September 23, 2022

Iran plans critical gas hub for global gas supremacy

As a central element of the Russian-Iranian strategy To corner as much of the global gas market as possible in as short a time as possible, Iranian Oil Minister Javad Owji last week identified Kish Island in Hormuzgan province as a key gas hub. in these plans. Kish Island is located off the southwest coast of Iran with an easy transit route through the northern tip of Oman – which adjoins Ras Al-Khaimah of the United Arab Emirates to the east – in the Gulf of Oman. From there, the Arabian Sea extends to the Indian Ocean, which offers unlimited access east or west. Kish Island is to be used both as a gas refining hub for the production of sanctions-proof high-value petrochemicals production and manufacturing of liquefied natural gas (LNG). The first of these two elements of the project will offer excellent returns on the Russian money invested in Kish – the project will cost $25 billion, according to Owji (much of it coming from the recent US$40 billion Gazprom-National Iranian Oil Company, ‘NIOC‘)) – and will allow Russia and Iran to dominate the global LNG futures market. As the Gazprom-NIOC Memorandum of Understanding recently highlighted, LNG has been identified by Russia and Iran as the “pivotal” commodity in the gas supply and demand matrix for years to come. Beyond the continued efforts of both countries to firmly anchor Qatar in their “OPEC Gas” alliance project, Moscow and Tehran are now working to unlock the full potential of Iran’s LNG capabilities. These capacities are enormous, given that Iran holds the second largest gas reserves in the world (33.8 trillion cubic meters, ‘tcm’), second only to Russia (48 tcm). If the reserves estimated at 8.1 tcm from the Chalous “Grand” and “Petit” fields – exclusively featured here – were included, then Iran would have a total gas reserve figure of 41.9 tcm. According to a recent comment from NIOC officials, Kish Island will act as a focal point not only for in situ gas (about 1.6 tcm of reserves) but will also draw gas supplies from the North Pars gas field ( 1.67 tcm of reserves) and the South Pars gas field (14 tcm of reserves), as well as other gas fields, as the Kish Island hub expands. Gazprom will provide direct assistance in seven key areas of Iran’s gas production expansion, including: investment in the development of gas fields, investment to complete the half-completed “Iran LNG” project , development of new floating LNG (FLNG) terminals, development of small scale LNG projects, gas swaps, construction of high pressure export lines and gas technology transfers.

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It should be noted that Gazprom was instrumental in building Iran’s original LNG program, and much of this latest US$40 billion Gazprom-NIOC MoU is a continuation of this work, as analyzed in depth in my latest book on world oil markets. The most notable project in which Gazprom played a key role at the start was the “Iran LNG” project, an LNG complex launched by the German engineering giant Linde, but abandoned by it after the intensification of sanctions in 2012, and again when they were reintroduced in 2018. Originally estimated at US$3.3 billion, this flagship LNG export facility near the port of Tombak – was expected to produce at least 10.5 million tonnes per year (mtpa) of LNG – had been 60% complete at the time of Linde’s last project. withdrawal from the project, with expectations that it would take less than a year to complete.

At that time, NIOC Director General Ali Kardor and Gazprom Director General Alexei Miller agreed in principle that Gazprom would replace Linde on the Iran LNG project, with the initial goal being the completion of the LNG export facility near Tombak Port, as a natural complement to the range of gas exploration and development MoUs that had been agreed a year earlier. At the time of the announcement of this involvement of Gazprom in the “Iran LNG” project, the Iranian Minister of Petroleum at the time, Bijan Zanganeh, declared: “The reimbursement of financing for the development of these projects will be done by the sale of the gas produced and due to the fact that Gazprom is an experienced company, it will consider exporting gas either by launching pipelines or building plants to produce liquefied natural gas… the signing of this memorandum of agreement is a major milestone for Gazprom’s presence and partnership in gas development projects in Iran”.

However, as China began to tighten its influence over Iran – notably following the historic 25-year agreement reached in August 2019 and exclusively snapped by me in September 2019 – Russia was persuaded to put the LNG project on the slow development path for a while. At this point, Iran has resurrected several other dormant LNG project ideas to allow it to move forward with its LNG ambitions. These were again mentioned alongside the recent Gazprom-NIOC Memorandum of Understanding, the first being the construction of six small LNG units, with a total production capacity of 500,000 tons per year (compared to a capacity of ‘typical large-scale plant between 2.5 and 7.5 million tons per year). These units are closely based on the designs and technology of the series of “mini-LNG” complexes that were to be funded and developed by various South Korean companies before US sanctions struck again in 2018.

Iran had also advanced in its plans to build FLNGs, particularly in and around mainland Europe, with agreements in principle having been reached with Italy’s Eni and Spain’s Cepsa to take on both oil and LNG when would become available in Iran. Similar plans were being discussed between Iran and Greek state gas supplier Depa to form a new company that would build and operate an FLNG storage and regasification facility in Alexandroupolis, northern Greece. An extension of the Revythousa regasification terminal near Athens was also being considered as a potential entry point for Iranian gas. Both facilities would have been connected to two international gas pipeline networks: the Trans-Adriatic Gas Pipeline and the Greece-Bulgaria Gas Interconnector links. These LNG routes to Europe were to complement several agreements that Iran had negotiated at various times with several international oil companies (IOCs) on LNG-related projects, including Total, Petronas, Repsol and Royal Dutch Shell. Several IOCs had reached agreements in principle with Iran much earlier under its fourth “five-year national development plan” (2005-2009) which aimed to produce 70 mtpy of LNG from North Pars, South Pars, Ferdowsi, Kish and Golshan. gas fields.

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An agreement has also been reached, and currently again under discussion, that Iran will use around 25% of Oman’s total LNG production capacity, or 1.5 million tonnes per year, at the Qalhat plant. This would be done with a 56-inch onshore pipeline (to be built in Iran) stretching 200 kilometers (km) from Rudan to Mount Mobarak in the southern province of Hormozgan, then a 36-inch sea pipeline running 192 km along bed. from the Arabian Sea at depths of up to 1,340 meters, from Iran to the port of Sohar in Oman. On the side of Oman, China already seeking to lock it into its sphere of influence thanks to its standard set of “Hotel California” style offers (“You can check whenever you want, but you can never leave”) which characterizes its One Belt, One Road initiative, there has been enough money to complete the preliminary work. This includes work related to seabed surveys, the design of the pipeline and its accessories and the compressor stations have been completed. As it stands, the total estimated cost of the Omani section of the undersea pipeline and the Iranian section will be around $1.2 billion. All of these options are under consideration in the sweeping Gazprom-NIOC MoU, with the added bonus that Russia – as a major LNG exporter itself – can also supply Iran, as stipulated. in the memorandum of understanding, technology transfer as needed.

Russia’s return on invested funds will not only take the form of the increased geopolitical influence resulting from the effective control of even more gas supplies across the world, but also in monetary terms from two main sources. . One is that it can take delivery of Iranian gas in payment and the other is that it can receive payment from the sanctions-proof high-value petrochemicals production in Kish Island, to begin with. Iran’s share in the Middle East petrochemical trade is already well over 20%, and the next stage in the development of this sector will cover 47 projects, which is expected to raise the revenue of the Iranian petrochemical industry to 50 billion by 2027. In fact, not only the petrochemical sector generates revenues for Iran of about 15 to 16 times more per ton of product than crude oil but for investors, based on current contractual conditions , petrochemicals produce rates of return of 30 to 35% compared to 12 to 15% in the upstream segment.

By Simon Watkins for Oilprice.com

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