According to Oil and Gas Journal, Iran’s 2008 estimated proven natural gas reserves stand at 948 trillion cubic feet (Tcf), second only to Russia. Roughly two-thirds of Iranian natural gas reserves are located in non-associated fields, and have not been developed. Major natural gas fields include: South and North Pars, Tabnak, and Kangan-Nar. In 2007, Iran produced and consumed an estimated 3.9 Tcf of natural gas. Natural gas consumption is expected to grow around 7 percent annually for the next decade.

Both production and consumption have grown rapidly over the past 20 years, and natural gas is often used for re-injection into mature oilfields in Iran. According to FACTS Global Energy, Iran’s natural gas exports will be minimal due to rising domestic demand even with future expansion and production from the massive South Pars project. In 2007, roughly 70 percent of Iranian natural gas was marketed production, while approximately 30 percent was for enhanced oil recovery gas re-injection, and 285 million cubic feet was lost due to flaring. As with the oil industry, natural gas prices in Iran are heavily subsidized by the government.

The National Iranian Gas Company (NIGC) is responsible for natural gas infrastructure, transportation, and distribution. Due to the poor investment climate, some international oil companies including Repsol, Shell, and Total have divested from Iran’s natural gas sector. In response, Iran has looked toward eastern firms, like state-owned Indian Oil Corp. China Petroleum & Chemical Corporation, and Russia’s Gazprom to take an increased role in Iranian natural gas upstream development.

Under Iran's buy-back scheme, foreign firms hand over operations of fields to the National Iranian Oil Company (NIOC), and after development they receive payment from natural gas production to cover their investment. National Iranian South Oil Company (NISOC), a subsidiary of NIOC, is, as its name implies, responsible for much of the southern natural gas production. In 2007, NISOC was responsible for approximately 65% of Iran’s total gas production.

The most significant energy development project in Iran is the offshore South Pars field (called the North Field in Qatar), which is estimated to have 450 Tcf of natural gas reserves, or around 47 percent of Iran’s total natural gas reserves. Discovered in 1990, and located 62 miles offshore in the Persian Gulf, South Pars has a 25 phase development scheme spanning 20 years. The entire project is managed by Pars Oil & Gas Company, a subsidiary of the National Iranian Oil Company. Each phase has a combination of natural gas with condensate and/or natural gas liquids production associated with it. Phases 1-6 are online, and Phases 7-10 are at varying levels of completion, though all of Phases 7-10 are expected online by the middle of 2009. The majority of South Pars natural gas development will be allocated to the domestic market for consumption and gas re-injection. The remainder will either be exported to South Asia or Europe, used for LNG production, and/or used for gas to liquids (GTL) projects.

Pars Oil and Gas Company (PAGC) is responsible for upstream LNG development, and downstream development is divided amongst various companies including the National Iranian Gas Export Company (NIGEC). Iran’s LNG production will come from three different projects: Iran LNG, Pars LNG, and Persian LNG. South Pars development phases 11-14 are to supply Iran’s overall LNG ambitions, with specific phases supplying each project. Currently, South Pars Phase 12 is slated to provide Iran LNG with feedstock, with 2010 as the official, targeted start date. Iran needs international partners to develop its LNG potential and at present, discussions for partnership are underway with international oil companies and/or national oil companies not affected by US economic sanctions.

According to FACTS, Global Energy, Iran may reach peak LNG exports of around 1,462 Bcf as a lifetime ceiling. LNG projects in Iran lag behind neighboring Qatar, the world’s largest LNG exporter.

Iranian natural gas field exploration occurs in the Fars province including the Varavi, Shanol, and Homa fields, and in the Persian Gulf Salman gas field. In November of 2008, NIGC announced it was partnering with Indian firm Oil and Natural Gas Corp to produce recoverable gas reserves estimated at 12.8 Tcf from the Farsi Block. In April of 2008, NIOC announced the discovery of a field containing an estimated 740 Bcf of recoverable sour gas in the southwestern province of Khuzestan. In late 2007, NIOC announced the discovery of an 11.4 Tcf new gas field, of which at least 8.5 Tcf is estimated to be recoverable, in the Fars province.

In April 2008, Oman and Iran signed an agreement to develop Iran’s offshore Kish field. With estimated reserves of 50 Tcf, Oman will invest $7 billion in developing Kish in the hopes of producing 3 Bcf/d of natural gas. Phase I of the project, tentatively scheduled for first delivery to Oman by 2013, will produce approximately 2 Bcf/d; 65% of production will remain in Iran, the remaining 35% goes to Oman. Phase II of the project will produce 1 Bcf/d to be used for Iranian purposes.

Developments in the Iranian Gas Trunkline (IGAT) pipeline series, all fed by South Pars development phases, are important to Iran’s natural gas transport. IGAT-6 (operating as of the end of 2008) will have a capacity of 3.5 Bcf/d, but will likely operate at half capacity initially. IGAT-7 (2009) will transport up to 3 Bcf/d of gas along southern Iran, between Assaluyeh and Iranshahr. IGAT-8 (2009) will run nearly 650 miles to Iran’s northern consumption centers, including Tehran. IGAT-9 (2014), is an estimated $8 billion pipeline proposed to run from Assaluyeh to the northwestern city of Bazargan. IGAT-9 is unique in that for the first time, Iran is offering a build-own-operate contract for construction of its pipelines.

The 745 mile Iran-Turkey pipeline, completed in 2001, can transport up to 1.4 Bcf/d of natural gas. The 87-mile long Iran-Armenia pipeline will transport 86 Mcf/d to Armenia in exchange for 3.3 billion kilowatt hours of electricity.

Iran imports roughly 470 Mcf/d from Turkmenistan via the first pipeline in the Caspian region to bypass Russia for consumption in northern Iran. In January 2008, Turkmenistan stopped gas exports to Iran over pricing issues. Both countries reached an agreement on price and Turkmenistan began exporting gas again in April 2008. Turkmenistan has indicated a preference for a different pricing formula after 2009.

Iran has contracted with the Swiss company EGL to export initial volumes of approximately 40 Mcf/d to Europe, beginning in 2009. After 2012, exports are expected to reach close to 400 Mcf/d. The gas will be transported from the existing export pipeline to Turkey.

Iran’s participation in the Nabucco gas pipeline project remains unresolved. Plans call for a 2050 mile pipeline connecting Iran and other Caspian states to Austria and the EU through Turkey. Construction is slated to start in 2010, and the entire project will cost an estimated $12.2 billion with a capacity to transport 3 Bcf/d.

A controversial pipeline proposal is the $7.4-billion Iran-Pakistan-India (IPI) line which would transport Iranian natural gas south to the Asian subcontinent. With a proposed 1724 miles and a 5.4 Bcf/d capacity, the pipeline has been stalled in the past due in part to disputes over the cost of the shipments. Iran and Pakistan have finalized gas sales and purchase agreements, but without India’s participation in the negotiations. It is probable that Iran would extend its domestic IGAT-7 pipeline into Pakistan, avoiding the creation of a new, parallel pipeline.