The Next Natural Gas Superpower
Following
the temporary withdrawal of China from Phase 11 of Iran’s supergiant South Pars
gas field due to the political backlash that the deal – and related deals –
engendered, the Petroleum Ministry has been looking to domestic companies to
keep production going in the meantime. Given the technical and financial
constraints on local firms to undertake such major projects as each of the
original 24 phases of South Pars, Petroleum Minister Bijan Zanganeh has split
off elements of three of those phases – 11, 15, and 21 – to create three
additional phases – 25, 26, and 27, respectively. With much of the work on
these ‘new’ phases having already been done when they were part of the original
phases, last week’s comment from Zanganeh that all of the offshore sections of
all (now 27) South Pars phases would be fully developed in the first half of
2020 is entirely realistic.
In
broad terms, even with U.S. sanctions still in place, 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) as soon as possible, from
around 875 million cubic metres per day (mcm/d) currently. This 3,700 square
kilometer portion of the 9,700 square kilometer gas basin that Iran shares with
Qatar (the North Dome field) holds an estimated 14.2 trillion cubic meters
(tcm) of gas reserves (8% of the world’s total) plus 18 billion barrels of gas
condensates. It is also key to Iran’s ambition of becoming a top-tier global
player in the liquefied natural gas (LNG) market. Indeed, South Pars already
accounts for around 60 percent of Iran’s overall gas production.
Much
of the work on most of the original phases is close to completion, with just a
handful not having a 90 percent plus completion rating. Of these relatively
under-developed phases, Zanganeh stated that Phase 14 would come online by the
end of the current Iranian calendar year on 20 March 2020. This follows the
recent announcement from the Pars Oil and Gas Company that the third platform
of the offshore field was loaded for installation in its designated spot. Once
operational, the platform is designed to produce 14.1 mcm/d of natural gas. Its
adjunct phase – 13 (SP13) - targeted to produce 57 mcm/d of gas on its own, saw
two platforms (B and D) become ready for operation just prior to this development
on 14.
This
will open the way for production of around 28 mcm/d of natural gas at full
launch, plus 75,000 barrels per day (bpd) of condensate and other associated
products. In the offshore sector of SP13 located in the north-western part of
the gas field, 38 offshore wells have been drilled, with delivery of gas 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 sulfur 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.
Phase 11’s target output – of 57 mcm/d of natural gas and 70,000 bpd of
condensate, plus other associated products – will now be split with Phase 25,
both of which will be developed as best as they can by domestic firms until
China returns.
Prior
to this latest announcement on the readiness of these new phases, it had stated
that Phases 17, 18, 19, 20 and 21 would also be fully online by the 20 March
end-year point. This had been on course until the U.S. withdrawal from the
Joint Comprehensive Plan of Action (JCPOA) last May. As it stands, though,
Phase 21 was due – along with Phase 20 – to produce a joint 51 mcm/d, and is
currently producing around 30 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 addition of
platform 19B, Phase 19 is now producing around 45 mcm/d of natural gas,
OilPrice.com understands from Iranian sources, with the overall production
target remaining 57 mcm/d, plus 80,000 bpd of gas condensate, 400 tons per day
of sulfur, 1.5 million tons of liquefied petroleum gas (LPG) and a million tons
of ethane per annum.
The
pace of development of Phases 17, 18 and 20, though has slowed, although they
are still over 95% ready. The combined production of Phases 17 and 18 is around
39-41 mcm/d, with the output being fed into the IGAT 7 from offshore
facilities, again being used in the domestic power sector. Around US$6.75
billion has been spent so far on their development, and the addition of
Platform 18B bolstered the combined daily output at their refinery by 500 tons
of ethane and 20,000 barrels of gas condensate. Once completed, the production
target for Phases 17 and 18 will be 51 mcm/d of natural gas, 80,000 bpd of gas
condensate, 400 tons per day of sulfur, 1.5 million tons of liquefied petroleum
gas, and a million tons of ethane per year.
Originally,
Phases 22 to 24 had been earmarked to produce a combined 51 mcm/d by the end of
this Iranian calendar year but the lack of hard foreign currency after the U.S.
withdrawal from the nuclear deal has meant adjustment to the amount ready for
production by that date. After the U.S. withdrawal, and the uncertainty that
this produced among many Western companies especially, the idea was to
substitute more technology from Russia and China, where applicable. However,
there has been see-sawing from Russia on its willingness to become involved at
a time when it is also facing further sanctions against it from the U.S. China
had fully committed to involvement in various phases until details of the scope
of such involvement – and the discounts involved for Beijing – became known.
Given these new constraints, though, Phases 22, 23, and 24 will not now be
launched operating at full capacity but rather at around 50 to 55 percent,
according to Iranian sources, with Phase 24’s share being split into the new
Phase 27.
To date, around $33 billion has been spent on the South Pars phases that have already been put into operation, according to these sources. At least another US$90 billion is required both to bring the remaining phases online and to increase the capacity of all phases to their target output, he added. That was why China was offered such a good deal - and why China has just put its involvement on the backburner rather than ended it. The nominal discounts now being offered by Iran in private negotiations with potential customers is 9-14 percent less than the headline rates. These discounts are higher than were even offered under the presidency of Mahmoud Ahmadinejad (2005 to 2013), as Iran needs to make up for the much higher than expected projected budget deficit as a result of the new U.S. sanctions.