On February 7, Iran’s ambassador to Russia Mahdi Sanaei expressed hope that a pertinent accord with Gazprom regarding participation of the Russian state-owned gas monopoly in a partly-built $4.35bn LNG export facility at the port of Tombak will have been finalized within the first half of 2018. In December 2017, Gazprom, the National Iranian Oil Company (NIOC) and Iran’s Oil Industry Pension, Saving and Staff Welfare Fund had inked a Memorandum of Understanding in order to jointly explore perspectives for cooperation in the context of Iran LNG project. In its first phase, Iran LNG is designed to have two lines of 5.25 million tonnes of annual capacity each, while the second phase provides for an increase in production of up to 21 million tonnes on a yearly basis with the construction of two additional lines. Currently, the National Iranian Gas Export Company (NIGEC), a NIOC affiliate, holds a 49% stake in the project along with Iran Oil Pension Fund, which holds the remaining 51%.
Since the late nineties, Iran has been seriously attempting to establish itself as an LNG exporter. However, international energy majors gradually relinquished their interest in strenuous projects, like Pars LNG (Total: 50%, NIOC: 40%, Petronas: 10%) and Persian LNG (Shell: 25%, Repsol: 25%, NIOC: 50%), as a result of the sanctions imposed by the P5+1 group in response to Tehran’s refusal to suspend its uranium enrichment program. Amongst these projects, Iran LNG withstood the test of time, but hurdles have often hampered its progress to this day. The project’s feasibility study was completed by the German contractor Linde, together with GES and Oil Industries Engineering and Construction (OIEC) Group, in August 1996 and by Daewoo and the Japanese JGC corporations in March 1997. The FEED study was carried out by JGC and Technip in 2004. Work on the plant was halted in 2012, when Iran was unable to keep importing Linde’s specialist liquefaction equipment for the second train due to the sanctions’ regime. Up until suspension of construction, some $2.3bn had already been invested into the project, that was declared finished by more than 50%.
In an effort to revamp its oil and gas business in the post-sanctions era, the Iranian government has put LNG shipments back on the country’s energy agenda. Such a decision may be justified by a series of intertwined factors. Firstly, Iran benefits from open-sea access to both Europe and Asia (India plus the Asian Pacific region). Furthermore, the South Pars/North Dome natural gas condensate field, the world’s largest natural gas field, located in the Persian Gulf and shared between Iran and Qatar, offers a reliable and low-cost supply source for Iran LNG.
Developments after the nuclear pact adoption unveil new stimulus for Iran’s placement on the global LNG map. In July 2017, NIOC and Total singed a 20-year contract for the development and production from Phase 11 of the South Pars. Apart from Gazprom, the French energy company has also been in talks to acquire a multi-billion-dollar stake in Iran LNG. Earlier in that same year, Iran and Oman agreed to alter the route of a proposed offshore/onshore export gas pipeline, so that it bypasses waters controlled by the UAE. Even though pricing still remains a matter of contention between the two states, if the pipeline reaches the point of implementation, Iran would be able to connect its vast gas reserves with the Omani clientele, as well as with the Omani LNG plants from where the gas would be re-exported. According to the Iranian Deputy Petroleum Minister and NIOC’s managing director Ali Kardor, the country is interested in Gazprom also taking part in construction of the Iran-Oman gas line. Finally, in October 2017, NIOC awarded a contract to a joint venture of Norway’s Hemla Vantage and Iran’s Kharg Petrochemical Company, named IFLNG, in order to deploy a 500,000 tonne FLNG barge for the purposes of liquefaction, storage and transfer of Iranian gas over a period of 20 years. The floating facility will be installed on a vessel belonging to the Belgian Exmar, that is going to be chartered by IFLNG. Except for the gas burnt at South Pars wells, the facility can equally process flared gas with high methane content from nearby offshore projects in the Persian Gulf, thanks to its aptness in being installed contingently upon availability of new gas supply locations. This project, too, will help Iran gain much-needed experience in LNG trading and marketing.
Therefore, it is blatant that the previously almost neglected Iranian LNG strategy has gradually started being put into effect despite the unavoidable obstacles along its way. Being the first Western energy firm to get involved into a major deal with Tehran since the easing of international sanctions in 2015, it is no wonder why Total now urges the US administration to stick with the terms of the Joint Comprehensive Plan of Action and to not further sanction Iran, through its CEO Patrick Pouyanne. Meanwhile, Russia likewise seeks to have a say on Iran’s energy plans, as was made clear by the full-scale energy partnership inaugurated between NIOC and Gazprom in late 2017. That is because both Iran’s intention to add its gas to the Southern Gas Corridor via the Trans Anatolian Pipeline (TANAP) and its LNG ambitions might create competition for the respective Russian-led projects, namely Gazprom’s Turkish Stream and Novatek’s Yamal LNG, in the European and Asian markets.
Available online at: http://www.caspianpolicy.org/energy/caspian-energy-insight-february-14-2018/#4
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