Iranian LNG ambitions curbed by sanctions

Iran has recently announced that it has suspended two of the country’s proposed LNG projects, which would have processed gas from the massive South Pars field, which Iran shares with Qatar. Ahmed Ghalebani, Managing Director of the National Iranian Oil Co. was keen to point out that the reason that the South Pars LNG, and Persian LNG projects have been scrapped is because they were ‘too costly and complex’, and that Iran would instead build more gas pipelines.

However, Iran’s LNG plans have been key to plans to diversify away from selling crude oil, and Iran has boasted that it could build an LNG industry to rival Qatar’s, which would be able to export up to 90 billion m3/d, compared to Qatar’s 105 billion m3/d. While it is true that there is a global glut of LNG at the moment, which would reduce the project’s commercial viability, inevitably the global market will pick up again and to make a short-term decision to suspend a project indefinitely on such grounds would not make good financial sense.

What is more likely is that Iran no longer has access to the expertise to get the projects off the ground. LNG liquefaction terminals are extremely complex installations and as a result of sanctions, the country cannot even call on western consultants to provide expertise. Repsol, Total and Shell have all withdrawn from Iran, as they did not want to risk their business ventures in America by investing in Iran.

Unfortunately for Iran, LNG technology is relatively new and western companies effectively have a monopoly on the technology. While they may turn to Asian nations who are not bound by sanctions for other projects, the expertise is simply not available in these countries to build an LNG terminal. European companies such as Siemens and Linde will no longer provide services to Iran and GE, based in America will also not provide services to Iran.

Put simply, if an LNG project is going to happen in Iran, it will have to have input from China, but they have not yet mastered the technology. According to Noel Tomnay, global gas analyst at Wood Mackenzie, “The Chinese have been working on this for quite some time ... and if that were to happen successfully then Iranian LNG, under a dedicated China project, could still proceed but that's very uncertain.”

Mehdi Varzi, a former Iranian oil official said that the LNG projects are unlikely to go anywhere, “until the overall resolution of the nuclear issue.”

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