Monday Morning, Lebanon (weekly)
May 3 2004

Boosting exports of natural gas

Iran, which holds some 15 percent of the world's natural gas reserves,
is boosting exports of gas to its neighbors in the hope of picking up
sales to Asia and Europe in the future.

`In the short term, we are looking to export our gas to neighboring
countries, but we are also working on exports of liquefied natural gas
[LNG] to Asia and Europe', said Rokneddin Javadi, director of Iran's
National Gas Export Company.
`The issue is that the projects to export to neighbors, such as those
across the Persian Gulf, can be completed in two years. But an LNG
export project needs five years', he told reporters on the sidelines of
a gas export conference in Teheran.
He said Iran expected to sign a contract soon to supply 15 million
cubic meters a day by pipeline to the United Arab Emirates. And he said
the Islamic republic was also in talks with Kuwait and the UAE for two
other similar contracts, hoping to export 1.5 billion cubic meters to
the two countries each year.
Also expected later this year are contracts with Armenia and
Nakhichevan, an autonomous region of Azerbaijan, covering the sale of
three billion cubic meters annually.
And a 25-year contract with Turkey enabled Iran to sell 3.5 billion
cubic meters there in 2003. That figure is expected to rise to five
billion cubic meters in 2004, if a contractual dispute can be worked
out.
Turkey, complaining that the gas is of poor quality, has demanded a
price cut and has threatened to turn to Russia instead. `You have to
ask the Turks what is going on. If they abandon the contract, they will
have to pay a heavy fine', an Iranian industry official said.
Despite the ongoing difficulties with Turkey, Javadi nevertheless said
he hoped Iranian gas sales would total two billion dollars annually by
2010.
But Iran is also counting on this figure jumping dramatically if it can
get LNG exports by tanker moving further afield, notably to the
potentially enormous markets of South Asia, China -- with whom a
memorandum on future sales has already been signed -- and Europe.
The country currently has three LNG production projects under way,
NIOC-LNG of the National Iranian Oil Company, the Pars-LNG consortium
of NIOC, Total and Petronas, and Persian-LNG of NIOC, Shell and Repsol.
But such sales are pending the completion of LNG production facilities,
as well as the costly laying of pipelines that need to cross sensitive
areas such as the Pakistani-Indian border.
Furthermore, there is tough competition from Russia, holder of the
world's largest reserves and geographically better placed to tap the
European and Chinese markets. Competition from Algeria and Qatar is
also tough, and Iran has found itself lagging due to the late
development of its gas sector.
In the case of Qatar, the world's number-three for gas reserves has
been quicker than Iran to tap its offshore resources and is now pushing
to become the world's top exporter.
In March, Qatar signed a six-billion-dollar protocal accord with the
South African-US Sasol-Chevron consortium for three LNG production
projects. It has also already got a foot in the Indian market.
Political pressure on Iran, including United States sanctions that
target foreign companies investing there, are also major hurdles.
`These kinds of investments represent billions of dollars, and it is
not certain that international companies will accept to finance them',
one Western industry expert commented in Teheran.
Iran has decided to award the French oil giant Total a
1.2-billion-dollar contract to develop phase 11 of the big South Pars
offshore gas field, according to Mahdi Mirmoezi, the republic's deputy
oil minister.
`The final negotiations are in progress, and unless there is a problem,
the contract will be signed in one or two months', he said.
British Petroleum (BP), Italy's ENI and Norway's Statoil had also been
competing for the contract. But Total is believed to have benefitted
from its already strong presence in Iran, including in the field of
liquefied natural gas (LNG). Oil Minister Bijan Namdar Zanghaneh had
already voiced his desire to see a company deeply engaged in LNG
operations get the deal, so as to facilitate exports.
Gas from phase 11 is earmarked for European markets. In 1997, Total was
awarded buyback contracts for phases 2 and 3.
Under the Iranian constitution, foreign companies are not allowed to
take an equity stake in any national oil and gas projects, but can
participate under a buyback scheme enabling them to invest and later
receive a portion of sales.
Aside from South Pars, Total is engaged in the Sirri A and E oil
fields, which began producing in 1998-99, and the already exploited
Dorood and Balal fields.
In February, Total -- together with Malaysia's Petronas and the
National Iranian Oil Company (NIOC) -- won a two-billion-dollar
contract for an LNG plant at South Pars.
Under that contract, Total and Petronas are bound to find LNG buyers --
a process the deputy minister said would take seven or eight months.
Pending exports, its production will serve the expanding domestic
market.
South Pars is the Iranian sector of the world's largest natural gas
field, situated in the Gulf and shared with Qatar. The Iranian sector
is set to be divided into roughly 25 phases.
Phases 1, 6, 7 and 8 have been awarded to the private Iranian firm
Petropars; Phases 4 and 5 to Petropars/ENI and Phases 9 and 10 to South
Korea's Lucky Goldstar (LG).
Iran is seeking to boost its gas production, but badly needs foreign
markets. It is currently working on tapping the Indian market,
including pushing for a pipeline that crosses Pakistan.
Production is hoped to increase from 110 billion cubic meters in 2000
to 292 billion in 2010. Gas already meets a third of domestic energy
needs.