Iran Eyes New Export Market For South Pars Gas

The threat of severe gas price hikes and supply failures is rising as Europe heads into winter without the assurance of abundant cheap gas from Russia. Such gas supplies could stop entirely if the European Union (EU) gives final approval to cap gas prices from Russia at a meeting on November 24. Russia’s state-owned gas behemoth, Gazprom, says that if the EU introduces this gas price cap, it will suspend all its gas exports to EU countries. Imports of gas from Russia made up about 40 percent of the EU’s gas supply in 2021. Aware of several opportunities to take advantage of this situation in their own favor and their key ally, Russia, Iran last week explained that it is ramping up its gas production. Operations at the supergiant South Pars natural gas field, with a focus on the controversial Phase 11. According to the executive officer of the National Iranian Oil Company (NIOC), Mohsen Khojastehmehr, last week: “The activities of the South Pars phase 11 development project are underway, and this winter gas from phase 11 will be available.” This comment quotes the statement of Iran’s Minister of Petroleum, Javad Owji: “With the initiative of our colleagues at the National Iranian Oil Company, we promise that the first phase of gas production of the South Pars Phase 11 development project, which was exchanged only on paper between different domestic and foreign contractors for 20 year, will start this winter. Owji had said in August that South Pars Phase 11 is expected to produce 10 to 11 million cubic meters per day (mcm / d) in the first stage of construction.

From this starting point, with Russia’s help, gas output from Phase 11, and from all 23 South Pars phases, will increase dramatically, a senior oil industry figure who works closely with Iran’s Oil Ministry said. OilPrice.com last week. With an estimated 14.2 trillion cubic meters (tcm) of gas reserves in place plus 18 billion barrels of gas condensate, South Pars accounts for about 40 percent of Iran’s total estimated 33.8 tcm of gas reserves (mostly located in the south of Fars, Bushehr, and the Hormozgan) and about 80 percent of its gas production. The 3,700 square kilometer (sq km) South Pars sector of the 9,700 sq km basin shared with Qatar (in the form of the 6,000 sq km North Dome) is also important to Iran’s overall strategy to support natural gas production worldwide. country at least 1 billion cubic meters per day (bcm/d).

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The original target production capacity of phase 11 is 57 mcm/d and this is still the output goal, according to Owji. The first phase of the current development program, according to the Iranian tin developer in the project, Petropars, involves the drilling of 30 wells plus the fabrication and establishment of two production platforms, each containing 15 wells, with the goal of producing 2 billion cubic meters. feet (56.6 mcm/d) of gas per day as well as 80,000 barrels liquid natural gas (LNG). This will require the construction of an additional liquefied natural gas (LNG) installation and two 32-inch pipelines, 270 kilometers (km) long. The second phase of the development program will address the possibility of a fall in pressure during the first three years of full production, with the installation of graduated pressure equipment related to different enhanced gas recovery techniques.

The problem Iran faces in moving Phase 11 forward, and to a lesser extent all other South Pars Phases, is its inability to put the right equipment, technology, processes, and people into the project and keep it there. Several high-level international companies have been involved at one stage or another in Phase 11 South Pars, only to withdraw due to the tightening of sanctions in 2011/2012, or the reimposition of sanctions in 2018. Given the size and scope of Phase 11, it has become a focal point of US attention after its unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) in May 2018 and when it reimposed active sanctions later that year. At the time, the French supermajor, then-Total (now TotalEnergies), held a 50.1 percent stake in the $4.8 billion Phase 11 project, and had invested about $1 billion in it.

According to an Iranian source who spoke exclusively to OilPrice.com: “On the eve of the signing of the next wave of financing for Phase 11, the US Treasury Department called senior bankers in the banks that manage the money and told them that the financing continues and then the US will instigate a full historic investigation of all transactions bank since 1979 to every country that has been blacklisted by the US, and it told the French government the same thing. Understandably, France withdrew from Phase 11, at that time, China National Petroleum Corporation (CNPC) automatically took over the shares of Total (from 50.1 percent) – as automatically happens under the terms of the contract – to add to his 30 percent stake. The remaining 19.9 percent of the shares are held by Petropars.

CNPC, in turn, is ready to continue the development of Phase 11, given the very favorable terms offered by China, as analyzed in depth in My latest book is about the global oil market, and the value of South Pars field. The current value at that time was US $ 116 billion, shortly after it jumped to US$135 billion, and now higher again, according to Iranian sources. Crucially, though, the US ramped up pressure on China in the Trade War under the unpredictable former President, Donald Trump. This, and the fact that China has been locked into a new supercharged 25-year deal with Iran, as exclusively spoiled by me in September 2019, prompting Beijing to adopt a low public profile in the high-visibility field of Iranian oil and gas wherever possible. Topping this list is South Pars Phase 11, so CNPC publicly withdrew from the project in October 2019.

The key difference now is Russia’s unrelenting involvement in the Iranian gas project. The foundation for this was laid before the visit to Tehran in July of the Russian President, Vladimir Putin, with the signing US $ 40 billion memorandum of understanding (MoU) between the Russian gas giant, Gazprom, and the National Iranian Oil Company (NIOC). Among other deals contained in the MoU, Gazprom pledged its full assistance to NIOC in the development of the US$ 10 billion Kish and North Pars gas fields with a view to the two fields producing more than 10 mcm/d. The MoU also promised a US$15 billion project to increase pressure on the supergiant South Pars gas field on the maritime border between Iran and Qatar. Gazprom will also be involved in the completion of various liquefied natural gas (LNG) projects and the construction of gas export pipelines.

This deal was designed by the Kremlin to give even control over future gas supply out of Iran that may have found a home in southern Europe first, before being transported north, to take advantage of the gas supply crunch in European countries. There may be some buyers are interested in Europe for gas originating in Russia or Iran but being sold on through other intermediaries such as, perhaps gas from unsanctioned Iraq. In Europe, Iran has used this ‘rebranding’ method to sell its own oil as Iraqi oil through decades of sanctions in order to transfer it to some less rigorously policed ​​southern European ports. These include Albania, Montenegro, Bosnia and Herzegovina, Serbia, Macedonia and Croatia and from these oil is easily moved to larger European oil consumers, including Turkey. Hiding cargo in ships is a successful method by which Iran can move its oil anywhere during the year, and there is no reason that both methods cannot be equally successful for LNG shipments when Iran and Russia decide the right time to start them.

By Simon Watkins for Oilprice.com

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