As Russian troops stormed
the Crimea, reminding Europe once again of the perils of undue dependence on
Russian gas, the permanent members of the United Nations Security Council and
Germany (P5+1) resumed discussions with Iran about an agreement that could lift
sanctions on Iran selling oil and gas to Europe.
The key issue is Iran’s
nuclear development program and its potential for military uses. But the quid pro quo would be lifting
sanctions imposed on Iran’s exports of oil, much of which went to Europe, and
European firms’ assistance to Iran in developing its oil and gas resources. While an agreement could restore
Iranian oil imports already this year, Russia’s belligerence raises the
question of whether Europe should look more toward Iran in the future for gas
supplies as well.
Iran edges out Russia with
the globe’s largest proved natural gas reserves at 1187.3 trillion cubic feet
(tcf) or 18 percent of the world total vs. 1162.5 tcf or 17.6 percent. Qatar, with whom Iran shares the largest
offshore gas field, ranks third with reserves of 885.1 tcf. By comparison, the U.S. holds 300 tcf
and the countries of the European Union 61.7 tfc (BP Statistical Review of the World 2013).
Ironically, Iran had signed agreements in 1975 with Gaz de
France, Germany’s Ruhrgas AG and Austria’s OMV to supply them with gas via an
exchange agreement with the Soviet Union.
Iran already supplied some southern Caucasus republics of the USSR via
the Iran Gas Trunkline (IGAT I).
Iran planned to construct a second pipeline, IGAT II, to supply gas to
the Soviet Union, which, under a swap agreement, would provide gas to Ruhrgas,
GdF and OMV via an existing Soviet pipeline running through
Czechoslovakia. The Iranian
Revolution in 1979 halted IGAT II construction, which never resumed.
In 2008, Iran sought foreign
funding for IGAT 9, a 1800 km (1125-mile) natural gas pipeline to connect
Iran’s South Pars field with European customers via Turkey. Increasing sanctions put this project
on ice. South Pars is the Iranian
portion of the gas field called North Field by Qatar. Combined reserves are estimated at 50 trillion cubic metres
(1767 tcf) of gas and some 50 billion barrels of condensates.
Around the turn of the
century, Iran’s focus for monetizing the South Pars field was a series of
liquefied natural gas export projects:
Iran LNG, Pars LNG (with Total S.A. and Petronas) and Persian LNG, as
well as an LNG project based on the Lavan gas field. In late 2007, an Iranian gas official told an international
conference that Iran would produce 22 MMT of LNG (1 tcf natural gas) in 2015,
44 MMT (2.1 tcf) in 2018 and about 88 MMT (4.2 tcf) in 2022. Three years later, following the fourth
round of sanctions imposed by the U.S. and E.U., National Iranian Oil Co. Managing
Director Ahmed Ghalebani and Deputy Oil Minister Mohsen Khojastemehr announced
the suspension of all LNG projects and the redirection of gas projection toward
domestic use, including reinjection into Iranian oil fields.
Since the Nov. 2013 interim
agreement between the P5+1 and Iran, the subject of Iran’s LNG efforts has
resurfaced.
On the margins of the
December meeting of the Organization of Petroleum Exporting Countries in
Vienna, Qatar’s energy minister said they had offered Iran assistance on developing
the field they jointly own and that communications links and teams had been
established. While sanctions
halted Iran’s exploitation of South Pars, Qatar’s North Field gas catapulted
the small country to the top of the LNG exporters, with an export capacity of
77 MMT/Y (3.7 tcf). In 2005, Doha
imposed a moratorium on new North Field development to permit further analysis
of optimal exploitation of the field.
Some believe its offer to Iran is to assure that the Iranians do not
develop their side in a way that compromises long-term returns on the overall
deposit. In any event, with Qatar
using Western companies and technologies, there is a limit to what they can
share before sanctions on Iran are eased.
In March 11, 2014, Iran
signed an agreement, during Iranian President Hassan Rouhani’s visit to Muscat,
to export 10 bcm (350 bcf) of gas annually to Oman via a $1 billion subsea
pipeline. The 25-year deal was
valued at some $60 billion, although a final price for the North Pars field gas
has not been fixed. A few days
later, The Tehran Times quoted
National Iranian Gas Exports Co. Managing Director Alireza Kameli as
considering using the pipeline to participate in the Oman LNG plant, which
currently serves Asian customers.
Kameli said it would take two and one-half years to construct the subsea
pipeline.
Section 12 of South Pars is
expected to start production this year.
Development of sections 12, 15, 16, 17 and 18 have been given priority
by Oil Minister Bijan Namdar Zanganeh.
While expeditious field development, and especially LNG facilities,
likely would require foreign technology and capital, many foreign firms were
involved prior to sanctions:
Total, Italy’s Eni and Snamprogetti, Royal Dutch Shell, OMV of Austria, Norway’s
Statoil, Spain’s Repsol, Germany’s Linde, Korea’s Hyundai and Daelim, Malaysia’s
Petronas and SKS Group, China National Petroleum Corp., China National Offshore
Oil Corp. and the overseas arm of India’s Oil and Natural Gas Corp. In addition, prior to sanctions,
discussions to import Iranian gas reportedly were entered into by Switzerland’s
Elektrizitaets Gesselschaft Laufenburg, Thailand’s PTT, Germany’s E.on, and
Poland’s PGNiG.
Even if sanctions are
lifted, Iran’s natural gas priorities will remain meeting domestic demand and
expanding pipeline gas exports to Turkey, Iraq and Pakistan. Iran’s geographic position, however, makes
LNG an attractive option to develop the world’s largest gas field. And from the Europeans’ perspective, Russia’s
reminder of its menace may make Iranian LNG a relatively attractive option for European
buyers.
