Iran special: Could Tehran revive LNG export ambitions?

The lifting of US sanctions would be one obstacle toppled, but the need to produce more gas to feed projects presents another hurdle, writes Antonio Peciccia

Iran has long harboured LNG export ambitions, as the holder of the world's second-largest natural gas reserves, but while the possible removal of US sanctions could lead Tehran to revive those plans, they would still face many challenges.

Previous LNG project plans stalled over the past decade because of the international sanctions related to Tehran's nuclear programme. TotalEnergies and Shell abandoned two projects, the 10mn t/yr Pars LNG and 16.2mn t/yr Persian LNG, respectively, as sanctions escalated at the beginning of the last decade. An attempt to revive these two projects under the management of state-owned oil company NIOC following the 2015 nuclear deal also ran adrift after the US administration of President Donald Trump abandoned the deal and reimposed sanctions in 2018.

Iran had also planned a third liquefaction project, the 10.8mn t/yr Iran LNG, and had agreed with Muscat on construction of a pipeline that would allow some Iranian gas to be used as feedgas for Oman's 10.4mn t/yr Qalhat liquefaction plant, but this project has also made little progress in recent years. Start-up of the Khazzan and Ghazeer tight gas fields off Oman freed up more gas from the country's onshore fields to feed Qalhat, leaving little capacity available to liquefy extra supply.

While Persian LNG and Pars LNG were still at early stages of development, preparations for installing Iran LNG's liquefaction trains had been largely completed by early 2017. But the reintroduction of US sanctions prevented German industrial engineering firm Linde from exporting equipment for the trains to Iran.

And reviving Iran's LNG ambitions would face a more fundamental challenge in the need to free up enough gas to feed a major liquefaction project. The country is the world's third-largest gas producer, but also its fourth-largest gas consumer — from output of 244bn m³ in 2019, 224bn m³ was used domestically, leaving just 20bn m³ available for export by pipeline, mainly to Turkey and Iraq. About 13.5bn m³/yr of extra production would be needed to feed the 10.5mn t/yr Iran LNG.

Long maritime coming

Iran has been striving to accelerate development of key upstream assets in recent months, awarding a number of contracts to domestic firms, including for the offshore Farzad-B gas field that straddles the maritime border with Saudi Arabia, which is expected to add around 10bn m³/yr of output. And in December 2020, NIOC subsidiary Petropars began drilling work at the long-delayed phase 11 of the supergiant offshore South Pars field in the Mideast Gulf, with the aim of producing 1bn ft³/d (10.3bn m³/yr). Oil minister Bijan Namdar Zanganeh said last August that Iran aims to have South Pars gas reaching onshore facilities within a year. Petropars took over the project after TotalEnergies, which led the consortium that won the contract for developing phase 11 in 2017, withdrew in August 2018 after failing to secure a sanctions waiver from the US.

The supergiant reservoir of South Pars is shared with Qatar, where it is known as the North Field — and Qatari state-owned QP this year sanctioned a $28.75bn investment in four new LNG production trains to boost capacity to 110mn t/yr by 2025 from 77mn t/yr. Further developments will add two more trains to hit 126mn t/yr by the end of 2027. Qatar's decision in 2017 to lift its 2005 moratorium on further North Field development made Iran's South Pars development a more pressing issue for Tehran, given concerns over the potential impact that Qatar's huge expansion project will have on South Pars' reservoir pressure. But while QP is already weighing partnership bids from leading international oil firms — including TotalEnergies — to take up to 30pc in the project, Iran will struggle to draw investment interest. Even before sanctions were reimposed in 2018, TotalEnergies' South Pars investment plans steered clear of any LNG project commitment.