Iran's Yadavaran Oilfield Output at 115,000 bpd

Use of natural gas for producing goods/services with higher value added such as production of electricity and petrochemicals makes more economic sense than the mere export of this fossil fuel, says Energy Minister Hamid Chitchian.

"Profits from exporting natural gas, especially via pipeline, are on the decline. Exporting electricity and other products with higher value-added is apparently more viable," Chitchian was quoted as saying by Mehr News Agency on Tuesday.

Pointing to Iran's substantial infrastructure for electricity export to Pakistan, Turkey, Iraq, Afghanistan, Azerbaijan and Armenia, Chitchian said signing simultaneous gas and electricity supply contracts with (overseas) buyers is a "wrong policy", adding that there should be "coordination between the oil and energy ministries in power and energy exports."

According to Chitchian, neighboring countries are understandably "more interested in importing gas at low prices and convert it into electricity as it is more profitable than importing power."

The minister recalled that gas exports mean laying pipelines at exorbitant costs, especially in Iran whose national gas grid, aka IGAT, is yet to be fully completed. Nevertheless, power exports involve lower levels of risk and higher profit.

"There is no (standard) international pricing mechanism for natural gas as the price is set regionally because of varying transportation costs. Supply costs are normally covered by exporters."

Revenues from electricity export are more sustainable than those from oil and gas, Bahram Nezamolmolki, director general of the Energy Ministry's Office for Developing Export of Technical and Engineering Services, said, noting that "power prices are less dependent on the fluctuations" in the price of oil and gas in global markets.

  Cooperation Between Oil, Energy Ministries

"It is of importance for the oil and energy ministries to liaise on matters related to national interest, such as effective policy and decision making related to energy export," Nezamolmolki said. 

The official said over the past three years oil prices plummeted by more than half, dropping to around $50 per barrel from more than $100 a barrel in the middle of 2014. He added that a similar fate visited natural gas prices, which have suffered a nearly 40% decline in the past two years.

Nevertheless, electricity export prices never faced such huge vulnerability, slipping from 12 cents per kilowatt-hour to 10 cents per kWh in case of Iranian exports to Iraq.

Nezamolmolki said he does not expect oil and gas prices to surge dramatically in the foreseeable future, hence electricity export earnings make a lot of sense than the export of fossil fuels, for which reason the "power sector should be given a more prominent role in economic development."

According to Arash Kordi, managing director of Iran Power Generation, Distribution and Transmission Company, electricity export is forecast to more than double from the current 10 billion kilowatt-hours per year to 20-25 billion kWh per year by 2020. Iran's electricity industry ranks 14th in the world in terms of output and 19th in terms of consumption.

The country is the largest exporter and importer of electricity in the Middle East and exports power to Pakistan, Turkey, Iraq and Afghanistan. Azerbaijan and Armenia sell electricity to Iran under swap agreements.