THE ECONOMICS OF ENERGY INDEPENDENCE FOR IRAN

Abstract

Iran has pursued an ambitious nuclear program with the declared goal of long-term energy independence. While this is a worthwhile and generally accepted national planning objective, it is clear that Iran's nuclear program as now structured will not achieve this goal, and in fact may delay it by diverting capital and other resources from projects that would address pressing current energy sector problems and contribute to ultimate energy independence for Iran.

Keywords:

• Iran
• Uranium
• Nuclear energy
• Nuclear fuel cycle
• Energy economics

Notes

1. International Atomic Energy Agency (IAEA), Implementation of the NPT Safeguards Agreement in the Islamic Republic of Iran, Report by the Director General, Nov. 10, 2003, GOV/2003/75, <www.iaea.org/Publications/Documents/Board/2003/gov2003-75.pdf>.

2. UN Security Council Resolution 1696, July 31, 2006.

3. Anthony Cordesman, Iran's Developing Military Capabilities (Washington, DC: Center for Strategic and International Studies, 2005); Peter Crail and Jean du Preez, “IAEA Board Deplores Iran's Failure to Come into Full Compliance: Is Patience with Iran Running Out?” Nuclear Threat Initiative (NTI), June 2004; Geoffrey Kemp, ed., Iran's Bomb: American and Iranian Perspectives (Washington, DC: Nixon Center, March 2004), www.nixoncenter.org/publications/monographs/IransBomb.pdf; Kamal Kharrazi, General Statement by Kamal Kharrazi, Minister of Foreign Affairs of the Islamic Republic of Iran to the 7th NPT Review Conference, May 3, 2005, www.un.org/events/npt2005/statements/npt03iran.pdf; George Perkovich, “For Tehran, Nuclear Program is a Matter of National Pride,” Carnegie Endowment for International Peace, March 21, 2005, www.carnegieendowment.org/publications/index.cfm?fa=view&id=16694; Sharon Squassoni, “Iran's Nuclear Program: Recent Developments,” Aug. 2, 2005, Congressional Research Service Report to Congress, www.fas.org/sgp/crs/nuke/RS21592.pdf; Steven C. Welsh, “Iran's Nuclear Program and International Legal Instruments: IAEA Statute,” Center for Defense Information, Nov. 24, 2004, www.cdi.org/program/document.cfm?DocumentID=2685&StartRow=1&ListRows=10&appendURL=&Orderby=D.DateLastUpdated&ProgramID=82&from_page=index.cfm; Ali-Asghar Kazemi, “Iran: The Price of Going Nuclear,” Middle East Academic Forum, Oct. 28, 2005, http://aakazemi.blogspot.com/2005/10/iran-price-of-going-nuclear_28.html; Ali-Asghar Kazemi, “Strategic Implications of WMD Proliferation in the Middle East,” Middle East Academic Forum, Jan. 14, 2006, http://aakazemi.blogspot.com/2006/01/wmd-proliferation-in-middle-east.html.

4. The start date of 1975 was selected because that is when Iran initiated the contract with Siemens to build the Bushehr reactor. On the number of facilities and sites, see: IAEA, Implementation of the NPT Safeguards Agreement in the Islamic Republic of Iran, GOV/2003/81, Nov. 26, 2003, www.iaea.org/Publications/Documents/Board/2003/gov2003-81.pdf.

5. Nuclear News, “World List of Nuclear Power Plants,” 7^th Annual Reference Issue, March 2005, pp. 35–60, published by the American Nuclear Society.

6. This would result in a total of 20 Gigawatt-Electric (GWe) of electrical capacity by 2030. Energy Information Administration (EIA), Country Analysis Briefs: Iran—May 2005, Jan. 2006. Current briefs posted at www.eia.doe.gov/emeu/cabs/Iran/pdf.pdf>.

7. Mohammad Ghannadi-Maragheh, “Nuclear Fuel Cycle Activities in Iran,” World Nuclear Association Annual Symposium 2005, www.world-nuclear.org/sym/2005/ghannadi.htm.

8. Imports would be the economic source of uranium—a worse case would be increasing uneconomic exploration and extraction of indigenous resources, and it is not clear this is physically possible.

9. All costs in this article are in 2004 dollars.

10. Kazemi, “Strategic Implications.”

11. Industry literature on new reactor construction promotes competitiveness targets of $1,000/kW for overnight construction cost, although historical records, including those of the United States, indicate higher costs.

12. EIA, Country Analysis Briefs: Iran, May 2005 and Jan. 2006.

13. EIA, Country Analysis Briefs: Iran, May 2005 and Jan. 2006.

14. Analysis based on 2002 EIA data for Iranian total country energy balances and other price data from 2004.

15. Organization for Economic Cooperation and Development (OECD) Nuclear Energy Agency and the IAEA, Uranium 2005: Resources, Production, and Demand (Paris: OECD, 2006).

