Iran drops LNG project under energy policy review
Iran is abandoning a project to produce liquefied natural gas (LNG) as part of a policy review that will see Tehran focusing more on exporting gas through pipelines, a top oil official said.
“The oil ministry is currently focusing on gas exports by pipelines,” Ahmad Ghalebani, managing director of the National Iranian Oil Company, told the oil ministry’s news agency Shana on Friday.
The announcement comes as several top global energy majors have either quit or are considering an exit from Iran, which holds the world’s second-largest natural gas reserves but which world powers slapped with new UN sanctions in June over its controversial nuclear programme.
As part of the shift towards piped gas exports, Iran is abandoning Persian LNG, a project which was previously to be executed by Shell, the Anglo-Dutch energy major which had been awarded a gas block in the giant South Pars field.
Shell quit the project ahead of the fourth round of UN sanctions agreed to in June.
The Persian LNG project had faced several roadblocks even before the latest sanctions, along with another project, Pars LNG, led by French firm Total, which is also in the process of withdrawing from Iran.
A third LNG project, led by the National Gas Company using German technology, is more advanced with Iran having already invested over one billion dollars.
Ghalebani said the LNG policy review does not abandon LNG projects totally as they could become “economical” in the long term.
“Considering the long borders and good relations we have with our neighbours and the vast pipeline network in the country, there is an advantage to exporting gas (through pipelines) than (producing and exporting) LNG,” he said.
“(Piped) gas exports are cheaper and can be done faster, while exports of LNG not only require huge investments and complicated technology but are also time consuming.”
He said Iran will need to undertake further studies in the LNG sector.
“We must also study additional investment needs and return of capital in this area,” Ghalebani added. “That does not mean we will put aside the LNG projects… But we will review them.”
Despite its vast reserves, OPEC’s second largest oil exporter is struggling to supply its own gas needs.
Tehran nevertheless hopes to double gas production from South Pars over the next five years, at an estimated cost of 150 billion dollars, and to become a major gas exporter.
Shipping gas in the form of LNG would give Iran greater market flexibility and enable it to avoid depending on its neighbours as transit countries for gas exported by pipeline.
But to build the liquefaction plants requires massive investment and advanced technology that only some of the biggest international energy firms possess.
“Around one billion dollars of investment is needed to create one million tonnes of LNG production capacity (per year), and Iran’s objective is to produce 75 million tonnes by 2015,” according to one expert, who requested anonymity.
“In the context of Western sanctions, which prohibit all investment and the transfer of technology to the Iranian energy sector, this target is not realistic,” he added.
Following the latest round of UN sanctions, the United States and the European Union put further pressure on Iran by imposing unilateral sanctions specifically targeting the country’s vital energy sector.
The development of South Pars, which holds about eight percent of world gas reserves, is lagging due to a lack of technology and investment, even as Iranian officials say that local companies have replaced international firms.