The Next Natural Gas Superpower

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By Simon Watkins

Following the temporary withdrawal of China from Phase 11 of Iran’s supergiant South Pars gas field due to the political backlash that the deal – and related deals – engendered, the Petroleum Ministry has been looking to domestic companies to keep production going in the meantime. Given the technical and financial constraints on local firms to undertake such major projects as each of the original 24 phases of South Pars, Petroleum Minister Bijan Zanganeh has split off elements of three of those phases – 11, 15, and 21 – to create three additional phases – 25, 26, and 27, respectively. With much of the work on these ‘new’ phases having already been done when they were part of the original phases, last week’s comment from Zanganeh that all of the offshore sections of all (now 27) South Pars phases would be fully developed in the first half of 2020 is entirely realistic.

In broad terms, even with U.S. sanctions still in place, the South Pars non-associated natural gas field is at the core of Iran’s strategy to produce at least one billion cubic metres per day (bcm/d) as soon as possible, from around 875 million cubic metres per day (mcm/d) currently. This 3,700 square kilometer portion of the 9,700 square kilometer gas basin that Iran shares with Qatar (the North Dome field) holds an estimated 14.2 trillion cubic meters (tcm) of gas reserves (8% of the world’s total) plus 18 billion barrels of gas condensates. It is also key to Iran’s ambition of becoming a top-tier global player in the liquefied natural gas (LNG) market. Indeed, South Pars already accounts for around 60 percent of Iran’s overall gas production.

Much of the work on most of the original phases is close to completion, with just a handful not having a 90 percent plus completion rating. Of these relatively under-developed phases, Zanganeh stated that Phase 14 would come online by the end of the current Iranian calendar year on 20 March 2020. This follows the recent announcement from the Pars Oil and Gas Company that the third platform of the offshore field was loaded for installation in its designated spot. Once operational, the platform is designed to produce 14.1 mcm/d of natural gas. Its adjunct phase – 13 (SP13) – targeted to produce 57 mcm/d of gas on its own, saw two platforms (B and D) become ready for operation just prior to this development on 14.

This will open the way for production of around 28 mcm/d of natural gas at full launch, plus 75,000 barrels per day (bpd) of condensate and other associated products. In the offshore sector of SP13 located in the north-western part of the gas field, 38 offshore wells have been drilled, with delivery of gas to the onshore refinery scheduled to begin when an offshore pipeline becomes available to transmit gas to be used to produce sweet gas, ethane, propane, butane, gas condensate and sulfur products. In preparation for this, a fourth train is now ready, allowing for the processing of up to the full 57 mcm/d of nominal gas capacity, which would then be fed into the Iran Gas Trunkline (IGAT) system. Phase 11’s target output – of 57 mcm/d of natural gas and 70,000 bpd of condensate, plus other associated products – will now be split with Phase 25, both of which will be developed as best as they can by domestic firms until China returns.

Prior to this latest announcement on the readiness of these new phases, it had stated that Phases 17, 18, 19, 20 and 21 would also be fully online by the 20 March end-year point. This had been on course until the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) last May. As it stands, though, Phase 21 was due – along with Phase 20 – to produce a joint 51 mcm/d, and is currently producing around 30 mcm/d. One third of this amount is being processed at the dedicated Phase 20 and 21 refining facilities, with the rest being sweetened at the Phase 15 and 16 refineries. Once the second and third trains of the Phase 20 and 21 refinery come online, then all of the 51 mcm/d gas recovered from the two phases will be processed at the facility for injection into the Iran Gas Trunkline 8 for use in the domestic power sector, freeing up other oil and gas resources for exports. With the addition of platform 19B, Phase 19 is now producing around 45 mcm/d of natural gas, OilPrice.com understands from Iranian sources, with the overall production target remaining 57 mcm/d, plus 80,000 bpd of gas condensate, 400 tons per day of sulfur, 1.5 million tons of liquefied petroleum gas (LPG) and a million tons of ethane per annum.

The pace of development of Phases 17, 18 and 20, though has slowed, although they are still over 95% ready. The combined production of Phases 17 and 18 is around 39-41 mcm/d, with the output being fed into the IGAT 7 from offshore facilities, again being used in the domestic power sector. Around US$6.75 billion has been spent so far on their development, and the addition of Platform 18B bolstered the combined daily output at their refinery by 500 tons of ethane and 20,000 barrels of gas condensate. Once completed, the production target for Phases 17 and 18 will be 51 mcm/d of natural gas, 80,000 bpd of gas condensate, 400 tons per day of sulfur, 1.5 million tons of liquefied petroleum gas, and a million tons of ethane per year.

Originally, Phases 22 to 24 had been earmarked to produce a combined 51 mcm/d by the end of this Iranian calendar year but the lack of hard foreign currency after the U.S. withdrawal from the nuclear deal has meant adjustment to the amount ready for production by that date. After the U.S. withdrawal, and the uncertainty that this produced among many Western companies especially, the idea was to substitute more technology from Russia and China, where applicable. However, there has been see-sawing from Russia on its willingness to become involved at a time when it is also facing further sanctions against it from the U.S. China had fully committed to involvement in various phases until details of the scope of such involvement – and the discounts involved for Beijing – became known. Given these new constraints, though, Phases 22, 23, and 24 will not now be launched operating at full capacity but rather at around 50 to 55 percent, according to Iranian sources, with Phase 24’s share being split into the new Phase 27.

To date, around $33 billion has been spent on the South Pars phases that have already been put into operation, according to these sources. At least another US$90 billion is required both to bring the remaining phases online and to increase the capacity of all phases to their target output, he added. That was why China was offered such a good deal – and why China has just put its involvement on the backburner rather than ended it. The nominal discounts now being offered by Iran in private negotiations with potential customers is 9-14 percent less than the headline rates. These discounts are higher than were even offered under the presidency of Mahmoud Ahmadinejad (2005 to 2013), as Iran needs to make up for the much higher than expected projected budget deficit as a result of the new U.S. sanctions.

Crude Oil

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