The steel sector accounts for 5% of Iran’s daily natural gas consumption of 800 million cubic meters that is negligible compared to the industry’s revenue-generating potential, the Oil Ministry's deputy for planning said.
“Steel mills’ output stands at 40 million tons, comprising 12% of annual non-oil export earnings hovering around $90 billion per annum, and falling short of supplying the sector with enough gas will hurt revenues,” Houshang Falahatian was also quoted as saying by IRNA.
“Gas consumption in steel plants increased by 14% per year between 2016 and 2020, whereas gas production capacity experienced a 6% rise per year in the period,” he said.
In other words, the rise in gas output capacity is not proportional with the need of the fuel in steel sector and this explains the widening gap between the volume of produced gas and the need of steel industry, especially in the cold season when consumption in household sector exceeds 600 mcm and gas delivery to industries is cut by half.
Falahatian noted that to keep steel mills running, they should be supplied with at least 40 mcm of gas per day, but the National Iranian Gas Company falls short of meeting the demand, and steel production and export decline in winter”
Drawing a parallel between steel sector and other industries, the official said gas consumption in petrochemical plants and cement factories increased by 8% and 5.5% per year between 2016 and 2020 respectively.
Iran’s huge gas reserves have been a boon to the domestic steel industry. For years, Iranian steelmakers have relied on cheap gas feedstock to boost production using direct-reduced iron, based on the premise that Iran’s energy advantage compared to other global rivals is the key to higher value-added for the industry, both in steel production and raw material exports, but now that gas output cannot increase further, industries are facing problems.
Iran has made noticeable progress in its gas sector and needs investments worth $80 billion to enhance output
The official believes that the mills’ consumption rate is insignificant and can actually use even more to create higher added-value for the industry.
Bahador Ahramian, a member of Iranian Steel Producers Association, believes that Iran is having trouble using its vast gas reserves efficiently, as neighboring countries are reluctant to purchase gas from Iran at market prices and demand discounts, or are unable to pay.
“What Iran can do with its gas [instead of exports] is to turn it into products derived from gas,” he said.
In his view, Iran should not go down the steel product value chain, as it would find lower returns and diminishing margins in competition with cheap finished steel supplies from China.
Noticeable Progress
Iran has made noticeable progress in its gas sector, but needs investment worth $80 billion to enhance output, Falahatian said.
Giving a breakdown on the required investment, the official stressed that of the total sum, $24 billion should be spent on increasing gas pressure in operational gas fields, $36 billion on developing new fields, $8 billion on upgrading gas refineries, $3 billion on collecting associated petroleum gas projects, $6 billion on laying new pipelines and the rest on expanding gas storage capacity initiatives.
“Relying on domestic human resources, knowhow and investment, we have reached a sustainable production level of 1 billion cubic meters of gas per day,” he added.
According to the official, almost 95% of the total 83 million population of Iran have access to piped gas.
Iran’s oil and petrochemical industries have made great strides in terms of homegrown technology and completing the value chain, he added.
The official emphasized the use of the latest technologies to ensure maximum production in the upstream sector and maximum value added in the downstream sector.
Falahatian stated that special attention should be paid to the development of the South Pars Gas Field, as any problem in the field’s development and production process will impact the country's revenue generation.
“South Pars is the source of 70% of the country's gas production and by drilling new wells, oil engineering measures such as acid work, etc., the natural decline in production can be prevented to some extent. But the most important thing we have to do is to build gas booster stations, which is a fundamental step and needs $20 billion in offshore and $10 billion in onshore operations,” he said.
South Pars, the world's largest proven offshore natural gas reservoir, contains at least 12 trillion cubic meters of gas, of which close to 9 tcm are extractable and Iran has extracted about 2 tcm of gas from the field in the past 18 years.
The huge gas field, which Iran shares with Qatar, covers an area of 9,700 square kilometers, 3,700 square kilometers of which (South Pars) are in Iran’s territorial waters and the rest (North Dome) is in Qatari waters. It is estimated to contain large deposits of natural gas, accounting for 8% of the world’s known reserves and approximately 18 billion barrels of condensates.
South Pars has been designed in 24 phases and includes 39 offshore platforms, 373 wells and 3,000 kilometers of subsea pipelines.
