Iran targeting European market with LNG, not piped gas
Iran is looking to supply Europe with gas once sanctions are formally rolled back, but Tehran would prefer to export the gas as LNG than through pipelines, the country’s Deputy Oil Minister Roknodin Javadi has told Interfax in an interview.
The official, who is also managing director of state exporter the National Iranian Oil Co., said in Berlin last week that once the long-mooted Iran LNG project is completed, it will be the preferred point of export, unless companies are willing to shoulder the costs of building a pipeline.
“Our understanding today is that LNG is more promising for the European market and is much more economical than pipelines,” Javadi told Interfax. “But if there are parties who would like to work on this [pipeline] issue, and if they don’t expect the difference in price to be reimbursed by Iran, we would welcome ideas.”
Since 2006, when sanctions were originally imposed on Tehran through a UN resolution, external investment in Iran’s energy sector has all but disappeared. But the deal reached in Vienna in July between the so-called P5+1 countries and Iran paves the way for new investment, which Javadi was in Berlin to try to secure.
Sources at a Berlin event to present early plans to investors said European companies had raised the subject of piped gas imports from Iran in the days leading up to the event. This was despite the earlier failures of projects such as the Nabucco pipeline, which also planned to transport Iranian gas to Europe.
“We believe that a pipeline to Europe is not compatible because of the routes and difficulties with costs. Still, some Europeans believe the pipeline could work and if they are prepared to invest it could,” one official close to the delegation said during the summit.
Meanwhile, Javadi said Europe was a target market, but only one of a number of possible buyers of Iranian exports.
“There are other opportunities in neighbouring countries as well as [countries to the east of Iran] which are big consumers – India and China for example,” Javadi said. However, he would not be drawn on a target price for exports, other than to indicate that Iran will settle for market rates for its gas, and not a netback price to make construction of a pipeline viable.
“The target is that you can sell your commodity in the market and you can get the benefit of your investment considering the inherent value of the product. Today it is $6-7/MMBtu, which is economical, but nobody would object if the market accepts $8-10/MMBtu or $15/MMBtu,” Javadi said.
While Iran may prefer to export gas as LNG, it will only be able to do so if certain infrastructure constraints are resolved, which may take years. Iran LNG is far from complete, with contractors still needed to finish the project.
Even with the sanctions lifted, the larger phases of South Pars developed, and the terminal constructed, exports will take time. “If they made the decision today you probably wouldn’t see LNG exports from Iran until maybe early 2020,” Ali Ghezelbash, co-founder of the European Iran Research Group, told Interfax recently.
Production rates will also determine the level of export potential, with the delegation in Berlin calling for investment in new fields and facilities that would allow Iran to boost production from its 34 trillion cubic metres of estimated reserves to compensate for high consumption rates.
“Between now and 2025 production is going to very closely match domestic consumption. Unless there are massive new developments over the next decade, you’re not going to see a huge gap. So for there to be large exports you need massive investments,” Ghezelbash said.
Next meeting
The next big meeting point for investors hoping to firm-up production contracts will be during a forum in Tehran on 14-15 November. Iranian officials will present a list of projects and contract structures at the meeting, which they hope to award contracts for next year. A meeting that will take place in London in February will firm up contract structures.
Presentations in Berlin included 18 gas fields to be offered as concessions, of which 14 are onshore and four offshore. The blocks will be a mix of greenfield and brownfield projects. Priority will be given to fields that cross Iran’s national borders.
“Timing depends on how eager the prospective investors are and how we approach the situation. We expect to have contracts signed in 2016 under normal circumstances,” Javadi said.
