ENERGY ECONOMICS REVIEW
Year:2008 | Volume:4 | Issue:15|Papers Count:8

Nowadays most economists believe that the economic situation of each country is affected not only by the economic behavior of that given country, but also by the economic behavior of its neighbors, and neglecting these relations and spatial factors can have adverse effects on the country's economic performance. In this regard, economists attach ever greater attention to the issue of convergence and other related topics. In addition, energy is considered as one of the main factors in the formation and development of industrial societies and is an indicator of the potentials and political and economic power of any country. Thus, it is essential to study energy and energy productivity in order to facilitate economic growth and development. As a result, this article attempts to investigate energy productivity convergence among selected Islamic countries. By using spatial econometric empirical relations among relevant variables are estimated. The study reveals conditional and unconditional a and b convergence among the selected Islamic countries.

It is believed that Iran is not only rich in fossil fuels, but also in renewable energies. The potential of renewable energies is estimated at many times that of fossil fuels.An effort has been made in recent decades to introduce renewable energies to Iran's basket of energy. Iran is a leader amongst Persian Gulf countries in diversifying its energy basket by introducing renewable energies. Exploitable capacity of hydropower which was 6043 megawatt in 2005 is planned to reach 34351 megawatt in the future. About 92 windmills with a total capacity of 47580 kilowatt are generating electricity in the four provinces of Khorassan, Gilan, Qazvin and East Azarbayjan, while additional capacity of 41680kilowatt is planned as well. Also, units for generating about 176 kilowatt of solar electricity have been erected in rural areas. About 612250 KWh of electricity has been generated during 1997-2005.Besides, about 3788 solar thermal heaters have been installed in rural areas. A geothermal plant with the capacity of 55 megawatt is under construction in two phases in Meshkinshahr. Despite ongoing efforts to develop renewable energies, the subsidy on fossil energies is the major obstacle for the development of renewable energies in Iran. Technical potential of solar heating is estimated at 91000 terawatt hours. Economic potential of solar heating-assuming an interest rate of 14% and electricity price of 5 US cent per KWh-is estimated at the equivalent of 60 million kilowatt of electricity. The elimination of subsidies on fossil fuel prices will facilitate the development of renewable energies. To develop such energies, in case fossil fuel subsidies are not abolished, requires making available credit to the sector at a preferential interest rate.

In this paper we compare the economic costs and benefits of providing the need of Tehran for electricity through two alternatives, namely transmission of gas or electricity from point of production to Tehran. The basic facts that affect the study are that there is a need to establish a power station to generate the needed electricity for Tehran as the main centre of consumption and that the main centre of gas production is located in Asalooyeh. The basic question to which this study responds is that establishing such power plant in which area between the gas production and electricity consumption centers results in lower costs. In other words, which choice between transmitting electricity and gas is most advantageous for the country.In this paper, different options of gas and electricity transmission between the closest area to the gas production center in Asalooyeh and the closest area to the electricity consumption center in Tehran are studied. Production capacity of the hypothetical power plant is taken as 1000 megawatt with maximum 1200-kilometre distance between the point of production of natural gas and Tehran.The existing electricity and gas networks of the country have been ignored and it is assumed that there is no spare capacity in either electricity or gas transmission lines. The study reviews different options, namely electricity transmission through mono-circuit and bicircuit 230 and 400 kilovolt transmission lines and gas transmission through 28, 30, 48 and 56-inch pipe lines and takes into account loss of electricity due to transmission. The best option to minimize the costs of providing the consumers with electricity in terms of the national economy is the establishment of the power plant close to the gas production center and transmission of electricity to the consumption area.

The importance and necessity of energy-saving has been discussed in Iran for many years. However, finding a clear logical solution is still one of the challenges and concerns of Iran's economy. Rapid increase in energy consumption during the last two decades has endangered national energy security. Energy-saving has numerous advantages for the economy. It reduces costs and has other advantages as well. Generally speaking, energy consumption during last two decades has been affected by factors such as economic growth, population growth and urbanization, relatively low price of energy, development of energy-intensive industries, rapid growth of the transportation fleet and non-compliance with energy-saving regulations in construction. According to the programs presented in the five-year socio-economic development plan of the Islamic Republic of Iran, one of the priorities of the government is to assure the energy needs of industrial projects. Regarding rapid growth in energy consumption, policy makers and legislators need to manage supply and demand in order to ensure the country's energy security. Otherwise, there would be major problems threatening the country. In different countries, there are laws and regulations to control energy consumption in different sectors of economy or the entire economy through applying energy-saving measures. There are standards and incentives and punitive measures, defined by law, which oblige manufacturers and users of appliances to save energy, so as to decrease energy flow and control energy consumption levels. Given the high potential of energy-saving in different economic sectors of the country, comprehensive energy related regulations would result in logical use of energy and increase value added. Hence, through planning and guiding different economic sectors this way, the future need for energy will partly be met through energy savings.

