By: Ebrahim Fallahi

Natural gas vs. electricity exports: question of profitability

December 27, 2017

Having abundant energy resources and a great number of power plants, Iran is one of the Middle East’s top energy suppliers which contributes to the region’s electricity supplements both directly through electricity exports and indirectly via exporting natural gas being used as feedstock for the destination countries’ power plants.

Considering the fact that the country can either export natural gas directly or use it as fuel for its power plants to produce electricity and then export the electricity, begs the question of “which one is more profitable?” 

To make a rational comparison between the two options, a variety of factors including power plants efficiency and output, electricity export prices, electricity transmission losses and natural gas prices, must be considered.

Considering the above mentioned factors, Energy Ministry can play a significant role in increasing the cost-effectiveness of electricity exports compared to gas exports through the construction of high-efficiency power plants and the reduction of transmission losses.

Some Iranian energy experts believe that exporting electricity is not profitable when, considering the Iranian power plants’ low efficiency and fuel consumption, the costs of generating it is much higher than the exported electricity’s price.

However, since according to Iranian Oil Ministry’s news portal, Shana, the Energy Ministry is not currently paying for the gas it receives for power plants’ feedstock, clearly electricity exports benefits them and the ministry is not willing to consider the idea of spending any budget on modernizing the country’s old power plants to make them more efficient.

According to Iran’s Power Generation, Transmission and Distribution Management Company, known as Tavanir, the average efficiency of all the country’s power plants stands at 41.2 percent which they claim (contrary to what Oil Ministry believes to be the case) will grow to higher percentages in coming years.

The country’s current annual power generation capacity is reported to be 77,446 MW while, according to Deputy Energy Minister Houshang Falahatian, the country's average annual electricity exports stand at 10 million kilowatt-hours.

“The income from electricity exports is not fixed, but its average is reported to be something between $700 million and $1.2 billion in different years,” Falahatian said on the sidelines of Tehran’s 23rd International Press Exhibition in late October.

Economically speaking, it is clear that conversion of natural gas into petrochemical products, or even using it as the fuel in production of steel, aluminum and etc., will definitely add more value to the commodity than exporting it raw or as electricity.

However, considering the country’s gigantic gas resources versus limited industrial demand and refining capacity, exporting the commodity has always been a preferable option for the Oil Ministry.

The country is currently producing 800 million cubic meters (mcm) of gas per day of which 34.8 million cubic meters (mcm) is exported to the neighboring counties.

Most of Iran’s customers use the imported gas, almost completely, as fuel for their own power plants to produce electricity, and that makes Iran’s electricity less attractive.

Energy experts suggest that exporting electricity can be profitable if the country’s power plants reach an average efficiency level of at least 50 percent.

Considering all aspects, it is rational to conclude that currently electricity exports is not as profitable as it sounds, unless the Energy Ministry moves toward modernizing the country’s old power plants to make them more efficient.

On the other hand, exporting raw natural gas is also not the best possible option while refining it and producing petrochemicals could be a far profitable option if there were enough refineries in the country to process the commodity.

EF/MA

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