Finally freed from international sanctions against its energy sector, Iran is working quickly to raise it natural gas production and export capacity — and its medium-term targets are truly ambitious.
If realized, Tehran’s plans for a major gas export increase could send tremors through global gas markets.
But analysts and industry observers have already raised major doubts on Iran’s ability to meet its targets, especially given the difficulties in financing projects, competition across global gas markets and the doggedly low-price environment.
A senior official at the state-owned National Iranian Gas Company (NIGC) said this month Iran wanted to raise its gas exports to some 350 million cu m/d — the equivalent of a massive 128 Bcm/year — in the medium term, with future buyers set to include a number of countries in Europe.
Exports of 128 Bcm would surpass neighboring Qatar’s current exports — mostly as LNG — of some 125 Bcm, and also put Iran on track to move closer to world leader Russia, which exports around 180 Bcm/year of gas.
Azizollah Ramazani, NIGC director of international affairs, told the Iranian energy ministry news agency Shana that NIGC was planning to export gas to 15 countries in the coming years, including Europe, via pipeline or as LNG.
“We need more investments in order to gain a firm toehold in the LNG market and win more share in the international markets,” he said.
Iran currently produces around 250 Bcm/year of gas, according to Iranian officials, most of which is consumed domestically.
Iran’s exports are currently limited to around 10 Bcm/year to Turkey and small volumes to Azerbaijan.
But that could be about to change.
EXPORT PACTS
According to Iran’s latest development plan for 2016-2020, it aims to boost gas production to 360 Bcm/year by 2020, which in tandem with efforts to curb domestic consumption would free up the necessary vast volumes for export.
Iran already has deals in place to supply gas to some of its immediate neighbors, including Iraq, Oman and Pakistan, while Tehran is also engaged in talks to supply gas to other countries in the region such as Afghanistan and Kuwait.
NIGC also has ambitions to export to countries including India and China.
But analysts remain doubtful that Iran will become a major exporter, especially to Europe.
Jonathan Stern, leading gas analyst from the Oxford Institute of Energy Studies, told Platts he did not expect any Iranian gas supplies to Europe in the next ten years.
“First they would need spare gas which they don’t have, second they would need to accept the price situation in Europe which they are not likely to, and third capacity would need to be created and buyers found,” Stern said.
“If there are going to be additional gas exports from Iran in the next 10 years — which I rather doubt — they would logically go to Pakistan, Iraq and Oman with which NIOC/NIGC have contracts,” he said.
John Feddersen of energy consultancy Aurora agreed with Stern’s assessment.
“Pipeline economics to Europe don’t work,” Feddersen said at last week’s Flame conference in Amsterdam.
“We don’t really see it as viable for a commercial pipeline to be built in such an oversupplied market,” he said.
Iranian LNG projects will take time too — Stern sees first LNG as being exported after 2026 at the earliest — and LNG might also find it difficult to compete in the global market place.
On the European market, Iran would not be able to compete with US LNG, “which will have the cost advantage,” Feddersen said.
Only in Asia could Iran find a marketplace, but even then it’s likely to be a longer-term opportunity post-2025 when demand for LNG is likely to see a tightening market.
“We don’t think it’s going to have an impact on the global gas market,” he said, suggesting exports would at most reach 35 Bcm/year by 2035, well short of Iran’s stated aims.
QATAR COMPETITION?
Now free of sanctions, Iran wants to press on with the development of South Pars — which it shares with Qatar whose part it calls the North Field.
But might Qatar lift its 11-year moratorium on the further development of its part of the field in part to scupper Iranian plans to boost production?
And could efforts by both countries to extract gas at full blast be to the detriment of the reservoir?
Aurora analyst Marc Hedin told Platts he expected there to be a spirit of cooperation between Iran and Qatar on the further development of the shared resource.
He said Qatar would be well aware of Iran’s plans around South Pars. “Do Iran’s energy ambitions play into Qatar’s decision-making processes around the North Field? Absolutely.”
He said Doha had been cautious about its own North Field gas development. “Qatar has extracted a lot less gas than it could have in recent years,” he said.
This is despite claims over the years by Tehran that Qatar was pulling more than its fair share of gas from the shared reservoir.
Hedin ruled out the prospect of Qatar looking to boost its take from the shared resource to compete against higher Iranian output from South Pars.
“I think it is highly unlikely that the two countries can’t cooperate. Iran has the ambition to become more influential than Saudi Arabia in the region and is actively seeking alliances and partnerships,” he said.
Nonetheless, Qatar is still in a stronger position when it comes to financing gas production given the strong role played by international majors.
“It is the same resource and the economics for extraction are very similar. But financing the extraction is less favorable in Iran than in Qatar,” Hedin said.
There is also said to be some risk of the field being damaged by overproduction, which has happened before at various condensate-rich gas fields around the world.
However, current rates of production are said to be nowhere near what it would take to affect North Field/South Pars.
Platts