Iran gas: South Pars progress remains a problem

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Iran’s natural gas production has had a lower profile since the introduction in 2012 of US and EU sanctions targeting the country’s oil exports. Iran is estimated to have one of the world’s largest natural gas reserves, with nearly half in the South Pars field, contiguous to Qatar’s North Dome field. Iran has steadily been increasing its natural gas output as more production comes online from South Pars, but delays in developing the field, owing to sanctions as well as domestic policy, are holding back Iran’s natural gas potential. The new government of Hassan Rowhani is looking to enhance Iran’s oil production capacity, but increasing production and developing new export routes for South Pars gas will be vital to help Iran to balance some of the loss in revenue from lower oil sales.

Around 14trn cu metres, nearly half of Iran’s total gas reserves of 33.6trn cu metres, are in the South Pars field. Iran originally divided South Pars into 28 phases, contracting many to international companies, such as France’s Total, who have subsequently withdrawn under US pressure and been replaced by Chinese or Iranian companies with little relevant experience. The gas produced from the first ten phases of South Pars is allocated for domestic consumption or reinjection into oilfields, whereas gas from the remaining phases is destined for export. In 2012 Iran exported just 8.4bn cu metres (less than one‑tenth of Qatar’s total exports), mostly to Turkey, according to the BP Statistical Review of World Energy 2013.

Outgoing administration glosses its record

Progress on South Pars phases has become less and less transparent, and it remains to be seen whether Iran’s new oil minister, Bijan  Zanganeh, will change this. The outgoing administration of Mahmoud Ahmadinejad is presenting its own record, and the legacy left for Mr Zanganeh, in as positive a light as possible. Mr Ahmadinejad’s last official trip included an inauguration ceremony for a gas processing plant in Assaluyeh for gas from phases 15 and 16 of South Pars, which are being developed by Khatam al‑Anbiya, a construction arm of the Islamic Revolutionary Guards Corps.

The previous oil minister, Rostam Qasemi, used the same occasion to make a number of claims, including that Iran would match the extraction levels of Qatar by 2015. According to the official IRNA news agency, he said that phases 17 and 18, assigned to an Iranian consortium including Petropars (a subsidiary of the National Iranian Oil Company—NIOC), were 80% complete and would be on stream by the end of the current Iranian year (in March 2014). Mr Qasemi also claimed that an extra 50m cu metres/day of gas would be produced by the end of winter, although it was not clear if this was from phase 12 alone, which was once envisaged as supplying gas for liquefied natural gas, but is now contracted to Petropars. Separately, the executive director of the project for Petropars, Hadi Mirbagheri, said that the offshore platform of phase 12 would yield 14.2m cu metres/day by mid-September, increasing to 28.3m cu metres by November.

For several months officials have spoken of phase 12, which would be one of the largest producing projects in all of South Pars, nearing readiness. Earlier in August, the managing director of Pars Oil and Gas Company, Mohammed Reza Zahiri, said that final preparations were under way for pumping from phase 12, with the gas to go into a pipeline for domestic consumption. Phase 12 is projected to have an eventual daily output of 84m cu metres of natural gas, 120,000 barrels of condensates and 750 tonnes of sulphur.

In April Ahmad Qalehbani, the managing director of NIOC, said that phase 12 had progressed by 90%, and that phases 12, 15 and 16 would be on stream within the current Iranian year, boosting natural gas production capacity by a total of 150m cu metres/day. This would be a significant increase on current South Pars output of around 300m cu metres/day, but appears very unlikely. According to a claim made in August by Mr Zahiri, improvements in acidification have led to a rise in the daily production capacity of phases 4 and 5 by around 1m cu metres/day.

Local contractors more sceptical

Many of these claims have already been questioned. Mehdi Etesami, the managing director of the Iran Marine Industrial Company (Sadra), which builds offshore rigs, told the ISNA news agency in August that deadlines for South Pars were unrealistic and politically motivated, and the phases remained incomplete. He added that Sadra lacked the resources to buy necessary equipment and faced problems sourcing it internationally since it was targeted by US sanctions in 2012 because of its ownership by Khatam al‑Anbiya.

In July Gholam‑Hossein Khaje‑Ali, the former managing director of Sepanir Oil & Gas Energy Company, an affiliate of Khatam al‑Anbiya, said that, although phases 15 and 16 were nearly complete, the projects could not be finished without “proper equipment”. Contracts with domestic contractors signed three years ago to develop phases 13, 14, 19, 22, 23 and 24 within 35 months are all well behind schedule and the projects are around 50‑60% complete.

Outlook conditioned by sanctions

Even if the new government, with the experienced Mr Zanganeh at the helm of the oil and gas sector, can improve management of extraction and transportation, Iran faces structural impediments from UN, US and EU sanctions affecting the industry. Consequently, the real potential of energy reserves will only be tapped if there is a diplomatic breakthrough over Iran’s nuclear programme and an easing of sanctions.

 

Economist Intelligence Unit
Source: The Economist Intelligence Unit