The fuel behind Iran's nuclear
drive By David Isenberg
Much of the argument over the intentions
of Iran's nuclear program revolves around a single
proposition that goes like this. Given that Iran
has huge oil and gas reserves, it has no need for
nuclear power for domestic energy needs and thus
its nuclear program will be used for nuclear
weapons.
Like much so-called conventional
wisdom, is this is a highly misleading and
debatable cliche?
Certainly, the fact that
a state is pursuing a nuclear program per se, even
if it is a nuclear proliferator, is not always a
cause for alarm for the United States. Earlier
this year, the US announced an agreement with
India (until recently a target of US sanctions,
even under the current US president) to strengthen
the utilization of nuclear energy in its energy
mix.
The Foreign Affairs Select Committee
of England's parliament said in March 2004 that
based on a study it commissioned, "It is clear ...
that the arguments as to whether Iran has a
genuine requirement for domestically produced
nuclear electricity are not all, or even
predominantly, on one side."
Some
US arguments against Iran "were not supported by
an analysis of the facts", the committee added,
noting that much of the natural gas flared off by
Iran - which US officials say could be harnessed
instead of nuclear power - was not recoverable for
energy use.
Consider the following points.
First, Iran's energy situation today is quite
different from the late 1970s, when the shah's
regime also pursued nuclear technology, a pursuit
that did not seem so alarming to the West at the
time.
David Kay, former head of the Iraq
Survey Group, speaking in November 2004 at a forum
sponsored by the Center for Strategic and
International Studies said:
The first thing - of what we do
know, and it's amazing how many Americans seem
to skate over this - the first nuclear reactor
given to Iran was given by the United States in
1967 - a five-megawatt trigger reactor, research
reactor, under the Eisenhower Atoms for Peace
Program. Still operated ... The other thing that
Americans forget is that in 1974, the shah
announced a policy of 23,000 megawatts of
nuclear energy in Iraq. The US reaction? [Former
US national security adviser and secretary of
state] Henry Kissinger beat down the door to be
sure that two US constructors, General Electric
and Westinghouse, had a preferred position in
selling those reactors. We did not say, "it's a
stupid idea, why would you want to do that when
you are flaring gas and you have immense oil
reserves?" We said, "That is very interesting;
it's an example of how the Iranian economy is
moving and becoming modern." Imagine in Iranian
ears how it sounds now when we denigrate that
capacity. They remember. We were sellers of
nuclear reactors and wanted to be sellers of
nuclear reactors to the shah.
Consider
that just a year or so prior to the 1979 Iranian
revolution, the country was producing more than 6
million barrels a day of oil and its domestic
consumption was less than 10% of that output. Its
annual natural gas production (almost all in the
form of associated gas) was roughly about 12
billion cubic meters of which some 9.5 billion
cubic meters was exported to the Soviet Union and
only 20% was consumed domestically. Iran's
population was about 35 million. Meanwhile, Iran
had signed a number of nuclear power construction
contracts with France and Germany and was
negotiating with others for additional ones. The
stated objectives of these undertakings were to
generate electricity and desalinate water. But
according to the pre-revolution politicians there
was also always an attempt to explore the nuclear
technology for military purposes. But there was no
overt opposition to the shah's nuclear ambitions
because of friendly relations between Iran and US.
In fact, president Gerald Ford signed a
directive in 1976 offering Tehran the chance to
buy and operate a US-built reprocessing facility
for extracting plutonium from nuclear reactor
fuel. The deal was for a complete "nuclear fuel
cycle" - reactors powered by and regenerating
fissile materials on a self-sustaining basis.
The construction of nuclear power plants
in Iran has been contemplated for more than 30
years. The shah argued that hydrocarbon resources
would be too valuable to burn by the beginning of
21st century and most of Iran's electricity
generation must be supplied from nuclear power
plants by then.
After the Iran-Iraq war at
the end of the 1980s, the need for electricity
generation for reconstruction of the war-damaged
economy was evident and as the maximum export of
hydrocarbon resources was to be achieved for
foreign exchange requirements, the attention was
focused on rebuilding the Bushehr nuclear power
plant.
Today, Iran has a population of
more than 65 million and most people are choking
from air pollution. The country produces some 4
million barrels of oil a day of which about 1.5
million are consumed domestically. Natural gas
production has skyrocketed and almost all of it is
consumed domestically and the share of natural gas
of total energy consumption has more than tripled
and a very significant portion of that is used to
generate power. Incidentally, utilization of oil
or natural gas for power generation, though more
benign than coal, is not pollution free.
A
recent article in Foreign Policy journal noted:
Iran is the second-largest oil
producer in the Organization of Petroleum
Exporting Countries [OPEC] and has the world's
second-largest natural gas reserves. But its
energy needs are rising faster than its ability
to meet them. Driven by a young population and
high oil revenues, Iran's power consumption is
growing by around 7% annually, and its capacity
must nearly triple over the next 15 years to
meet projected demand. Where will the
electricity come from? Not from the oil sector.
It is retarded by US sanctions, as well as
inefficiency, corruption and Iran's
institutionalized distrust of Western investors.