Rapid increase in the demand for gas has turned what was a buyer's market to a seller's market. As a result, pricing of gas price has become an ever more important issue that is under discussion by many experts. There are various methods of pricing defined with regard to theoretical issues and trade principles, but only some of these are applicable at the present time and others have remained more theoretical. Most gas exporting countries wish to have their gas priced at the equivalent level of oil prices, in terms of energy content or at least have gas price changes at the same rate as for petroleum prices, in order to encourage expansion of gas development projects. This is why in European countries the index of Oceania and Asian LNG prices is based on petroleum prices. This is also the case in Japan as the main LNG importer. It is expected that gas demand increases significantly in the long run, compared to other fuel resources. It is therefore expected that natural gas prices will continue their upward trend in the future.A study of the natural gas pricing process shows that unlike LNG, the price of natural gas is often lower than other energy alternatives (petroleum and oil products). There are two specific features of gas trade that are different from petroleum transactions, namely: 1) intense interdependence of exporter and importer due to the impossibility of saving gas at least during the contract period and 2) high risk of investment. Considering these particular features, prices mentioned in contracts should be calculated in such a way as to maintain gas supply security while providing the possibility of changing the contract price in case there is a change in other fuel prices (especially competing fuels), in order to maintain suppliers' interest. Thus, main principles to be considered in negotiation of gas export are: determining the relational index of gas and petroleum prices, the fixed portion of price, minimum and maximum prices, and determining the time period for price revisions in the gas pricing formula. The gas price has to be fixed in a competitive manner in relation to other fuel prices the present paper assesses the mechanisms of pricing gas export through pipelines and compares it to the other mechanisms and analyzes its future challenges.

GTL technology used to convert natural gas into oil products facilitates natural gas transportation to remote areas, increases value added, meets environmental objectives, recovers oil well gases and converts them into high quality products. That is why countries with large gas reserves are encouraged to use and develop GTL. Accordingly, this paper has tried to present a brief description of GTL process and study the economic viability of establishing GTL plants under two scenarios: "with" and "without" development and operation of gas fields. According to the study results, establishment of GTL plants is economically viable, the value added of GTL products is higher than that of natural gas and export of GTL products is more profitable than sale of natural gas through pipelines or as LNG. Furthermore, considering the high environmental cost of production of high quality products in oil refineries, GTL products could fully compete with such products in terms of price. The paper concludes with a review of the common investment methods in the downstream gas industry, and presents guidelines for financing GTL projects and attracting technical knowhow.

Comprehensive macro policy making in the energy sector, especially in the gas sector which has a significant role in meeting the energy needs of the country, has always been one of the major and basic concerns of the country's policy makers. However, though many policy makers believe in the need for such a structural goal, no independent institution has yet been assigned the duty of managing issues related to energy, especially gas, in a continuous and comprehensive manner. During recent years, Iran's gas industry has reached a new level of maturity, based on the twin ideas of the existence of huge national gas reserves and the need to protect the country against global energy crisis. The share of gas in the national energy basket has grown by 60% (or to 60% the text is confused) due to expansion of the domestic gas-distribution system and many economic sectors of the country (especially the household sector) have become increasingly dependent on the gas-distribution system. Nevertheless, this maturity is not backed up by balanced and effective regulations in all aspects (including pricing, standards of consumption and optimum allocation) which has led to short term crises during recent years and may cause long term sustainability crisis in the energy sector, making the country's national economy and security vulnerable.Therefore, in order to preserve country's energy resources and establish strong and sustainable bases to systematize policies in this sector, there is a need to establish an institution for defining a long term balanced policy related to energy sector and natural gas sector, in particular. Considering current fundamental developments in line with article 44 of the constitution, aimed at speeding up the privatization process, the necessity of establishing such an institution is strongly felt.The present article studies the structure of the gas sector in Iran and the necessity of long term programming. It emphasizes important factors influencing policy making in this sector, such as how "national energy strategy" is viewed and benefits of using other countries' experiences in order to "systematize the gas and energy sector" in order to prevent vulnerability of the country's economy in the long run.