Iran woos Japan with huge natural gas endeavor but commitments elude

Iran woos Japan with huge natural gas endeavor but commitments elude

After about a half-hour drive on an almost straight road by car from an airport in Assaluyeh on the Persian Gulf coast in southern Iran, high stacks emitting orange flames of burning natural gas begin to come into view against a backdrop of mountains.

The flames tower over huge gas refinery facilities constituting a maze of pipes, valves and storage tanks in the Pars Special Economic Energy Zone, where gigantic petrochemical complexes also sit.

“The height of the tower reaches 140 meters,” Morad Dehdari, a PSEEZ tour leader, told reporters who visited the zone in Assaluyeh, about 900 km south of Tehran, where the mercury topped 40 degrees under a scorching sun.

PSEEZ is an ambitious project for Iran aimed at using resources fed from the South Pars natural gas field in the Persian Gulf, the world’s largest gas field, some 100 km away from the zone, through undersea pipelines. The project is still underway and consists of many phases.

Iran started developing the 46,000-hectare industrial zone before its nuclear program became a bone of international contention in 2002. “This place was once a desert where there was nothing,” Dehdari said.

The country takes pride in the project and is pressing ahead despite economic sanctions imposed by the international community over its nuclear program.

Amir Hossein Zamaninia, deputy petroleum minister for trade and international affairs, said Iran has invested more than $80 billion over the past eight to 10 years to develop the zone.

“Despite the economic sanctions and despite the fact that all foreign partners, foreign engineers, foreign companies, left, we have been able to develop Assaluyeh at a good pace with all-Iranian human resources as well as home-grown technology,” he said in an interview in Tehran, describing the development as “one of the silver linings of the international economic sanctions.”

The South Pars field in Iranian territorial waters is adjacent to the North Dome field, which is in Qatari territorial waters. They cover an area of 9,700 sq. km — 3,700 sq. km for South Pars and 6,000 sq. km for North Dome. The South Pars/North Dome field is the world’s biggest gas field, with some 51 trillion cu. meters of reserves.

“Given that Iran’s oil and natural gas reserves are one of the world’s biggest, there is a possibility that Iran will play a part if Japan seeks to diversify its supply sources,” a Japanese gas and oil industry source said.

Iran, however, has not been able to fully hawk its rich natural gas resources on the international market, with most of it consumed by the domestic market.

With international sanctions lifted this year following the nuclear deal Iran reached in July with six major powers  Britain, China, France, Germany, Russia and the United States  Iran hopes to increase natural gas production and export part of it.

According to the deputy petroleum minister, Iran is now producing more than 750 million cu. meters of gas per day, but wastes the equivalent of about 200 million cu. daily because of old infrastructure and the lack of updated technology.

Iran plans to increase output to about 1 billion cu. meters per day within three years while implementing energy efficiency projects worth $20 billion over five years to curb domestic energy consumption.

With the planned increase, Iran hopes to export gas to neighbors including Iraq, Turkey and Saudi Arabia. “Within two to three years, we will be a major supplier of gas to our neighbors,” Zamaninia said.

He also said Iran hopes to eventually export natural gas to East Asia, including Japan. “Gas prices are more attractive in East Asia than in Europe,” he said.

Yoichi Yamamoto, adviser in charge of the Middle East at the Japan External Trade Organization in Tokyo, said petrochemical products, rather than natural gas itself, might be more attractive for Japanese companies for now.

“To transport gas across the sea, it is necessary to convert gas into liquefied natural gas and use special tankers, resulting in relatively large investment. Considering the future stability of Iran, there remain uncertain factors regarding how far Japanese companies can invest,” said Yamamoto at the Middle East and Africa Division of the JETRO’s Overseas Research Development.

“If Japanese companies are to form joint ventures or invest funds in the PSEEZ, petrochemical products produced there would be attractive,” he said. “They cannot sell all the products in Japan. If they could draw up a business model in which they will sell the products also to third-party countries, I think it would be possible for them to invest.”

Iran plans to present various projects in its energy sector in a comprehensive manner in the near future, along with new model contracts for them to attract investment from foreign companies.

Zamaninia was confident the proposed projects and contracts will draw positive responses abroad. “I’m very optimistic that things will pick up within a few short months,” he said.

The Japanese gas and oil industry source, however, cited relations between Iran and its neighbors, including Saudi Arabia, lingering sanctions from the United States and the slow reform of Iran’s financial sector as major uncertainties impeding investment in Iran, on top of the Iranian presidential election next year.

“Probably Japanese companies cannot decide anything for now because there are too many uncertain factors,” the source said.

Japanese companies also have bitter memories of doing business with the Iranian oil and petrochemical industries in the past.

Due to the prolonged Iran-Iraq war, a multibillion yen petrochemical project led by Iran-Japan Petrochemical Co. came to an end in 1991 without even getting off the ground. More recently, Japanese oil company Inpex Corp., which had a 75 percent stake in a development project in Azadegan in southwestern Iran, one of the world’s largest oil fields, was forced to withdraw in 2010 as the U.S. toughened sanctions against Iran over its nuclear program.

Zamaninia said he can understand the degree of cautiousness Japanese companies are now showing.

At the same time, however, he said Japanese companies are very interested in being re-engaged in the Iranian energy sector, and expressed hopes for active roles by Japanese companies, especially in the gas sector, saying he thinks Japan’s current policy seems to be focusing less on crude oil.

It is “quite possible” for Iran and Japan to form a long-term partnership for the supply of Iranian LNG to Japan,” Zamaninia said. “Japan has a great potential of becoming a major partner for Iran in developing its gas industry.”

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