Sanctions Stop LNG Plant Equipment in Europe

Sanctions Stop LNG Plant Equipment in EuropeSanctions Stop LNG Plant Equipment in Europe

More than a year after production was suspended at a liquefied natural gas (LNG) factory in Assalouyeh, Bushehr Province, a German company that had agreed to supply the facility with main LNG manufacturing equipment refrains from shipping the machinery to Iran despite having received part of the money, Mehr news agency reported Saturday.

Iran's only LNG factory is located in Assalouyeh. A contract was signed 6 years ago with the German engineering outfit Steiner-Prematechnik-Gastec to build gas liquefaction equipment to be used in the Assalouyeh LNG plant.

The company has reportedly finished manufacturing the equipment "but the cargo has been stopped in Europe due to the sanctions," managing director of the National Iranian Gas Exports Company said.

"In order to clear the machinery and import it we need a license from the European Union," Alireza Kameli added.

"The technology for making such equipment is only with a few German and American companies," he noted.

The Mehr report added that, currently, Qatar is the world's largest LNG producer and exporter with nearly 80 million tons of annual production, using sour gas it extracts from its own half of the giant South Pars gas field.

The contract for the supply of LNG liquefaction equipment was signed in 2008, during the government of former president Mahmoud Ahmadinejad. By the time, energy giants, including Total SA and Royal Dutch Shell had started to depart as sanctions were being imposed on Iran over its nuclear energy program. In 2012, 50 percent physical progress was reported in construction of the only LNG plant in Assalouyeh.  

Previously, several similar plants were planned for South Pars, North Pars, Golshan, Ferdows, and Qeshm gas fields. But eventually, the LNG plant in Assalouyeh was considered to be the only feasible plan to enter the global market for LNG export.

Iran LNG, also known as NIOC LNG, is located at Tombak Port, approximately 50 kilometers north of Assalouyeh Port and 15 kilometers southeast of Kangan.

The Rouhani administration, however, suspended the project for unspecified reasons while the first phase, including construction of a 1,100 megawatt power plant, LNG and LPG (liquefied petroleum gas) storage facilities, as well as jetties and offshore platforms was already completed.

  High Risk

Iran will be able to produce up to 10.5 million tons of LNG annually upon completion of the project, which is expected to earn 7 billion dollars in revenues.

The recent oil plunge has had a negative impact on global trade of natural gas and LNG as well, Mehr quoted an expert of energy markets as saying.

"All LNG contracts are now designed based on fluctuations in the oil market, particularly the Japan Customs-cleared Crude (JCC) – the average price of customs-cleared crude oil imports into Japan," Nersi Qorban told Mehr on Saturday. This is the reason behind a similar drop in LNG prices, he said.

"There should be no rush for Iran to enter the global LNG market even if the sanctions are lifted and financial shortages are overcome," the analyst asserted.

"The LNG market is quite different from oil and petroleum products," he highlighted, adding that countries like Qatar, Australia, Egypt, and even Angola and Mozambique have already filled the LNG market to the brim. "So, there's no room for Iran to grab a share from this saturated market."

Iran holds the world’s largest proven natural gas reserves, at 33.8 trillion cubic meters—or 18.2 percent of the world’s total proven reserves, according to a BP report. The natural gas, as raw material for Iran LNG plant in Assalouyeh, was set to be supplied from the nearby South Pars gas field, which is the world's largest gas field.