NOURNEWS - 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) of natural gas as soon as possible and it is as important a target to Iran as reaching 5.7 million barrels per day (bpd) of crude oil output. Unlike the oil production target, however - which has been particularly hard-hit by the re-imposed U.S. sanctions – the natural gas production target is well within reach. The Islamic Republic is now conservatively estimated to be producing around 875 million cubic metres per day (mcm/d), according to senior oil and gas industry source exclusively spoken to by OilPrice.com last week. “The target [1 bcm/d] will be hit by the end of the year [current Iranian calendar year ending 20 March 2021], allowing Iran to consolidate its gas exports to Asia in general and to China in particular, in the first part by increasing LPG [liquefied petroleum gas] supplies and then by asserting itself in the global LNG [liquefied natural gas] market,” he said.
The key to these gas targets lies in the supergiant non-associated South Pars natural gas field, the 3,700 square kilometre portion of the 9,700 square kilometre gas basin that Iran shares with Qatar (the North Dome field). Iran’s share holds an estimated 14.2 trillion cubic metres (tcm) of gas reserves (8% of the world’s total) plus 18 billion barrels of gas condensates. Already it accounts for around 60 per cent of Iran’s overall gas production and is currently producing about 700 million cubic metres per day (mcm/d) of natural gas. With the completion rate of a number of the now-27 phases due to be increased in the coming months and a dramatic improvement in the development of Phases 11 and 14 in particular due over the same timeframe, another 150-180 mcm/d of natural gas output will be added to the South Pars flows. This will swell the overall gas output from Iran over the magic one billion bcm/d figure, according to the Iran source last week.
Following the highly adverse reaction to the news that China was set to be handed extremely generous terms for taking over the share in Phase 11 that was vacated by French major Total as a result of the re-imposed U.S. sanctions, both Iran and China believed that their arrangement could be resuscitated after a suitable period of time away from public consciousness had passed. Given the ongoing trade war with the U.S., however, and the fact that this may be broadened out to include some sort of COVID-19 reckoning for China by the U.S., China is currently reluctant to provoke the U.S. further by flouting its sanctions on Iran and re-entering the fray with a high-profile major field development project. Although China has communicated to Iran that it is still there for any financing, technology, and expertise that it may require from China, Iran has been moving ahead on its own in Phase 11 in the past few weeks.
Last week, Iran’s Petroleum Minister, Bijan Zanganeh, attended the official ceremony for the installation of the jacket of Phase 11’s Platform B, taking the opportunity to underline that even without France’s Total and China’s CNPC working on the ground, Phase 11 is still being developed to reach capacity of 56 mcm/d, plus 75,000 barrels per day (bpd) of gas condensate and other tangential products, albeit by Iran’s Petropars alone. Zanganeh added that after the start-up of the Platform B jacket, drilling operations for five new offshore wells in the Phase would begin. According to the source spoke to by OilPrice.com last week, this – and other advances – will bring Phase 11’s overall completion rate up to at least 30 per cent. Overall, Phase 11 is now to be developed in two integrated and consecutive stages, with each stage containing 15 wells and, according to Zanganeh, two 32-inch pipelines jointly stretching over 270 kilometres will be constructed and installed to ensure the onward distribution of the gas to the refineries in Assaluyeh and Kangan in the Bushehr Province.
At the same time, most of the work on most of the original 24 phases is close to completion, said the Iran source, with just a handful not having a 95 per cent plus completion rating. Aside from the Phase 11 developments outlined, another relatively under-developed site – Phase 14 – has now begun gas recovery at a full rate. According to the Pars Oil and Gas Company’s director of the Phase, Mohammad Tavasolipour, the third offshore topside of the project was installed in the middle of 2019 and became fully operational at the end of last year. He added that Platform B of Phase 14 was developed for production of 14.2 mcm/d of natural gas from the Phase, and that in addition to this it would produce daily 20,000 barrels of gas condensate and 100 tons of sulphur, plus yearly 250,000 tons of LPG, and 250,000 tons of ethane.
Its adjunct phase – SP13 – is targeted to produce 57 mcm/d of gas on its own, and saw two platforms (B and D) become ready for operation just prior to this development on 14. This follows the drilling of 38 offshore wells, and gas delivery 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 sulphur 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.
In the meantime, Phases 17, 18, 19, 20 and 21 are fully functioning, although Phase 21 – which was due along with Phase 20 to produce a joint 51 mcm/d - is currently producing around 35 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 plans for the full rolling-out of the Goreh-Jask pipeline route now in place and being advanced apace, the onus for Iran now falls on building out its LPG export plans (its plans for international gas pipelines are moving forward at a much slower pace, for sanctions-related reasons, whilst its LNG plans come second due to the slump in global LNG prices). In the matter of LPG, it should not be forgotten that just after the implementation of the Joint Comprehensive Plan of Action (JCPOA) on 16 January 2016, the National Iranian Oil Company (NIOC) – through it Deputy Director of International Affairs for Marketing and Crude Oil Operation, Safar-Ali Karamati – clearly stated that Iran planned to double its LPG production in the post-sanctions era.
Already one of the biggest and most reliable suppliers of LPG in the world at that time, Iran had lost almost none of its LPG market share under the previous U.S.-led sanctions on its nuclear program, and was then producing around eight million tons of LPG annually. Karamati added at that time that when all of the Phases of South Pars came fully online Iran would see at least a doubling of this LPG output figure, allowing it to capture at least a 40 per cent of the Middle East LPG exports market. Feeding directly into this target is the fact that, according to a comment earlier this year from Hassan Torbati, the head of the National Iranian Gas Company (NIGC), linking more Iranian homes and industries to the natural gas network has led to a dramatic increase in the country’s LPG exports. He underlined that Iran’s investments of about US$4 billion in expanding its natural gas network to remote areas have been an integral step to save around US$9 billion primarily through the creation of LPG export capacity. Specifically he noted that replacing one litre of LPG with one cubic metre of natural gas leads to a US$0.3 increase in export income for Iran.
The key target market for Iran’s LPG exports remains China. Despite sanctions and the threat of an upping of the severity in the trade war with the U.S., China was – very conservatively – importing half a million tons of LPG from Iran each month in the first quarter of this year, before the COVID-19 outbreak, generating at least US$200 million per month of revenues for Iran from this product alone. Indeed, if the past is any guide, the worse the trade war becomes, the better for Iran’s LPG exports (and others, incidentally) to China. Before China placed tariffs on U.S. LPG, it sourced around 20 per cent of its total imports from the U.S. After the tariffs were imposed, Chinese buyers turned to Iran principally to make up the difference, so that by last year China accounted for at least 80 per cent of all Iran’s LPG exports. Exactly the same methodology for avoiding sanctions remains intact – switching off shipping transponders, using false loading ports in Qatar, the U.A.E, Malaysia, and others – so there is no reason not to expect the same boost to Iran LPG this time around as well.
Oil Price