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  • Boosting exports of natural gas

    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.
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