Since 1995, when the sector was opened to a
handful of foreign companies, Iran has added
600,000 barrels per day to its crude production,
enough to offset depletion in aging fields, but
not enough to boost output, which has stagnated
at around 3.7 million barrels per day since the
late 1990s. Almost 40% of Iran's crude oil is
consumed locally. If this figure were to rise,
oil revenues would fall, spelling the end of the
strong economic growth the country has enjoyed
since 1999. Plugging the gap with natural gas is
not possible - yet. Iran's gigantic gas reserves
are only just being tapped, so Iran remains a
net importer.
Second, as a sovereign
nation Iran is entitled to make its own sovereign
decisions as to how provide for its own energy
needs. Under Article IV of the nuclear
Non-Proliferation Treaty, member states are
assured access to the benefits of civilian nuclear
energy.
Iran is a resource-rich country
and has all the rights to use its resources as it
sees fit. Among these resources there are several
uranium mines whose energy contents cannot be
overlooked. Expecting Iran to disregard this
valuable resource is irrational, not to mention
that taking away that much energy from the free
market is an irresponsible proposition. On the
other hand, helping Iran to extract, process and
use this resource in a joint operation with the
International Atomic Energy Agency could help
resolve many political as well as financial
problems.
Third, the large oil and gas
reserves that Iran possesses do not mean that Iran
can use oil and gas at no cost.
It is not
well appreciated that Iranian oil production has
dropped from a peak of more than 6 million barrels
per day in 1974 to about 3.4 barrels per day in
2002. Years of political isolation, recurring war
and US sanctions have deprived the oil sector of
needed investment. Iran's share of total world oil
trade peaked at 17.2% in 1972, then declined to
2.6% in 1980, but has since recouped to roughly
5%. In 2002, earnings from oil and gas made up
more than 70% of total government revenues, while
taxes made up about 20%. After the 1980-1988
Iran-Iraq war, the National Iranian Oil Company
launched a reconstruction program to restore
damaged fields. Since 1994, production has
averaged 3.6 million barrels per day, although
this is still roughly half of Iran's 1974 levels.
The government hopes that foreign finance and
technology will help raise Iran's output to 5.6
million barrels per day by 2010 and 7.3 million
barrels per day by 2020.
In fact, the oil
and gas that Iran has are almost as expensive as
the oil and gas that other countries don't have.
To be able to use oil or gas as a feed for an
industry (eg power generation), Iran has to
develop the resources. Now, once developed and
produced, from an economic point of view, oil can
be treated as a commodity, which has a value. The
monetization of gas is more difficult, but not if
you have ready markets around you and also if you
can use that gas to boost your oil production
capacity. In fact, considering the reality that
the majority of Iran's oil and gas reserves are in
the south and the country's population centers are
in the north, it makes more sense to export the
oil and gas in the south (oil from the terminals
and gas through pipelines and gas value-add
projects) rather than pump it to the north and
translate it into electric power.
One
example explains the logic of this argument - no
one has so far posed the question why Iran
actually buys oil from Caspian sources. The simple
answer is that it makes economic sense: Caspian
crude is closer to Iran's northern refineries and
the utilization of Caspian crude in the north
frees up oil in the south for export. The only
argument that can be used regarding Iran's oil and
gas reserves compared to other countries is the
fact that Iran has secure domestic supplies as
compared to other countries that are importers of
oil and gas. However, if Iran as a country manages
also to secure its own indigenous supply of
nuclear fuel, then the equation changes and it
becomes more of an economic evaluation.
With regard to its gas reserves, it bears
noting that there are needs for gas in Iran that
are much higher priorities than the construction
of gas power plants. As academics William Beeman
and Thomas Stauffer noted:
First, gas is vitally needed for
reinjection into existing oil reservoirs
[repressurizing]. This is indispensable for
maintaining oil output levels, as well as for
increasing overall, long-term recovery of oil.
Second, natural gas is needed for growing
domestic use, such as in cooking fuel and
domestic heating (Iranians typically use
kerosene for both), where it can free up oil for
more profitable export. New uses such as
powering bus and taxi fleets in Iran's smoggy
urban areas are also essential for development.
Third, natural gas exports - via pipelines to
Turkey or in liquefied form to the sub-continent
- set an attractive minimum value for any
available natural gas. With adequate nuclear
power generation, Iran can profit more from
selling its gas than using it to generate power.
Fourth, the economics of gas production in Iran
are almost backwards, certainly
counter-intuitive. Much of Iran's gas is "rich"
- it contains byproducts, such as
liquid-petroleum gas [LPG, better known as
propane], which are more valuable than the
natural gas from which they are derived. Iran
can profit by selling these derivatives, but not
if it burns the natural gas to generate power.
Furthermore, Iran adheres to OPEC production
quotas, which combine oil and natural gas
production. Therefore Iran cannot simply
increase natural gas for export to make up for
what it burns at home.
Finally, there
is another important strategic element to
consider. Iran derives strategic significance from
its status as an oil and gas exporter. This is a
status that Iran would like to maintain, and as
such any initiative that would maximize Iran's
potential for hydrocarbon exports has a strategic
value for Iran.
David Isenberg,
a senior analyst with the Washington-based British
American Security Information Council (BASIC), has
a wide background in arms control and national
security issues. The views expressed are his
own.
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