16. Organization for Economic Cooperation and Development (OECD) Nuclear Energy Agency and the IAEA, Uranium 2005: Resources, Production, and Demand (Paris: OECD, 2006).

17. OECD, Economics of Uranium Ore Processing Operations (Paris: OECD, 1983).

18. Rosenergoatom, “VVER-1000 Statistics,” 2005.

19. EIA, Country Analysis Briefs: Iran, May 2005 and Jan. 2006.

20. EIA, Country Analysis Briefs: Iran, May 2005 and Jan. 2006.

21. Atomic Energy Organization of Iran, Saghand Mining Department website, 2005, www.aeoi.org.ir/NewWeb/Recenter.asp?id=26.

22. IAEA, Implementation of the NPT Safeguards Agreement in the Islamic Republic of Iran, GOV/2004/90, Nov. 29, 2004, http://www.iaea.org/Publications/Documents/Board/2004/gov2004-90.pdf.

23. OECD, Economics of Uranium Ore Processing Operations.

24. Rosenergoatom, “VVER-1000 Statistics.”

25. IAEA, Report on the Implementation of the NPT Safeguards Agreement in the Islamic Republic of Iran, GOV/2004/83, Nov. 15, 2004, www.iaea.or.at/Publications/Documents/Board/2004/gov2004-83.pdf>; IAEA, “Transcript of the Director General's Press Statement on Activities in Iran,” Aug. 11, 2005, www.iaea.org/NewsCenter/Transcripts/2005/transcr11082005.html>.

26. Mohammad Ghannadi-Maragheh, “Nuclear Fuel Cycle Activities in Iran.”

27. IAEA, “Transcript of the Director General's Press Statement on Activities in Iran,” Aug. 11, 2005; IAEA, Report on the Implementation of the NPT Safeguards Agreement in the Islamic Republic of Iran, GOV/2004/11, Feb. 24, 2004, www.iaea.or.at/Publications/Documents/Board/2004/gov2004-11.pdf>; IAEA, Report on the Implementation of the NPT Safeguards Agreement in the Islamic Republic of Iran, GOV/2004/34, June 1, 2004, www.iaea.or.at/Publications/Documents/Board/2004/gov2004-34.pdf>; IAEA, Report on the Implementation of the NPT Safeguards Agreement in the Islamic Republic of Iran, GOV/2004/60, Sept. 1, 2004, www.iaea.or.at/Publications/Documents/Board/2004/gov2004-60.pdf>; IAEA, “Implementation of the NPT Safeguards Agreement in the Islamic Republic of Iran,” GOV/2004/79, Sept. 18, 2004, www.iaea.or.at/Publications/Documents/Board/2004/gov2004-79.pdf>.

28. David Albright and Corey Hinderstein, “The Centrifuge Connection,” Bulletin of the Atomic Scientists, 60 (March/April 2004), pp. 61–66; Alexander Montgomery, “Ringing in Proliferation: How to Dismantle an Atomic Bomb Network,” International Security 30 (Fall 2005), pp. 153–187.

29. IAEA, GOV/2004/90.

30. Mohammad Ghannadi-Maragheh, “Iran Nuclear Fuel Cycle Experience,” World Nuclear Association Annual Symposium 2003, www.world-nuclear.org/sym/2003/ghannadi.htm.

31. IAEA Integrated Nuclear Fuel Cycle Information Systems, iNFCIS database, www-nfcis.iaea.org/NFCIS/NFCISMain.asp?Country=Brazil&status=All&Scale=All&type=CONV&order=1&WhichFacility=784&RPage=1&Page=1&FacilityName=Fabrica%20de%20Combustivel%20Nuclear&RightP=Facility.

32. IAEA Integrated Nuclear Fuel Cycle Information Systems, iNFCIS database NTI, “Iran Profile: Nuclear Chronology,” May 2006, www.nti.org/e_research/profiles/Iran/1825_4968.html.

33. IAEA, GOV/2003/81; NTI, “Iran Profile: Nuclear Chronology”; IAEA, GOV/2003/75; OECD Nuclear Energy Agency and the IAEA, Uranium 2005: Resources, Production, and Demand.

34. IAEA GOV/2003/75; GlobalSecurity.org, “Weapons of Mass Destruction: Arak,” Aug. 31, 2006, www.globalsecurity.org/wmd/world/iran/arak.htm.

35. IAEA, “Transcript of the Director General's Press Statement on Activities in Iran,” Aug. 11, 2005; IAEA, GOV/2004/11; IAEA, GOV/2004/34; IAEA, GOV/2004/60; Alistair Miller, “Heavy Water: A Manufacturer's Guide for the Hydrogen Century,” Canadian Nuclear Society Bulletin 22 (Feb. 2001), www.cns-snc.ca/Bulletin/A_Miller_Heavy_Water.pdf.

