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Iran aims to break out of exile

LNG Industry,

Iran sits on top of the world’s second largest reserves of natural gas, but has so far failed to capitalise on it through a combination of political isolation and a near total lack of foreign investment following the Islamic revolution in 1979. However, with the global boom in demand for natural gas, some countries may now be reconsidering their attitudes towards Iran, and Iran is seeking to capitalise on this.

Foreign Investment
Western based major oil companies have been completely sidelined from participating in development of the offshore South Pars gas field by sanctions imposed on Iran, but this has not deterred Indian and Chinese national oil firms. Iran divided up the gas field into over 24 ‘phases’ and is offering them up for development; China recently made a US$ 4.7 billion deal to develop the South Pars Phase 11 project, and India is slowly moving towards making a deal for a share in Phase 12. Iran is so keen to get India involved that it is offering sweeteners; for every dollar invested in South Pars, India will get a right in the downstream LNG project.

Pipeline dealings
Iran has also been trying to get the Iran-Pakistan-India (IPI) pipeline off the ground for a decade now, the proposed pipeline should have taken gas from the South Pars field and directed it to the Pakistani and Indian market. However, since 2008 India has been less than enthusiastic about taking part in the project, and has consistently ignored calls to schedule negotiations on the matter.

Unfortunately, Pakistan has been compelled to deal with Iran in the IPI pipeline, in defiance of US sanctions, because of its crippling gas shortage. Some 20% of its energy demand cannot be met and it currently relies on natural gas for 50% of its energy needs - the highest in the world. The country currently relies on imports from Qatar to cover half the energy shortfall, but increasingly need an alternative source to cope with rising demand.

However, Pakistan’s section of the proposed pipeline will cost US$ 1 billion, and without Indian assistance, it’s unclear how Pakistan will be able to pay for the pipeline. The US is unlikely to finance it, and may even cut financial aid to the country if it continues to work with Iran. In light of this, Iran has been looking to China to come into the agreement, but so far Beijing has not acknowledged the matter. But the IPI pipeline doesn’t make economic sense for China, and it doesn’t look likely that they will risk upsetting the US and India over this project.

LNG facilities
So, for the time being, Iran will have to make do with sending out LNG shipments from its LNG facilities near the South Pars field, which are currently under construction. Seven facilities are under construction with a proposed annual capacity of 70 million t; currently they are only 30% complete though, and the first plants will not be coming online until winter 2011. Tehran says it is aiming to send shipments to Asia and Europe, and is in negotiations with Austria, Germany, Italy, Japan, Taiwan, Korea and China. However, given its increasing political isolation and the looming danger of even tighter sanctions against the country, how successful these ventures will be is questionable.

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