Iran looks to develop global gas industry in wake of nuclear deal

By ISIS ALMEIDA
Bloomberg

Natural gas made Qatar’s citizens the richest in the world within a generation. Even with bigger fuel reserves, Iran will struggle to follow its neighbor’s path.

Iran’s own production is consumed by a population of 78 million and an oil industry that injects gas into fields to boost productivity. Qatar, with a population of 2.3 million, now ranks second only to Russia in gas exports, generating about $86 billion last year.

While Iran and world powers Tuesday reached a nuclear deal after almost two years of talks that would ease sanctions and allow more investment, the government in Tehran is contending with domestic gas demand that is doubling every decade. Iran holds 18% of the world’s gas and yet accounts for less than 1% of trade.

“They have a huge domestic demand,” said Jonathan Stern, head of the natural gas program at Oxford Institute of Energy Studies. “To keep up with this demand, production has to rise at a faster rate.”

Will Iran overwhelm gas export markets?

Iran has consistently been a net importer of gas for a decade and the development of South Pars, part of the world’s biggest gas field, will probably take longer than expected, according to Moses Rahnama, an analyst at Energy Aspects in London. A “noticeable” increase in output will take at least three years, he said.

The revenue from exporting gas would be lower than what the country gets from injecting the fuel to maintain pressure at oil fields and from feeding its petrochemical industry, Stern said.

Gas accounted for less than 4% of Iranian export earnings in 2010, compared with 78% for crude and condensates, according to data from the Energy Information Administration.

Wood Mackenzie says domestic gas consumption will reach 190 billion cubic meters (6.7 trillion cubic feet) in 2025, from 150 billion in 2015.

Can Iran help Europe diversify supplies?

Iran needs to build gas export pipelines and will probably only be able to increase shipments west of Turkey in the late 2020s, said Stephen O’Rourke, research director for global gas at Wood Mackenzie. About 90% of Iran’s exports now go to Turkey.

Iran has planned deals to send gas to Oman, Iraq and Pakistan, reducing the potential for significant volumes for Europe, Chatham House said in a March report.

Will Iran add to the global LNG glut?

Iran doesn’t produce liquefied natural gas (LNG), and the terminal it is building is only 50% complete. The nation had planned to produce its first LNG in 2010. While the project is likely to resume after sanctions are lifted, it probably won’t start before 2018, Rahnama said.

While Iran may boost spending in petrochemical and LNG projects, an impact to markets is probably a few years away, Barclays analysts said in a report dated July 14.

Will foreign energy companies invest in Iran?

The suspension of sanctions could take several months, said Jamie Ingram, a country risk analyst at IHS. Those imposed by the European Union are likely to go first while some of the US restrictions may not be removed until 2016-17, he said.

Asian energy companies will probably enter Iran first, followed by European ones, Ingram said.

What will it cost?

Iran needs $100 billion to rebuild its gas industry, and seeks to boost daily production to 1.2 billion cubic meters in five years, from 800 million now, says Azizollah Ramazani, international affairs director at National Iranian Gas Co.

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