January 10-2014
Despite all the talk about natural gas exports, Iran shouldn’t expect to see any exports to Europe and Asia before the mid-2020s—and should not even want to see exports until then, the Reuters news agency said this week.
And the issue has little to do with sanctions.
It is true that European companies with the technology to fully exploit Iran’s vast South Pars gasfield abandoned it in recent years as a result of US sanctions.
But Reuters said Iran has little chance of becoming a significant gas exporter to Europe and Asia for at least a decade because of high domestic demand and internal obstacles to developing reserves, which were a problem long before sanctions forced foreigners out.
Iran can export by pipeline to its immediate neighbors. But Reuters said Iran should forget about exports beyond the neighbors that can be reached by pipelines.
The lifting of sanctions on Iran “could potentially have a huge impact on exports over the longer term, but it will take years for things to get moving,” Laurent Ruseckas, senior adviser on the Global Gas team at consultants IHS, told Reuters.
In the short term, it makes more economic sense for Iran to use gas to satisfy domestic demand for power generation and industry and for re-injection into ageing oilfields to maintain production, Ruseckas said.
Oilfield re-injection is a higher-value use for gas than exports, because oil sells for much more on the global market and does not require billions of dollars in capital investment in gas export projects that take years to pay back. Gas has to be liquefied—an expensive process—before it can be put aboard tankers for global distribution.
Yet, Iranian officials continue to talk up liquefied natural gas (LNG) exports as if that were a practical and important goal for Iran.
Over 28 billion cubic meters (bcm) of gas were re-injected to help boost Iranian oil production in 2011, according to the US Energy Information Administration, and some estimates say more than 83 bcm/year will be needed within a decade—triple the current volume. Without gas injection, Iran’s oil output will decline further.
Iran’s marketed gas production, excluding reinjected gas, has more than doubled to 160.5 bcm in 2012 from 75 bcm in 2002. But most of that is used at home.
Tehran has looked on while Qatar has become one of the world’s richest countries after western energy companies built multi-billion dollar plants over the last decade that turned the tiny country into the world’s largest LNG exporter, which has fed jealousy in the Islamic Republic.
The two countries share the world’s largest gasfield, which Iran calls South Pars and Qatar the North Field. It accounts for nearly all of Qatar’s gas production and around 35 percent of Iran’s.
An abundance of condensate and natural gas liquids in the field means it can produce enough income to cover drilling costs before pumping out gas. That makes Iranian LNG export projects theoretically competitive, even as global supply swells due to US shale gas and big finds off East Africa.
Phase 12 of the South Pars development, which is expected to come on line next year, could boost supplies by as much as 28 bcm/year when it is fully operational.
“We have to make efforts to launch a section of this phase as soon as possible,” Iranian Oil Minister Bijan Namdar-Zanganeh said recently. “Important petroleum industry projects must not be delayed due to waiting for the lifting of sanctions.”
According to figures from the Pars Oil and Gas Company, which manages the whole project, Phases 13 to 24 could add up to 142 bcm/year of capacity by 2019—if completed on time.
Iran recently passed Qatar and now produces more gas than Qatar. The difference is that Qatar, with a population of less than 2 million, uses just 26 bcm of it, leaving 125 bcm free for export, according to data from BP.
Iran has used nearly all the gas it produces to supply its 75 million people with heat, electricity and fuel. Domestic demand has risen to 156 bcm in 2012 from 79 bcm in 2002, according to BP figures, which exclude gas used for re-injection.
Even if Iran’s domestic consumption rises at only half the annual growth rate seen over the past decade, that implies increases of 8-9 bcm every year over the next five years. That would take Iran’s gas consumption to around 200 bcm/year in 2018, not counting its rising use for re-injection.
Iran has been a net importer of gas for most of the past decade, and this year asked Turkmenistan for more supplies to help ease shortages that are forcing Iranian power plants to burn billions of dollars of pricey and polluting oil products to keep electricity output up during the winter when gas is diverted to home heating.
Zanganeh said in October that Iran faces a 30-bcm shortfall in supplies this year and serious supply shortfalls over the next two years because South Pars has not been developed quickly enough.
Iranian gas projects have a record of falling far behind schedule.
Phase 13 suffered a big setback when one of its offshore platforms sank to the bottom of the Persian Gulf during an installation attempt in January. Zanganeh said compressor problems with Phases 17 and 18 might need the expertise of foreign companies to fix, an admission that was undoubtedly hard to make.
Earlier this month, the minister said he hoped most of Phases 12, 15 and 18 would be complete by March 2015, an ambitious timetable.
The previous government signed numerous gas export deals with Arab neighbors, devised plans to supply Europe via several pipelines, and planned LNG export liquefaction plants to supply gas to Asia.
But Turkey is the only country to receive significant volumes so far; Armenia also receives small quantities. Yet, because of Iran’s own winter heating needs, Iran has been unable to supply the 10 bcm/year contracted with Turkey. Iran often shuts off the tap at the border during winter cold spells.
The only new country likely to get Iranian gas in the near future is Iraq, with which a connector pipeline has been built.
The head of Iran’s gas export company said it would pipe around 7 mcm/day to Iraq from next July, with flows rising to 25 mcm/day in 2015 and 40 mcm/day by the early 2020s and 90 mcm/day later on. The pipeline was supposedly finished several weeks ago, but shipments have not begun, perhaps because of Iran’s tight supplies and winter heating needs.
Once sanctions are lifted, Pakistan would probably be next in line for any spare gas, because Iran has spent hundreds of millions of dollars building a 22-bcm/year pipeline to Pakistan.
Iran has also agreed to build a pipe supplying around 10 bcm/year to Oman within a few years and has already built a pipeline to the United Arab Emirates designed to carry 10 bcm/year, although no gas is yet being supplied owing to a price dispute.
“Iran could export some more gas by 2025 but will not export in the range of 50 bcm/year before at least the 2030s,” David Ramin Jalilvand said in a study published by the Oxford Institute for Energy Studies in June.
Zanganeh is already courting European energy giants in the hope they will swoop back in as soon as bans on investment are lifted.
Three large Persian Gulf gasfield discoveries announced by Iran in 2011—Kayyam, Farouz and Madar—are potential projects, and their exploitation could be a big boost to Iran’s export hopes.
But building big and expensive LNG plants that take years to complete in a country that has had a tense relationship with the West for decades will be a daunting prospect for many energy companies, particularly when the US shale gas boom allows them to be picky over projects. A few years ago, the United States was destined to be a huge LNG importer. Now its import terminals are being converted to export terminals.
“There is something between zero to no chance of us going back into Iran’s gas sector,” a western energy company executive told Reuters.
