The long-term Joint Comprehensive Plan of Action announced on 14 July by Iran and the P5+1 (France, the UK, the US, China and Russia plus Germany) in Vienna puts Iran on a firm reintegration path with the global economy.
Despite the country’s vast energy reserves and significant oil and gas production, its current gas export is meager, ICIS reported.
Gas reserves at the end of 2014 were recorded by BP at 34 trillion cubic meters, placing it above Russia and neighboring Qatar as the world’s biggest reserve holder.
According to the latest BP Statistical Review, Iran produced 173 billion cubic meters of natural gas in 2014 and consumed 170 bcm.
Domestic gas consumption is large but in order to fully monetize its reserves, Iran will once again look to export its surplus gas to a range of countries via pipelines and LNG.
The landmark diplomatic deal paves the way for some preliminary discussions for the next development stages of the South Pars Gas Field, but in material terms, little will happen until the International Atomic Energy Agency submits a report by the end of this year.
Development of the gas field started many years ago. Work on its phases 15-19 are the next part in the field’s continuing development, according to FACTS Global Energy consultant, Siamak Adibi.
"The only domestic sector that could absorb extra gas volumes is electricity generation. The alternative domestic market, underpinned by an extensive network for gas as a heating fuel, is already saturated. The surplus gas from South Pars, therefore, can be significant," Adibi said.
Iran had already intended to use earlier phases of South Pars development for LNG export, having sunk $2.5 billion into what is now a semi-built export plant.
Although two liquefaction trains designed to export 10.8 million tons per annum were never built due to trade restrictions on key technology, state-owned Iran LNG has built storage tanks, prepared port facilities and started operations at an adjacent gas-fired power plant at the port of Tombak.
Obstacles
Apart from gaining access to technology and finance through the expected lifting of sanctions, the key to the development of this massive project is thought to be an expected equity divestment to an experienced international LNG operator.
"Bringing new partners can take time," Adibi said, suggesting at least four-five years before the first LNG consignment could conceivably be exported.
But there are two reasons blocking Iran’s path to becoming a major LNG exporter in the short-to-medium term.
Firstly on the demand side, a number of global LNG export projects are competing to capture limited demand. Competition from East African and North American export projects to secure long-term sales and purchase agreements from the early 2020s could crowd Iran out of a buyers’ market.
Notwithstanding price sensitivities, global LNG markets may be unable to absorb much Iranian LNG in the first half of the next decade.
Secondly, on the supply side, the Iranian government may prioritize the amelioration of regional ties before looking at global LNG exports. It could export gas directly to liquefaction facilities in Abu Dhabi or Oman for onward LNG export or it could supply the surging regional demand in the domestic markets across it neighbors: from Iraq in the west to Pakistan in the east.
With land-based LNG import projects proposed in Kuwait and Fujairah witnessing delays before final government approvals, the prospect of Iranian piped gas could make those projects less attractive.
Land-based terminals, as opposed to temporary floating regasification infrastructure already in place in Kuwait and the UAE, are more expensive and tend to warrant a commitment to long-term LNG. The possibility of cheaper Iranian gas, however, may now call into question the economics of those land-based projects.
