Dalga Khatinoglu, Trend Agency's Iran Service Department Chief
China's 3.3 billion worth LNG refining facility construction contract with Iran was suspended last day. It was Iran's sixth suspended LNG project and aimed at producing 10.5 million tons of LNG per year.
Iran says the major problem is the lack of finance power of the Chinese consortium which media outlets previously identified it as Chinese SINOC group.
In the fourth 5-Year National Develop Plan (2005-2009), the country 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 cancelling Iran's LNG project contracts with French Total, Spanish Repsul, Dutch-British Shell and Malaysian Petronas until 2008, Iran practically lost as much as 27 million tons of its LNG production capacity.
After that in 2008, Iran signed $25 billion worth of contracts to develop its gas fields and produce LNG with the Chinese SINOC 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. Currently all these contracts have been suspended.
China, no longer a more reliable partner for Iran
Suspending Iran-China LNG project occurred while Beijing is preparing to hold its fifth annual China LNG Technology and Development Summit on Sept.6.
On the published announcement related with the summit, China said: "It is expected that in 2015 China's LNG imports will exceed 20 million tons whilst 2020 will grow exponentially. The development of the LNG, reduced dependence on oil is an important measure by the Chinese government. In the near future, it is expected that natural gas will become our country's third largest energy after coal and oil".
Suspending Chinese companies' contracts with Iran is not a new story. Last month, Iran suspended $5 billion worth of contracts with CNPC, the only foreign company involved in Iran's giant South Pars gas filed, because of repeatedly delays of CNPC to start the project.
Previously in the autumn, Iranian Oil Minister Rostam Qasemi also suspended $5 billion worth of the North Pars development contract with the same Chinese company.
Iran has experienced $40 billion worth of delayed oil and gas projects signed with Chinese companies during the past few years.
After withdrawing giant western energy companies from signed contracts with Iran because of tight sanctions aimed to halt Iran's nuclear programme, the country turned to Chinese companies. Currently the two countries enjoy over $45 billion worth of trade turnover, while China is Iran's biggest oil buyer, but in energy projects it seems Iran's reliance on China is doomed to failure.
Importance of LNG
During the past few years, LNG export amount has increased rapidly.
According to BP annual statistics published in June, about one third of the world's 1025 bcm of total dealt gas in 2011 was LNG, amounting to 330.8 bcm, while LNG shipments grew by 10.1 per cent compared to 2010.
Qatar, Iran's southern neighbour and partner in the South Pars gas field, with thanks to ExxonMobil, Total, Mitsui, Marubeni, ConocoPhillips and Shell companies has become the world's biggest LNG producer with 77 million tons (102 billion cubic meters) of LNG output annually.
LNG is a way of delivering natural gas capable of being transited to all corners of the globe, safely and reliably. Lacking the need to construct thousands of kilometres of pipeline, regional restrictions on finding customers, also the capability of signing short terms gas deal contracts, or even selling on the spot market, transportable by sea or land are other benefits of LNG.