Iran’s gas ambitions under pressure

April 1, 2024, 1:04 AM

Iran gas — An Iranian worker monitors pipes in the South Pars gas field, owned jointly by Iran and Qatar

Sanctions stop international investment
Domestic shortages are growing
Production at South Pars under threat

Iran has trebled its natural gas production in 10 years, becoming the largest producer in the Middle East.

But Qatar’s expansion of its liquefied natural gas (LNG) production in the world’s largest natural gas field, shared by the two nations, is likely to undermine Tehran’s output ambitions, analysts say.

Iran holds the world’s second-largest gas reserves after Russia and produces 740,000 tonnes of gas, or 35 billion cubic feet per day (cfd).

It plans to increase output capacity per day by around 30 percent within five years, supported by an $80 billion investment in gas fields, according to Javad Owji, the oil minister.

Newsletter
Get the Best of AGBI delivered straight to your inbox every week

South Pars, located offshore between Iran and Qatar, contains nearly half of Iran’s gas reserves. After long delays, Iran launched phase 11 last year, the most recent and largest of the 24 phases of the development. Once completed, it is hoped to yield 2 billion cfd.

Iran gives local companies $13bn to lift oil output

The development has been delayed by nearly 20 years, as Western sanctions over Iran’s nuclear programme have cut foreign investments, driven away international companies and blocked access to advanced technologies.

American sanctions prohibit companies from using the US financial system to do business with Iran. France’s TotalEnergies was one of the last Western companies to pull out of the country, in 2018.

South Pars accounts for around 75 percent of total Iranian gas production, but Dan Rahmat, an energy analyst, tells AGBI that studies show it will experience a sharp pressure decline after 2025, equal to 8 percent of its throughput.

Last month, Iran’s Pars Oil and Gas Company signed agreements totalling $20 billion with local businesses to boost pressure in the field.

The aim is to extract 90 trillion cubic feet of gas and two billion barrels of gas condensates, which would generate $900 billion in revenue, according to a report by Iran’s Shana News Agency. Iran, a country of 88 million, had a GDP of $413 billion in 2022, the World Bank says.

Francesco Sassi, an energy researcher based in Bologna, says: “Western technologies are required to bring production back.” These technologies include large compressors and giant platforms.

On the other side of the Gulf, Qatar is also installing platforms to boost pressure as it expands LNG exports to 142 million tonnes – almost 7,000 billion cubic feet – a year, by 2030.

The development “could seriously jeopardise Iran’s possibility to ramp up production from the shared reserve,” Sassi says.

Rahmat says that if South Pars production declines, Iranian industries such as petrochemicals, steel and cement “will collapse”.

Even if Iran develops other gas fields, including Kish, North Pars and Eram, he says, “power plants will have to use fuel oil, increasing their costs dramatically and boosting the already serious environmental crisis.”

Power plants will have to use fuel oil, increasing their costs dramatically

Iran is the fourth-largest gas consumer in the world, burning five times more than Turkey and twice the amount used by Canada. Rising consumption and wastage, analysts say, have led to severe supply shortages. As a result, Iran has not yet been able to develop significant exports.

The International Energy Agency says Iran consumed around 847 billion cubic feet of gas in 2022, up by half in a decade. It exports only around 635 billion cf of gas annually by pipelines, mainly to Turkey and Iraq, and has swap deals with Turkmenistan and Armenia. A pipeline project with Pakistan faces delays and objections from the US.

Rahmat says that as Iran’s domestic gas demand increases by 7 percent a year, the country faces a growing gas deficit of up to 10.6 billion cfd in winter, and lower-level shortages in summer.

Subsidised consumption

Gas prices in Iran are heavily subsidised. Households paid only $0.001 per kWh of natural gas in 2023, the cheapest in the world, according to the data website globalpetrolprices.com. The IEA estimates that gas subsidies cost Iran $45 billion in 2022.

Iran said last January it planned to begin LNG production of 1.5 million tonnes, or 72 billion cf, per year at a medium-sized plant at Asaluyeh in 2026, but experts do not believe its ambitions are realistic.

Work on the “Iran LNG” project at Tombak, near the Gulf port of Assaluyeh, has not progressed since 2013.

Rahmat says that two major shareholders, Oil Pension Fund Investment Company and National Iranian Oil Company, disagree on the project’s feasibility.

Instead, Iran has turned to Russia. Moscow is building the Bushehr nuclear plant and Tehran is a close ally in Russia’s war in Ukraine.

In 2022 Tehran signed an agreement with Gazprom to carry out large and small LNG projects, but little progress has been made.

Iman Nasseri, managing director for the Middle East at Facts Global Energy, an oil and gas consultancy, says that essential infrastructure is missing in the Iran LNG plant, and large amounts of money are needed.

“If the next US president is [Donald] Trump, Iran will have to wait another four years for the sanctions to be eventually lifted, and existing infrastructures are rusted already. So forget about it; we don’t see this scenario to be likely,” Nasseri says.