With Asian spot liquefied natural gas (LNG) prices having risen to unprecedented levels in January and the outlook remaining extremely robust Iran believes now is the time to move full ahead with its long-term strategy to become a leading global LNG supplier. A key focus for this will be the North Pars non-associated natural gas field that was the largest gas reservoir in Iran before the discovery of supergiant South Pars field in 1990. Propitiously for the speed of development of North Pars, not only are the spot prices of LNG set to remain at the historical high-end but also Iran has virtually completed all phases of its South Pars development.
Located some 120 kilometres southeast of the southern Bushehr Province, the North Pars gas field has around 59 trillion cubic feet (about 1.67 trillion cubic metres) of gas in place, with a conservatively estimated recoverable volume of gas of approximately 47 trillion cubic feet. The gas itself is lean and sour with a condensate gas ratio of 4 barrels (0.64 cubic metres) per 1000 cubic feet and it contains around 6,000 parts per million of hydrogen sulphide and five per cent of carbon dioxide, a senior oil and gas figure who works closely with Iran’s Petroleum Ministry exclusively told OilPrice.com last week. The first design to operate in this field was approved in 1977 but, after the drilling of 17 wells and the installation of 26 offshore platforms, the active development of North Pars was suspended due to 1979 Islamic Revolution in the country and the subsequent war with Iraq from 1980-1988.
A recent internal study of the state of North Pars by Iran determined that the field is still in a highly workable state for a quick push to significant gas output – specifically, at least 100 million cubic metres per day (mcm/d) within less than 12 months of proper development – with all of the gas recovered to be channelled into LNG production of at least 20 million metric tonnes per annum (mtpa). This is the LNG figure from the first 12 month phase of development only of North Pars but even this compares favourably to the entire yearly output of global LNG powerhouse – and Iran’s neighbour – Qatar, at 77 mtpa for many years. Although Qatar is set to increase this output to around 110 mtpa, Iran is set to not only bring on further phases of development of North Pars but also the development with a view to the LNG market of a number of other major gas fields, including most immediately Golshan, Ferdowsi, Farzad A and Farzad B, and Kish. It should not be forgotten that the major field from which Qatar takes the gas to sustain its status as number one LNG exporter in the world is exactly the same 9,700 square kilometre reservoir from which Iran draws much of its own gas: Qatar’s 6,000 square kilometre side of the field is the North Dome, whilst Iran’s 3,700 square kilometre side is South Pars (North Pars has been treated as an additional site).
After the development hiatus, September 2006 saw China’s CNOOC sign a memorandum of understanding with the National Iranian Oil Corporation (NIOC) to develop the North Pars site. This was then extended in December 2006 to incorporate the development of a four-train LNG facility with a 20 mtpa capacity. Later, when China proved slow on progressing with the this development – and others in Iran – but before U.S. and E.U. sanctions against Iran were ramped up in 2011/12 forcing its suspension of the project, German chemicals giant Linde Group had 60 per cent completed a US$3.3 billion flagship LNG export facility near Tombak Port. This facility was set to produce at least 10.5 mtpy of LNG, with expectations that it would take less than a year to finish. After sanctions were lifted again in 2016, Iran awarded Linde – whose liquefaction process the facility’s first two trains were intended to use - a ‘sweetener’ contract when it signed the first petrochemical co-operation deal between Iran and Germany; a Front End Engineering Design (FEED) contract for the olefin unit of Kian Petrochemical.
Iran had also been moving ahead with plans to construct floating LNG facilities, especially near Europe, with in-principle deals having been struck with Italy’s Eni and Spain’s Cepsa to take both oil and LNG when it became available from Iran. Similar plans were being discussed between Iran and Greece’s state-run gas supplier, Depa, to form a new firm that would build and run a floating LNG storage and re-gasification facility at Alexandroupolis, in the north of Greece, and the expansion of the Revythousa re-gasification terminal near Athens was being looked at as a potential entry point for Iranian gas. Both facilities would have been connected to two international pipeline systems: the Trans Adriatic Pipeline and the Gas Interconnector Greece-Bulgaria links. Indeed, the scale of Iran’s original LNG plans can be gauged from the fact that prior to 2011/12 it was in negotiations with a number of international oil companies about LNG-related projects, including Total, Petronas, Repsol, and Royal Dutch Shell, all of which had agreements with Iran as part of its fourth ‘Five Year National Develop Plan’ (2005-2009) that aimed to produce 70 mtpy of LNG from the North Pars, South Pars, Ferdowsi and Golshan gas fields. Related: Bloomberg’s Hottest Energy Picks For 2021
After the scaling up of sanctions in 2011/12, caution amongst European firms about engaging with Iran in such projects understandably increased and, although this reticence temporarily abated after the implementation of the Joint Comprehensive Plan of Action (JCPOA) in January 2016, little progress was made by them before sanctions were again introduced by the U.S. following its unilateral withdrawal from the JCPOA in May 2018. In the interim, Iran had been working on a plan to make progress on its LNG plan by installing a network of ‘mini LNG’ complexes with the help of South Korea. Late in 2018, South Korea’s Minister of Land, Infrastructure and Transport, Kim Hyun-mee, agreed the finer points on its LNG co-operation with Iran’s Petroleum Minister, Bijan Zangeneh, which included Exim Bank’s initial €8 billion credit line to Iran and another €2.3 billion from two other South Korean companies. These mini-LNG complexes, with production capacities ranging from 2,000 to 500,000 tons of LNG per year - compared to typical large scale plant capacity of between 2.5 and 7.5 million tons per year - would benefit particularly from being both relatively quick to start up and locatable almost anywhere, even in very remote gas fields. In the absence even of these indigenous LNG facilities Iran was looking at utilising about 25 per cent of Oman’s total 1.5 million tons per year LNG production capacity at the Qalhat plant as part of a broader plan to build a 192 kilometre section of 36-inch pipeline running along the bed of the Oman Sea at depths of up to 1,340 metres from Mobarak Mount in Iran’s southern Hormuzgan province to Sohar Port in Oman for gas exports.
With U.S. sanctions firmly back in place in 2018, though, Oman backed away from the plan, to be replaced by Russia’s Gazprom in Iran’s LNG plans, which signed two memoranda of understanding with the NIOC concerning the rollout of a two-fold joint strategy regarding gas. The first part concerned a gas cooperation roadmap between the two companies, and the second part detailed the construction Iranian LNG facilities in partnership with Iran’s Oil Industry Pension Fund. Initially, this would allow Gazprom to effectively take over from Linde on the existing 60 per cent complete LNG complex, and later to be integral in the construction of the mini-LNG complexes. Gazprom would take payment for its work from the sale of gas both from this complex and from part of the output from fields feeding gas into it. These plans, though, were again put on hold due to increased U.S. sanctions against both Iran and Russia, a relatively poor global LNG price outlook, and to the fact that China was again interested in taking a part in the LNG project as part of its wider 25-year deal with Iran.
At that time it was envisaged that the North Pars LNG development would need around US$16 billion in investment - comprising US$5 billion in the upstream sector and US$11 billion in the downstream sector (mainly LNG plants) - to achieve at least the first phase LNG output of at minimum 100 mcm/d and the drilling of the 46 wells that this would entail. This is still the ballpark figure with which Iran is working and consideration is now being given by the Petroleum Ministry and NIOC to making the North Pars site the focus of a new bigger energy hub, concentrated on the production of LNG. This would allow for international state-owned companies to engage in a series of projects joining up their South Pars operations with their North Pars ones, according to the Iran source.
By Simon Watkins for Oilprice.com
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