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Iran to lead Middle East gas expansion

With a focus on developing the South Pars field, Iran is set for a major expansion of natural gas production

The International Energy Agency pulls no punches. In its World Energy Outlook 2017 it states unequivocally: "In our projections, Iran leads gas output growth in the Middle East, adding 150bn cubic metres [a year] to the region's gas supply in the period to 2040."

The agency admits that "many uncertainties remain", but goes on to say that the lifting of the main international sanctions and the recent presidential elections have raised the likelihood of the continued development of the super-giant South Pars gasfield, the southern part of which belongs to Qatar and is called the North Field. Even if President Donald Trump imposes fresh sanctions on Iran, the expectation is that European and Asian firms will continue to invest in South Pars projects, as they're starting to do now.

At present, Iran's gas production is around 200bn cm per year. Of this, less than 10bn cm/y is exported. The IEA says that satisfying the growing domestic demand for gas is the priority for Iranian gas producers. But as output from South Pars expands and capacity starts climbing towards the forecast 350bn cm/y by 2040, the IEA anticipates "some export growth via links to Iraq and Oman, as well as further deliveries to Turkey and, much later on [in] the projection period, the start of a pipeline connection with Pakistan".

It has to be said that many of these proposals have been on the table for some years. An Iranian official said in June that initial exports to Iraq had begun and it's easy to imagine the volumes increasing between these friendly neighbours. The planned Iran-Oman tie-up envisages 10bn cm/y being transported by subsea pipeline for processing at the Qalhat liquefied natural gas plants on Oman's Indian Ocean coast. Oman operates three LNG trains, but production and exports are well below joint capacity of 11m tonnes a year.

A hunger for gas

Given Oman's gas hunger and with Shell, Total and Korea Gas Corporationshareholders in Oman's LNG industrykeen to invest in the scheme, this project has a better chance of being implemented than others. Thus far, differences over the delivery price for the Iranian gas have held up the project.

The IEA report makes no mention of Iran developing its own LNG industry. Plans for three plants, to process gas from South Pars, were drawn up but then put to one side during the sanctions period. India's state-owned ONGC Videsh has put forward plans for developing an LNG plant to be fed from the Farzad B offshore field and awaits an Iranian response.

Given the costs of setting up new plants and Qatar's recent announcement that it's expanding its own LNG output by 30%, to 100m tonnes a year, Iran may well decide against going down this road. Instead it's likely to keep focussing primarily on the domestic market, ensuring that gas maintains a 70% or more share in the country's energy mix.

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