BY Ebrahim Fallahi

Missing out on LNG market Iran needs to take action

April 21, 2020 - 16:0

TEHRAN – Last week, Qatar Petroleum announced the start of drilling operations for the development of its North Field (known in Iran as South Pars) gas field, in which the company plans to drill 80 new wells to increase the country’s liquefied natural gas (LNG) production capacity by 43 percent to reach 110 million tons per annum (Mtpa).

Sharing the world’s biggest gas reserve with Iran, Qatar currently accounts for 33 percent of the global LNG production capacity and this increase will boost the Persian Gulf country’s market share even more. Iran, on the other hand, is not benefiting from the field as much as the tiny Arab neighbor.

The market

Considering the growing demand for natural gas in the Asian markets and all around the world, LNG is becoming one of the world’s most strategic commodities which could play a very important role in the gas-producing countries’ political and economic stance in the future.

Unfortunately, Iran currently does not have any LNG plants and although the country’s gas production from the shared field has exceeded that of Qatar in recent years, the extracted gas is only being exported through pipelines to some neighbors.

The shared field

Iran and Qatar share the South Pars gas field (known as North Dome field in the Qatari side) in the Persian Gulf waters, it is by far the world's largest natural gas field.

The field was discovered in 1990 and Qatar immediately started developing its share which was called North Dome and began gas production in 1997; Iran, however, started the development operations eight years after Qatar in 1998.

It should be noted that, of the field’s total 9,700 square kilometers, only 3,700 square kilometers is in the Iranian waters and the Arab nation holds almost two-third of the reserves, so the Qataris were ahead of Iran in terms of both time and reserves.

Since the beginning of the development project in 1997 up to 2005, Qatar Petroleum, the Arab country’s National Oil and Gas Company, drilled 401 wells in the field and was producing nearly 565 million cubic meters (mcm) of gas per day.

In 2005 the country halted all the development operations in the field, under a self-imposed development ban. At the time Iran had about 50 wells drilled in the field.

By 2013, the number of drilled wells in the Iranian side reached 110 and later on in 2017, the figure hit 252, resulting in the country’s gas production to exceed 570 mcm/d.

Currently, Iran is producing more gas from the field than Qatar, however, the Qatar petroleum’s announcement means that the Arab nation is getting ready to, once again, hit the gas!

Natural gas or LNG?

Liquefied natural gas (LNG) is natural gas that has been cooled to a liquid state, for shipping and storage. Exporting gas in the LNG form is much easier and more affordable since natural gas can only be exported if the destination markets have land borders with the source and constructing pipelines is a very time consuming and costly endeavor.

As I mentioned before, Iran, currently, does not have any LNG plants, so the country’s share of the natural gas market is drastically lower than its actual capacities for export.

Qatar, on the other hand, is boosting efforts to expand its LNG projects in an attempt to catch up with the newly emerged rivals like the U.S., Australia and Canada.

Iran’s LNG projects

National Iranian Oil Company (NIOC) started planning for developing LNG plants across Iran in 2001. In its primary studies, NIOC defined six LNG projects to ensure Iran's presence in the global LNG market.

These projects include Persian LNG project with a capacity of 16 million tons per year, Pars LNG with a capacity of 10 million tons per year, Iran LNG with a capacity of 11 million tons per year as well as North Pars LNG project with a capacity of 20 million tons per year, Golshan LNG with a production capacity of 10 million tons per year and two small-scale projects with a total production capacity of 3 million tons per year.

The mentioned projects were aimed to achieve the annual production target of 70 million tons of LNG per year. However, in 2015, after the country’s international relations deteriorated over the nuclear issue, the mentioned plan lost its priority for the NIOC and the projects were completely halted due to their reliance on foreign technology and investment.

After the imposition of international sanctions, exporting natural gas to the neighbors became the top priority of the NIOC. 

To prepare the infrastructure for such exports, NIOC defined numerous projects, including an Iran-Pakistan pipeline, and an underwater pipeline for gas exports to Oman. However, despite all the efforts and costs, today, Turkey and Iraq are the only two major customers of the Iranian gas.

Turkey and Iran signed a 25-year agreement in 1996, based on which Iran has been supplying gas to its neighbor via pipeline. Since the agreement is going to expire soon, the two sides have been holding rounds of negotiations to extend the deal. However, there hasn’t been any major progress in negotiations. Iran is asking Turkey to increase the volume of imports and Turkey is asking for more discounts.

Turkey which is simultaneously importing natural gas from Azerbaijan and Russia, is also importing LNG from Qatar and the U.S. The country has also made huge investments in renewable energies; so this means that Iran is gradually losing Turkey’s energy market as well.

As for Iraq, the Islamic Republic is using only 20 percent of its natural gas pipelines capacity to export gas to this Arab neighbor since the country is not a very good customer when it comes to due payments.

Final thoughts

All being said, we can see that despite all the efforts that NIOC has put into the development of the South Pars gas field, the increase in the production cannot be considered a win when the infrastructure is not provided for exports.

Qatar is using the most up to date technologies while Iran needs to indigenize the knowledge since due to the U.S. sanctions it does not have access to such technology.

In the current situation, in which Washington has re-imposed sanctions on Iran’s oil industry and banking system, NIOC could seek help from the country’s allies like China and Russia to transfer LNG knowledge and technology into the country.

We have already lost a lot in the global natural gas market in the past 20 years, and wasting any more time is no longer logical nor affordable.

EF/MA

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