Investing in Iran gas sector as attractive as oil

Oil&Gas Materials 31 July 2015 17:25 (UTC +04:00)
When we talk about the importance of Iran in global energy security, its oil export is featured most often, but the volume and value of Iranian gas is even more than oil
Investing in Iran gas sector as attractive as oil

By Dalga Khatinoglu- Trend:

When we talk about the importance of Iran in global energy security, its oil export is featured most often, but the volume and value of Iranian gas is even more than oil.

Iran ranks forth in term of its 158 billion barrels of oil reserves, but first in term of 34 trillion cubic meters of gas reserves, which equals 240 billion barrels of oil equivalent.

Iran produces 180 billion cubic meters of gas per annum (bcm/a), while it's oil output capacity is about one billion barrels.

Domestically, Iran consumes 175 bcm/a of refined gas, which shares 67 percent of the country's total primary energy usage, while the figure for the consumed 600 million barrels of crude oil is about 25 percent.

Iran planned to double gas output to 1.2 bcm per day (bcm/d) by 2018. Though this plan is so ambitious to be realized in the mentioned time, it doesn't undermine the perspective of country's upstream gas sector.

Currently, Iran still faces a gas shortage despite a 100-mcm/d increase in production level in 2014. Iran planed to up its gas output as much as last year in 2015. Ignoring Iran's annual gas consumption growth, the country needs more 20 bcm/a of gas delivery to power plants to stop liquid fuel consumption in this sector. Iran also needs to double gas re-injection to 60 bcm.

The Islamic Republic also planned to attract $70 billion investment in the next 10 years to increase petrochemical products output by 2.3 times to 100 million tons per annum.

However, regarding Iran's abundant gas reserves which shares 18 percent of global conventional gas reserves and giant undeveloped or semi-developed gas fields like South Pars, Kish, North Pars, Farzad B, etc, the perspective of this sector is very bright.

Importance of Iranian gas for Europeans

European Union has put about $250 billion direct investment abroad in 2014, while the total amount of global foreign direct investment was about $1,600 billion.

While European delegations from Germany visited Iran and delegations from France, Italy, Austria, UK and Poland are to visit this country to discuss economic ties, Iran hopes to attract tens of billion dollars in oil and gas sector.

Iran has also defined a long-term (20-25 years) new model contract that it calls its integrated petroleum contract (IPC) to replace the old, less popular buyback agreements to attract foreign companies. However, it's not clear whether IPC could compete with production sharing agreements (PSA) that is popular with companies, but is banned in Iran.

Besides Iran's own interests, the EU also needs Iranian gas to diversify its gas import routes.

Iran can deliver more 2 bcm/a of gas to Turkey through the current infrastructures by adding a gas compressor station to join to the Trans Anatolian Pipeline (TANAP), but this amount is very low. For significant amount of gas, Iran needs to realize the 1,850 km 9th cross-country pipeline project with capacity of transiting 30 bcm/a of South Pars's gas to Turkey borders joined to TANAP or a new pipeline project.

However, Iran needs $6 billion investment to realize 9th cross-country pipeline. Currently Iran only exports 9.7 bcm/a of gas to Turkey. The other choice is building LNG plants.

A glance at Iran's LNG projects

In the fourth 5-Year National Develop Plan (2005-2009), Iran had aimed to produce 70 million tons of liquefied natural gas (LNG) from the South Pars, North Pars, Ferdosi and Golshan gas fields by launching six LNG production facilities.

After canceling Iran's LNG project contracts with French Total, Spanish Repsol, Dutch-British Shell and Malaysian Petronas, Iran practically lost almost all opportunities in the LNG industry until in 2008 when the country signed a contract worth $25 billion to develop its gas fields and produce LNG with the Chinese SINOPEC group, Chinese CEPA, Polish state-owned gas company (PGNiG) and Malaysian Petrofield LNG Co.

The value of Iran's contracts with PGNiG and Petrofield were respectively about $2 billion and $14-16 billion.

Iran also had a contract with Linde AG to build a giant LNG plant, but Linde refused to supply needed equipments due to sanctions. All of projects were canceled until 2012, even those which Iran signed with Chinese companies.

Resuming LNG projects

Iran announced in May that it resumed talks with Linde AG to restart developing the Iran LNG project. The capital investment needed for the Iran LNG plant was estimated at $5 billion and the facility would start its early production if half that sum were provided.

This plant's capacity is projected to be 10.5 million metric tons per year of LNG production, earning the country more than $7 billion annually.

Iran also can export a restricted amount of gas to the EU by floating LNG ships.

FLNG ships take natural gas in offshore and the gas is chilled to -162°C, shrinking in volume 600 times, and then is transported to market.

Edited by CN

Dalga Khatinoglu is an expert on Iran's energy sector, head of Trend Agency's Iran news service
Follow him on @dalgakhatinoglu