Iran Eyes Post-Sanctions Gas Bonanza

As US-Iran talks in Vienna enter a sixth round aimed at reviving the 2015 nuclear deal and easing "brutal" sanctions, international players are again focusing on the Iranian oil industry. But in Iran, at least, hopes are also high for a gas renaissance. The country boasts the world’s second-largest gas reserves after Russia, putting it ahead of LNG giant Qatar, with which it shares the massive South Pars/North Field nonassociated gas reservoir. Numerous majors expressed interest in re-entering Iran after the original nuclear deal, with TotalEnergies and China National Petroleum Corp. (CNPC) taking the lead in 2017, signing up for the $4.8 billion South Pars Phase 11 development. Today, officials express real hope that firms frightened off by the Trump administration's decision to withdraw from the deal in May 2018 and impose sanctions will return. “We know it takes time after sanctions are lifted to get foreign companies to help develop our gas fields. So we should start negotiating with them as soon as possible,” a senior Iranian gas official says. “After the sanctions ... I’m sure they’ll be back." Despite the sanctions, Tehran has boosted gas production from around 650 million cubic meters per day (23 billion cubic feet per day) in 2018 to nearly 1 billion cubic meters per day, the official says. But it has had to go it alone, even as numerous international firms compete for Qatar's LNG mega-expansion (WGI May26'21). Last month, Iran's Petropars was awarded a contract to develop the Farzad B offshore gas field, three years after Indian companies broke off talks. Petropars also took over South Pars Phase 11 after Total withdrew in 2018 and CNPC a year later. Unlike Qatar, Iran has yet to build a single liquefaction facility, which limits its export options to piping gas to Turkey and Iraq. But US sanctions have curtailed even these volumes: Payment problems mean Iraq gets just 22 MMcm/d of the 70 MMcm/d it requires for power generation. “With LNG, we need the investment, we need the technology," the gas official says. Iran has been in talks on building LNG plants with numerous players since the early 2000s, including Royal Dutch Shell, BP and Total. It signed a preliminary deal with Gazprom in 2017 to "explore opportunities for joint efforts within the Iran LNG project," but US sanctions pressure halted the 10.8 million ton per year scheme the following year. Russian firms are eyeing a return. But from a technical and financial, if not necessarily political, perspective, Europeans are preferred. “Working with European companies is so much easier. ... They can reach the results in the shortest times,” the gas official says. Total, Eni and Equinor respectively developed South Pars Phases 2-3, 4-5 and 6-8. Some European buyers have visited Tehran to discuss the possible resumption of oil trade should US sanctions end. But the upstream is different, due to the long-term resource commitments required. The majors will be aware that US elections in 2024 could result in a fresh U-turn. Moreover, as their priorities shift to reflect the energy transition, multibillion-dollar gas investments are hard to envisage. “We do not expect the Western companies to commit to long-term upstream investments upon sanctions removal. But trades and short-term service contracts might resume," says Sara Vakhshouri, head of US-based consultancy SVB Energy. An executive at a private Iranian oil contractor says European players might return, but only “after a better nuclear agreement," and this is not guaranteed. The Iran Petroleum Contract (IPC) is another obstacle. The IPC, successor to the much-disliked buyback model, failed to excite when it was launched in 2016 and the Total-CNPC deal was the only one involving a major signed under its terms. Iranian elections on Jun. 18 are a further deterrent. Judiciary head Ebrahim Raisi is tipped to win the presidency and the incoming government will likely be dominated by hard-liners traditionally opposed to foreign investment. Iran still hopes to find a European outlet for its gas. One option would be to link to Turkey's Tanap pipeline, part of the giant Southern Gas Corridor network that pumps gas to Europe from Azerbaijan's Shah Deniz field. Gas could also be shipped to Turkey through the Trans Balkan pipeline. Meeting this month with Azeri Deputy Prime Minister Sahin Mustafayev, outgoing Iranian Oil Minister Bijan Zanganeh sounded positive about cooperation. But given the political and economic complexities, Iran's dreams of becoming a major gas exporter seem a long way off. Simon Martelli, London, Oliver Klaus, Dubai, and Jaime Concha, Copenhagen