January 14, 2010

Qatar is 11 Years Ahead of Iran in South Pars Development

http://www.persia-house.com/node/1062


Mehr News - Summary translation by Persia House
January 6, 2010

The Managing Director of the Pars Special Energy Economic Zone, noting that Qatar is 11 years ahead of Iran in the development of [its portion] of the South Pars gas field, said “Right now, with the participation of American companies, [Qatar] is increasing the development of its projects in South Pars.” Speaking at the First National Conference on Sustainable South Pars Development, Mousa Souri said that the South Pars gas field has 14.2 trillion cubic meters of natural gas and 18 billion barrels of liquid gas—47 percent of Iran’s, and 7 percent of the world’s, natural gas reserves.

Souri noted that, with the participation of American companies, Qatar is rapidly implementing new gas projects in the gas field, which it shares [with Iran]. He added, “Qatar has taken over the world’s LNG [liquid natural gas] market, so much so that currently the economic per capita of Qatari citizens has increased to $28,000.” [It is unclear what is meant by “economic per capita.” As Qatar’s per capita income and GDP per capita are considerably higher than $28,000, the statement most likely refers to Souri’s estimate of the per capita share of the country’s LNG revenue.]

According to the [Managing Director], “Becoming the number one producer of petrochemical products, increasing Iran’s share of the global [natural] gas trade to 10 percent, and becoming the third largest producer of [natural] gas” are among the major goals envisioned for [Iran’s] oil and gas industry. Souri added that “attaining 7 percent of the global petroleum market, becoming the second [biggest] OPEC producer, and becoming the number one developer of oil and gas technologies among the 23 countries in the region are some of the other goals…”

Delays and Disparity in Exploiting South Pars

Emphasizing that right now Iran is faced with 14 pivotal challenges in the development of the Pars Special Economic Energy Zone, Souri said, “One of the most important problems facing the development of South Pars are delays and the disparity [between Iran and Qatar] in exploiting the phases of this shared gas field.” With respect to Qatar being eleven years ahead of Iran in exploiting South Pars, the official said, “Qatar exploited the first phase of South Pars in 1990, while Iran started Phase 1 production in 2001.” Noting that the delays in the development of South Pars have nothing to do with the [first or second Ahmadinejad administrations], Souri said, “A shortage of financial resources*, a lack of pivotal infrastructure development, and environmental hazards are among other challenges facing the development of South Pars.” For the original article in Persian, click here.

*According to an August 2009 article in the Iranian financial daily Sarmayeh (shut down in November 2009), foreign investment in Iran’s oil and gas sector declined by 64 percent in the Iranian calendar year 1387 (March 2008 – March 2009), compared to 1384 (March 2005 – March 2006). Foreign investment in the Iranian oil and gas sector was just over $1.5 billion in March 2008 – March 2009. Only the year before, in 1386 (March 2007 – March 2008), foreign investment in the sector had been over $4.2 billion.

Persia House Note:

International tensions over Iran’s nuclear program and American pressure have contributed to delays in the development of Iran’s share of the South Pars(North Field) gas field. Over the years, a number of large energy companies (Norway’s StatoilHydro, France’s Total, Spain’s Repsol, and Royal Dutch Shell) have signed agreements to develop South Pars (located in the Persian Gulf). It is the largest gas field in the world, holding between 7 and 8 percent of the world’s, and 47 percent of Iran’s, gas reserves. Although it was discovered in 1990, as the article indicates, development work on Iran’s portion of South Pars (divided into 24 phases) did not begin until 2001. While the Managing Director of the Pars Special Energy Economic Zone is careful to point out that the Ahmadinejad administration is not to blame for South Pars’ problems, the president's decision to resume Iran’s uranium enrichment, and the West’s reaction to that decision, have been key factors in the country’s failure to secure the financial resources and technological know-how needed for the field's development.

Iran’s increasing political isolation has proven problematic for those Western firms with the resources and interest to develop the gas field. In May 2008, for example, following three sets of UN sanctions against Iran--and after a year of stalled work amidst the uncertainty surrounding the Iranian nuclear program--Shell announced that it was withdrawing from a deal (estimated to be worth $12 - 13 billion) to develop South Pars Phases 13 and 14. The deal had been a joint venture with Repsol and the National Iranian Oil Company (NIOC, a subsidiary of Iran’s Ministry of Petroleum). Both Shell and Repsol subsequently reached an agreement with NIOC to swap Phases 13 and 14 for later development work. Although this agreement allowed both companies to maintain their involvement in the lucrative Iranian natural gas sector while awaiting the outcome of political events, it further delayed South Pars’ development.

Other European companies followed Shell’s lead. In July 2008, Total, which had already had disagreements with Iran over development costs, said that it washalting its work on Phase 11 of South Pars, a project worth $10 billion. And in August 2008, citing pressure from the United States, StatoilHydro (working on Phases 6 and 7) announced that, while it would complete its contractual obligations in Iran, it would refrain from making any new investments in the country. In November 2008, the government-run Turkish Petroleum Corporation (TPAO) stepped in and signed a preliminary agreement to invest $3.5 - $4 billion in South Pars Phases 6 and 7, with work scheduled to begin in November 2009. In October 2009, however, TPAO, had to be given an extension until February 2010 by the Iranian government. The delay may have reflected the U.S. government’s influence in Ankara or TPAO’s own preference to await the final outcome of negotiations over the Iranian nuclear program and US efforts to impose additional sanctions on Tehran.

Europe’s loss may be China’s gain, as state-owned Chinese companies have proven less sensitive to political pressure from the United States than Western firms. In fact, China has been actively pursuing investment opportunities in Iran’s oil and gas sector, having already signed a $16 billion preliminary agreementto develop Iran’s North Pars gas field in December 2006. In June 2009, the China National Petroleum Corporation (CNPC) signed a contract (limited to gas extraction) with NIOC worth $4.7 billion to develop Phase 11 of South Pars. As a result, Total, which has been replaced by CNPC in Phase 11 and which has more experience and advanced technology than CNPC, has sought to regain a foothold in South Pars (albeit more discretely) by pursuing a joint venture with the Chinese firm. So far the French company has not been able to reach an agreement with CNPC and Iran. It remains to be seen, then, whether Chinese companies will have the technical know-how to help Iran fully exploit its share of South Pars. In the meantime, Iran is unable to supply simultaneously both its domestic and international markets with natural gas, and has been forced to import gas to meet domestic demand.

Source Information:
Mehr News is a semiofficial news agency based in Tehran. Its managing director, Parviz Esmaeili also publishes the English-language Tehran Times.

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