and around mega cities as most cement factories continue production by using mazut, one of the most polluting feedstocks in the world.
Summer Power Cuts
This is not the first time that industries, especially steelmakers, are facing power restrictions.
In the summer of the current fiscal year (June 22-Sept. 22), steel production declined by 40% compared with the previous quarter (March 21-June 22) due to electricity cuts amid record high domestic consumption.
In a letter to the Supreme National Security Council, ISPA has put steel mills’ losses due to power outages at $6 billion from the beginning of the current Iranian year (March 21) to Sept. 22.
According to ISPA, 82 complete days of production were lost during the period due to power outages and 300,000 direct and indirect jobs were lost or restricted, the news portal of the association reported.
Summer demand led to severe power and water shortages in summer in most regions, which resulted in blackouts and dry taps.
Electricity consumption on June 20 surpassed 62,000 MW.
The record use following high temperatures nationwide drove general electricity consumption to new heights, prompting authorities to prioritize domestic users over industries in supplying power.
As the manufacture of steel and related products is an energy-intensive process, steel and cement factories were subsequently restricted by the Iran Power Generation, Distribution and Transmission Company (locally known as Tavanir) and have been only allowed to work at a fraction of their capacity during specific hours.
The abrupt ban on the two key sectors created shortages of steel and cement in local markets and prices increased overnight, creating new problems for most construction sectors.
According to Tavanir Spokesman Mostafa Rajabi Mashhadi, electricity restrictions for industries were removed as of Sept. 23.
Iranian Steel Production’s Global Standing at Risk
Noting that Iran is the world’s 10th biggest steelmaker, Vice President of Iranian Steel Association Vahid Yaqoubi says power restrictions will impact the country’s global position.
Latest data released by the World Steel Association show Iran’s steel output has declined, but the country’s world standing remains unchanged.
Iranian steel mills produced a total of 22.4 million tons of crude steel in the first 10 months of 2021 to register a 5.7% decline compared with the corresponding period of 2020.
As per the latest report released by the World Steel Association, Iran's October output hit 2.2 million tons, down 15.3% year-on-year.
Despite the decline in output, Iran maintained its global status as the world’s 10th biggest crude steel producer. China was the world’s largest crude steel producer in the 10-month period with 877.1 million tons of steel output, down 0.7% YOY.
It was followed by India with 96.9 million tons (up 20.6%), Japan with 80.4 million tons (up 17.5%), the United States with 71.7 million tons (up 19.6%), Russia with 62.5 million tons (up 5.7%), South Korea with 58.7 million tons (up 5.9%), Germany with 33.6 million tons (up 15.1%) and Turkey with 33.3 million tons (up 14.2%).
Iran is placed after Brazil (ninth) with 30.3 million tons (up 19.1% YOY).
Iranian steel mills produced a total of 29.02 million tons of crude steel in 2020 and registered a 13.35% rise compared with 2019, the highest growth in output among the world's top 10 producers.
Export Obligations
Yaqoubi also pointed to steelmakers’ export obligations and said producers are often pre-ordered for the next three months and if they cannot supply the required DRI and produce steel, they will suffer a loss of income as well as their reputation internationally.
According to the official, currently, one or two steel production units have encountered gas outages, while other units have been warned and some units have reduced gas consumption by 50%, which practically means business closure.
Despite a decline in output, Iranian steelmakers have registered strong growth in exports.
According to latest data released by the Iranian Steel Producers Association, a total of 4.06 million tons of semi-finished steel products were exported from Iran during the seven months to Oct. 22, up 27% compared with the previous year’s similar period.
Billet and bloom had the lion’s share of semis exports with an aggregate of 2.72 million tons, 11% higher than the previous corresponding period.
Slab exports amounted to 1.34 million tons during the period, up 80% year-on-year.
Exports of finished steel products grew by 38% to 1.86 million tons during the seven months under review.
Rebar accounted for the largest portion of finished steel products exported from Iran during the period, with 1.31 million tons. The total volume of Iran’s rebar exports experienced a 57% growth compared with the same period of last year.
Beam exports amounted to 75,000 tons during the period under review, down 21% YOY.
About 104,000 tons of L-beam, T-beam and other types were also exported from Iran during the period, unchanged from the corresponding period of last year.
Hot-rolled coil exports amounted to 291,000 tons, registering a 24% growth compared with the year before.
Cold-rolled coil with 11,000 tons registered a 56% decline year-on-year and coated coil with 67,000 tons, up 29% YOY, was the other finished steel products exported from Iran.
Exports of direct-reduced iron increased by 279% YOY to 698,000 tons, ISPA figures show.
DRI, also known as sponge iron, is produced from direct reduction of iron ore in the form of lumps, pellets or fines by a reducing gas. It can be processed to create wrought iron.
Iran and India are the world’s biggest producer of DRI.
