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Iranian gas gets going

Iran is making good use of its surging natural gas production domestically, but exports remain constrained

Iran’s production of oil and gas has been hit hard by sanctions over the past two decades. Yet the impacts have diverged more recently: while oil has plunged, Iran’s gas production and exports have boomed. Sustaining these gas exports has become key.

Despite holding the world’s second-largest reserves, for years gas output fell behind schedule. It was hampered by sanctions that made obtaining equipment difficult and, in the absence of international investors, by mismanagement by local entities. Exports to Turkey rose gradually from 7.8bn m³ in 2010 to 7.9bn m³ in 2018, but were bedevilled by price disputes and winter cut-offs when Iran ran short of gas for its own population.

A host of hopeful export projectsproposed pipelines to Oman, other Gulf neighbours and Pakistan, as well as via LNGwere stymied by unrealistic commercial expectations, internal political opposition and in some cases, such for the Pakistan option, US pressure.

The renewed sanctions under President Donald Trump are less damaging for gas than oil, but are still a problem.

After the Joint Comprehensive Plan of Action (JCPOA) came into force in 2016 and President Barack Obama-era sanctions were lifted, a long list of projects were offered under the new Iran Petroleum Contract, including several gas fields. But these also made little progress. The most advanced, with France’s Total and China’s CNPC for development of Phase 11 of the South Pars gas field, effectively came to a halt when Total exited in August 2018.

On 6 October Iranian minister of petroleum Bijan Zangeneh announced CNPC had also pulled out of its contract to develop Phase 11, leaving National Iranian Oil Company affiliate Petropars to develop the offshore project alone. Nonetheless, by 20 March 2020 “the first jacket will be installed in the phase for a platform with 500 mcf/d of gas production capacity,” says Zangeneh, according to Iranian news agency Shana.

A contract for a floating LNG project using flared gas from offshore fields in the northern Gulf had been awarded to small Norwegian firm Hemla, on terms highly favourable to Iran, but cancelled in February 2018 over Majlis (parliamentary) opposition.

However, despite this unpromising situation, output surged during 2017-19, largely putting an end to gas shortages during winter. The country has finally emerged with contractors able to develop phases of South Pars, the world’s largest field (shared with Qatar’s North Field). Its output from the field now exceeds that of its neighbour, even though it holds only about a third of the total reserves.

Oil in power generation has largely been phased out and the availability of gas to industry has improved. Imports from Turkmenistan have largely ceased, and it may now be possible to step up injection for improved oil recovery, as the actual 26bn m³ of injection in 2014 fell well short of the required 66bn m³.

Gas exports to Baghdad began in 2017 and another line to Basra opened in 2018, supplying an annual total of 4.2bn m³. Although the US has sought to pressure Iraq to cease imports of Iranian gas and electricity, the country’s power system cannot yet do without them, and they remain a valuable source of revenues for Tehran at about $1bn annually (not always paid on time), as do continuing gas sales to Turkey ($2.2bn) and gas-derived petrochemicals.

Sanctions impact

The renewed sanctions under President Donald Trump are less damaging for gas than oil, but are still a problem. If condensate could not be exported and storage filled up, some gas production would have to be shut in, and replacing it would require returning some gas-burning power plants to oil. Increased domestic condensate refining capacity, including the new 350,000bl/d Persian Gulf Star refinery, has only partly alleviated this problem.

A mismatch between domestic demand and supply may emerge. Domestic gas demand may well slow down—and although future production growth will be more muted there are new projects in the pipeline. Beyond South Pars phase 11, possibly with Iranian contractors if CNPC does not return, phases 22-24 are next on the agenda along with some smaller onshore gas projects. In September, Petropars, signed up to produce 0.5bn ft³/d (14.2mn m³/d) from the Balal field, near South Pars.

The giant offshore Kish, Lavan, North Pars and Farzad B projects have gone quiet after inconclusive talks with various international companies. Because of sanctions and commercial problems, immediate prospects for further exports are dim—Oman’s oil minister said in September, not entirely reassuringly, that plans to import Iranian gas were “not completely in hibernation”. This means Iran will be left to find domestic uses for additional gas output.

 

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