36. Central Research Laboratories, “Mechanical Telemanipulators,” 2005, www.centres.com/nuclear/manip/mmanip.htm.

37. General Atomics News, “GA to Provide Nuclear Research Center in Thailand,” June 26, 1997, www.ga.com/news.php.

38. “Economic Indicators—Back Cover,” Chemical Engineering Journal 13 (October 1, 2005).

39. “Economic Indicators—Back Cover,” Chemical Engineering Journal 13 (October 1, 2005).

40. Mojan Movassate, “Iran's Energy Needs and Nuclear Power,” Thesis Paper, Interschool Honors Program in International Security Studies Center for International Security and Cooperation Freeman-Spogli Institute for International Studies, Stanford University, March 2006.

41. EIA, Country Analysis Briefs: Iran, May 2005 and Jan. 2006.

42. Natural gas plants are typically used as peaking rather than base-load plants and typically have load factors of 20 percent–40 percent.

43. Failure to flare the gas results in accumulations that become explosive.

44. On natural gas reserves rank: EIA, International Energy Outlook 2006, Jan. 2006, www.eia.doe.gov/oiaf/ieo/nat_gas.html. On gas production rank: Geographic.org, www.photius.com/rankings/economy/natural_gas_production_2006_0.html.

45. University of Texas, 2004, Perry-Castaneda Library Map Collection, www.lib.utexas.edu/maps/iran.html>.

46. Processing is needed to remove sulfur compounds prior to use in a power plant.

47. Massachusetts Institute of Technology, “The Future of Nuclear Power: An Interdisciplinary MIT Study,” 2003, Table A-5.A.4, “Base Case Parameters,” p. 135, http://web.mit.edu/nuclearpower/.

48. PetroleumIran.com, “Iran Overview,” Feb. 2005, www.petroleumiran.com/iran%20overview.html.

49. The internal rate of return (IRR) is the discount rate at which the project cash-flow stream has zero value. This is the interest rate that would accrue to a 100 percent equity investor in the project, or the maximum rate at which a project owner could afford to incur debt to finance the project.

50. EIA, Country Analysis Briefs: Iran, May 2005; EIA, Country Analysis Briefs: Iran, Jan. 2006.

51. EIA, Country Analysis Briefs: Iran, May 2005; EIA, Country Analysis Briefs: Iran, Jan. 2006.

52. EIA, Country Analysis Briefs: Iran, May 2005 and Jan. 2006.

53. WorldEnergy.org, “Case Studies, The Case of Iran: Planning for the Future,” March 2005, www.worldenergy.org/wec-geis/publications/reports/pedc/cases/2_3_3.asp.

54. EIA, Country Analysis Briefs: Iran, May 2005 and Jan. 2006.

55. EIA, May 2005, “Iran Country Energy Data Report 2001,” www.eia.doe.gov/emeu/world/country/cntry_IR.html.

56. Data on price at which Iran sells subsidized gas is for spring 2005. On rate at which it imports gasoline: EIA, “Iran Country Energy Data Report 2001.”

57. This is true even if a refinery is planned to utilize oil from sources beyond those produced for export, since the OPEC quota for Iran (as for all members) is a production quota rather than an export quota.

58. It is not clear to us why the Iranian gasoline yields are lower than those in the United States. Part of this difference may be intentional, as Iranian refineries have been optimized to produce a product mix favoring diesel fuel and distillate oil. The relatively heavy nature of Iranian crude is probably also a factor. The technology of the refineries may also be substantially less advanced; for example, Iran may have a lack of catalytic cracking stages.

59. The recent period of rapid escalation in oil prices is an example of short-run variability in this ratio. It was several weeks to a few months before the prices of refined products “caught up” those of crude oil.

60. International Energy Agency, “World Energy Outlook 2005: Middle East and North Africa Insights,” 2005, www.iea.org/Textbase/publications/free_new_Desc.asp?PUBS_ID=1540; Rosenergoatom, “Strategy of Nuclear Power Development in Russia in the First Half of the 21^st Century,” 2000.

61. Baker Institute, “The Energy Dimension in Russian Global Strategy,” James A. Baker III Institute for Public Policy, Rice University, 2005, www.rice.edu/energy/publications/docs/PEC_summary_10_2004.pdf.

62. Roger Stern, “The Iranian Petroleum Crisis and United States Security,” Proceedings of the National Academy of Sciences 104 (Jan. 2, 2007), www.pnas.org/cgi/content/abstract/104/1/377>.

63. Roger Stern, “The Iranian Petroleum Crisis and United States Security,” Proceedings of the National Academy of Sciences 104 (Jan. 2, 2007), www.pnas.org/cgi/content/abstract/104/1/377>.