Foreign Correspondence

[CoalTrain]

Untapped gas reserves hold key to Iran's industrial development


http://www.iranexpert.com/oil&gas.htm

Iran is forging ahead with three to four liquefied natural gas projects and the privatisation of its state shipping companies. When an Iranian delegation visited London, Martyn Wingrove was there to report on progress and the future investment opportunities

IRAN'S huge natural gas resources, the second largest in the world, surely hold the key to several phases of industrial development in the Middle East state that provides opportunities for contractors and oil companies alike.

The country's state gas and oil firms are pushing ahead with developing the giant offshore South Pars gas field, and with plans to build a minimum of three and probably four liquefied natural gas plants on the coast.

There are also firm plans to build gas export pipelines across to Turkey, to meet demand in the southern European markets, and possibly east through Pakistan to India. According to BP's statistical review of world energy, Iran holds 15% of the world's natural gas resources, more than 940trn cu ft (27trn cu m) of reserves, second only to Russia.

It has an annual output of only 80bn cu m, a similar production level to Norway, with most of this going into the domestic market. This leaves a huge volume of untapped gas reserves just waiting to be piped to nearby markets or fed into LNG ships, and progress is being made on both.

With offshore development of South Pars, plus the planned onshore LNG plants and pipelines, investment of around $150bn over the next ten years will be needed in Iran's natural gas industry, a huge level by anyone's standards. Foreign oil companies, in conjunction with Iranian firms, are investing heavily in developing the gas resources of South Pars, an extension to the huge North field off Qatar. Part of this investment is focused on platforms, pipelines and the onshore processing plants.

Up to 30 phases of development projects will be needed to bring the offshore gas back to Iran and only a few are running now, with gas exported to local markets and some friendly neighbours. Iran's state oil and gas companies are moving ahead with three LNG projects to export gas to Europe and the Far East, with the first expected to start pumping in late 2008 and the other two in 2010. Another is still on the planning table.

National Iranian Oil Co's own project in conjunction with state gas and utilities group Nigec, Iran LNG, appears to be the closest to moving forward into the construction phase and is on schedule for a late 2008 or early 2009 start-up. 'NIOC's first LNG project is active,' said Roknaldin Javadi, managing director of Nigec at a conference at the UK's Department of Trade and Industry. 'The project should be completed by late 2008 with production of 10.6m tonnes per annum from two trains. Front-end engineering and design is completed and project tendering is underway.'

Contract awards for engineering, procurement and construction of the LNG plant and associated facilities, including storage tanks and jetties, is expected in mid-2005, with up to five contractors expected to bid. The project is the most advanced in Iran, with finance provided by HSBC bank. and development of South Pars phase 12, which will feed gas to the LNG plant underway.

The second gas to ship project, known as Pars LNG, involves French oil major Total, Malaysian state oil firm Petronas and NIOC. The programme for this business seems to be making progress and could mean the plant is producing around 10m tpa in 2010 from a South Pars phase 11 gas feed. 'One train has been marketed and gas sale agreements have been signed and we expect to finalise the deals for train two by the end of the year,' said Mr Javadi. Project finance is yet to be negotiated for the project but this should also be completed soon. NIOC has a 50% interest, Total a 30% and Petronas the other 20% under a buyback contract.

The Persian LNG project, run by NIOC, Royal Dutch'Shell (25%) and Spain's Repsol (25%), is a little less advanced, but is still making progress and may also come on-line in 2010. 'Around 40% of the LNG has been marketed so far and the service contracts with Shell and Repsol signed for South Pars 13,' said Mr Javadi.

Total capacity of the two trains on Persian LNG could be around 14m tpa and the gas feed is likely to be 70m cu m of gas per day. The gas feed for Pars LNG is predicted to be 50m cu m a day.

On top of these three committed projects, there is a probability that a fourth LNG plant will follow, linked to South Pars development contracts. Some believe Indian energy companies could be invited to join NIOC on this fourth LNG plant and at least one phase of South Pars development in return for taking some of the LNG product.

The opportunities for contractors on the three to four projects is in the building of the processing plants and related offshore infrastructure. The development of South Pars has so far involved offshore platforms and installation of pipelines for each phase, so there are more opportunities there.

On the marine side, ship owners and shipyards are expecting a heap of orders in association with these projects for LNG carriers and support vessels. 'Iran LNG production will feed target markets in the Far East, China, India and Europe with almost 32m tons from 2010,' said Ali Ashraf Afkhami, chairman and managing director of IRI Shipping Lines at the conference, organised by T'F Informa for the Department of Trade and Industry. 'The four phases of South Pars gas field projects will require at least 34 LNG vessels.' So far much of Iran's LNG sold to the markets is on a free on board basis, which means the NIOC's customers will need to build or lease the carriers.

There are still several business opportunities for oil companies in South Pars. Tendering for some of the remaining 30 development phases is ongoing with contract awards expected soon on the next phase. NIOC is tendering for phases 15-16 and will award contracts in the next two weeks, said Mr Javadi.

Tender documents for phases 17-18 have been sent out and bids are due back soon. They will be awarded in the first quarter of 2005. There are two more phases officially ratified by the government and the NIOC is working to get another ten approved by the government as soon as practically possible.