billion dollars in Phase 12 of Iran’s South Pars gasfield, but Business Monitor International (BMI) doesn’t believe the project will move forward even if that money really does materialize.
BMI says the project needs much more money as well as Western technology that isn’t available under sanctions and so appears to be dead in the water. The goal of Phase 12 is to provide liquefied natural gas (LNG) for export. That takes an awful lot of capital plus high echelon technology that is not available to the Islamic Republic.
Venezuela’s state-run Petroleos de Venezuela (PdVSA) agreed to invest in Phase 12 of as part of a larger set of agreements between the two countries signed October 20 during Venezuelan President Hugo Chavez’s latest visit to Tehran. (See last week’s Iran Times, page 10.)
PdVSA has agreed to invest $780mn, equivalent to 10 percent of the $7.8bn project. Phase 12 project head Hamid Akbari said the contract would be signed in the next three months. He estimated that about $2.3 billion has been invested in Phase 12 already, and that this figure would reach $2.8 billion by Now Ruz.
Akbari did not clarify whether PdVSA had been given a formal stake in Phase 12, although BMI thought that was likely. Neither did he clarify whether any of the current project partners had been displaced or had exited the venture. The Phase 12 project, also known as Iran LNG, is being developed by the state-run National Iranian Oil Company (NIOC) (with 40%), UK-based Hinduja Group (20%), Angola’s state-run Sonangol (20%) and a consortium of state-run Indian energy companies, which holds 20%.
After trying to proceed without foreign investors, Iran bowed to reality in August 2010 when it suspended both the Pars LNG (South Pars Phase 11) and Persian LNG (South Pars Phases 13 and 14) projects, leaving Iran LNG (Phase 12) as Iran’s only ongoing LNG project.
The following month, India’s Economic Times reported that an unnamed official with one of the state-run Indian firms involved in Phase 12 had cast doubts over the project’s feasibility. The official said that sanctions made it difficult to obtain project financing and that the absence of Western expertise made the deployment of liquefaction technology a non-starter.
The entry of Venezuela into the project, if formalized, would allow a new stream of financing into the project at a time when most foreign investors in Iran are looking for the exit. However, PdVSA does not bring liquefaction expertise to the table, and therefore, BMI said, “We see the company’s entry as being motivated mostly by politics, given the desire by Tehran and Caracas to develop closer ties in the energy sphere.”
From Iran’s perspective, liquefaction of gas for export is also taking a back seat to meeting domestic gas demand. Iran’s natural gas consumption has risen significantly in recent years, partly thanks to domestic subsidies that encourage greater gas demand. More importantly, Iran has been increasingly reliant on gas injection to maintain oil production at mature fields.
