Iran sanctions deal to raise competition in Qatar’s key LNG markets

The raw data does look concerning for Qatar, currently the world’s leading LNG supplier, with Iran having estimated proved natural gas reserves of 1193 trillion cubic feet (Tcf), second only to Russia’s, 17 percent of the global figure, and more than one-third of Organization of the Petroleum Exporting Countries’ (OPEC’s) total, compared to Qatar’s 872 Tcf, and an estimated 157 billion barrels (bbbl) of proved crude oil reserves (around 10 percent of the world’s total), compared to Qatar’s 25.2 bbbl.

“Basically, if you are an integrated oil company, Iran is the future now in the same way that Saudi Arabia was in the 1930s and 40s. Missing out on this will put you on the margins of the global hydrocarbons game for the next 20 or 30 years at least. It’s as simple as that,” Christopher Cook, director of global energy consultancy, Wimpole International, in Edinburgh, told The Edge.

Jeremy Stretch, chief strategist for CIBC in London, comfirmed to The Edge that Iran is likely to have an LNG and oil refining pricing strategy that reflects its desire to re-establish its position as a global hydrocarbons superpower as soon as possible. “The heads of Iran’s oil and gas industries have already made it very clear that they want to push up oil and gas production dramatically, and that they regard exploiting the global LNG market as a key priority,” he said.

Indeed, the current targets are to increase crude oil production to at least three million barrels per day (mbpd) by the end of this Iranian calendar year (and then to 5.7 mbpd by 2018), natural gas production up to one billion cubic metres per day (bcm/d) by 2018, and annual petrochemical production to 180 million tons by the end of 2022.

Purely in LNG terms, Iran’s plans to build capacity for exporting 40 million metric tons a year (compared to Qatar’s 77 million tonnes of annual output capacity) remain on track, according to a recent statement from Alireza Kameili, managing director of the state-run National Iranian Gas Company (NIGC), in Tehran. He added that talks are also ongoing with over 170 foreign companies interested in buying Iranian gas, the preferred delivery option for which is in LNG form.

Iran is looking at building floating LNG (FLNG) plants above an offshore natural gas field, where liquefaction, storage and transfer is carried out at sea by specially converted ships.

As a part of this, he said, and due to their high economic viability, Iran is not only looking at LNG being transferred through pipelines or on ships but also at building floating LNG (FLNG) plants – involving floating production of LNG above an offshore natural gas field, with liquefaction, storage and transfer all carried out at sea by specially converted ships – to expand the country’s options. “With preliminary negotiations held, the operational and executive work will immediately begin after the lifting of the sanctions,” Kameili said.

Prior to the ramping up of pressure from the US and Europe in 2010, Iran had contracts with the Anglo-Dutch Royal Dutch Shell, Spain’s Repsol and France’s Total to build three LNG plants in the country, and Kameili has made it clear that resuscitating these projects, among many others, can realistically be achieved relatively swiftly. According to NIGC figures, achieving a target of 10 percent of the global gas market share will require further investment of around USD60 billion, which, according to a range of analysts spoken to by The Edge, Iran will have no problem in raising without delay.

“The Russians and the Chinese already have extensive interests in Iran, and have made it clear that they wish to invest as much as they are allowed to going forward, and the Europeans have been lining up in the Oil Ministry in Tehran for many months now looking to funnel investment, and get a foot back in Iran, at the earliest opportunity,” says Wimpole’s Cook. In this vein, only last month, Iranian Oil Minister, Bijan Zanganeh, visited Germany to discuss LNG options with Linde, the Aachen-based engineering giant, underscoring that, even if the US Congress votes to keep US-specific sanctions in place, then the EU will move ahead anyway in dealing with Iran, on the legal basis of the July 14 Vienna agreement.

Moreover, the deal with Linde alone – which again was put on hold in 2010 – was for the German firm to supply all necessary equipment towards the construction of a 10.5 million metric tons per year LNG production plant, on top of the 40 million metric tonnes per year LNG production target already announced by NIGC.