With an estimated 14.2 trillion cubic metres (Tcm) of gas reserves in place plus 18 billion barrels of gas condensate, Iran’s 3,700-square kilometre (sq.km) South Pars gas field is one part of the world’s largest gas field. The other is Qatar’s 6,000-square km North Dome, with around 36.8 Tcm of gas reserves in place and about 32 billion barrels of gas condensate. Split into 24 Phases for development, with production targets ranging from 28 million cubic metres per day (mcm/d) to 57 mcm/d, it is the fortunes of Iran’s South Pars Phase 11 that have become emblematic of the Islamic Republic’s attempts to navigate around the sanctions imposed on it at various points since the 1979 Revolution. According to the chief executive officer of the Islamic Republic’s Pars Oil and Gas Company, Touraj Dehghani, gas production from Phase 11 is now rising, and its output will reach a capacity of 28 mcm/d in the next few weeks. Production increases are also expected by Iran’s Petroleum Ministry in other Phases of the South Pars field, a senior energy sector source who works closely with the Ministry exclusively told OilPrice.com last week.
According to the source, two key factors conspire in this optimism in Iranian quarters. The first is Qatar’s more constructive approach to gas extraction across the entire reservoir’s maritime border area in the Persian Gulf. “In early 2017 before Qatar lifted the moratorium on production from the North Dome [in place since 2005], the two sides [Iran and Qatar] has discussed the optimal ways of proceeding with developing the joint reservoir, in light of claims that Iran had been excavating gas in a way that might damage the longevity of both fields [South Pars and North Dome],” said the Iran source. “It was agreed that they would more closely coordinate activities once Qatar lifted its production moratorium [in April 2005], but even from then Qatar has claimed that Iran has continued to use damaging production practices, and with some justification,” he added. “A big part of the problem was that when sanctions were reinforced again in 2018 [after the U.S. unilaterally withdrew from the Joint Comprehensive Plan of Action, JCPOA or ‘nuclear deal’] the local firms did not have the skill, experience, technology, or machinery to take up where the foreign firms had left off, and they were also under pressure to drill more to monetise the gas,” he told OilPrice.com last week. “This meant they often rushed the excavations without much thought to maintaining the structural integrity of the wells, and this has significantly affected future output from several of them,” he continued. That said, senior oil and gas industry figures from both sides met again last month to reinstitute better excavation practices on both sides. This followed recent assessments from Iran’s own National Development Fund that its gas production will fall by at least 25 percent within the next 10 years due to falling pressure in the fields, with South Pars seeing a 30 percent decline.
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These developments tie into the second factor for Iran’s renewed optimism over Phase 11 of South Pars and for the huge field as a whole. In March, the Petroleum Ministry finalised a US$20 billion programme to build 28 massive platforms to boost pressure on the South Pars site, initially being spearheaded by several local firms. However, following the recent meeting with Qatari officials, some technical support is anticipated to come from the Emirate, which in turn has encouraged further help from Chinese and Russian firms still working across the South Pars development. Originally, Beijing had been a keen participant in the newly-reopened commercial possibilities available in Iran after Implementation Day of the Joint Comprehensive Plan of Action (JCPOA, or colloquially ‘the nuclear deal’) on 16 January 2016, especially in its huge oil and gas sector. However, at that point the bulk of the best contracts went to Western firms, with France’s then-Total being the 50.1 percent stake holder in Phase 11, with the China National Petroleum Corporation (CNPC) having a 30 percent stake, and the remaining 19.9 percent being held by Iran’s Petropars. Despite having invested around US$1 billion and moved the Phase 11 project on significantly from essentially a standing start, Total was pressured to exit the project after the U.S. withdrew from the JCPOA in May 2018. CNPC at that stage added Total’s stake in Phase 11 to its own, under the terms of the contract, but was itself forced to pull out as tension between the U.S. and China escalated in the Trade War under then-President Donald Trump. From that point, Beijing’s involvement in several major Iranian oil and gas projects has focused on multiple ‘contract-only’ projects, such as drilling-only, field maintenance-only, parts replacement-only, storage-only, technology-only, and so on, as analysed in depth in my latest book on the new global oil market order. As it stood just after CNPC’s official withdrawal from Phase 11 in October 2019, according to comments at the time from Reza Dehghan, the National Iranian Oil Company’s deputy chief executive officer for engineering, 40 such ‘contract-only’ work projects had been defined for the implementation of Phase 11’s drilling operations.
Phase 11’s original target production capacity was 57 mcm/d and this is still seen as the ultimate output goal to many in the Petroleum Ministry, according to the Iran source. Output from the site is also still intended to be one of several key supply sources for the roll-out of an eventually world-scale liquefied natural gas (LNG) business for Iran. Given that LNG has become the world’s swing energy supply since Russia’s invasion of Ukraine on 24 February 2022, these plans are still in play. At the end of January, the Petroleum Ministry stated that it intends to begin 1.5 million metric tonnes per year (mtpy) of LNG production at a medium-sized plant at Asaluyeh in 2026. However, it is to be built on the site of the original much-larger ‘Iran LNG Project’ around Tombak Port, around 30 miles north of Asaluyeh itself. This will ultimately draw on gas from South Pars and from North Pars, which has a conservatively estimated recoverable volume of gas of approximately 47 trillion cubic feet. Again, an early entrant to the original Iran LNG Project was the China National Offshore Oil Corporation (CNOOC), which signed a memorandum of understanding (MoU) in September 2006 with the National Iranian Oil Corporation (NIOC) to develop the North Pars gas field with a view to building out an LNG capability there. This deal was extended in December 2006 to incorporate the development of a four-train (LNG liquefaction and purification facility) complex with a 20 mtpy capacity, before slow progress on CNOOC’s part prompted the NIOC to suspend the deal. At that point, just before the U.S. and European Union (E.U.) ramped up sanctions against Iran in 2011/12, German chemicals giant Linde Group took over the main development of the Iran LNG Project. Within a relatively short time, Linde Group had 60 percent-completed the US$3.3 billion flagship LNG export facility that was set to produce at least 10.5 mtpy of LNG, with expectations that it would take less than a year to finish. Again, though, due to further later sanctions, progress on the Project stalled again.
With U.S. sanctions firmly back in place in 2018, Russia’s Gazprom signed two MoUs with the NIOC concerning the rollout of a two-fold joint strategy regarding Iran’s gas, as also analysed in depth in my latest book on the new global oil market order. The first part was a gas cooperation roadmap between the two companies, and the second part detailed the construction of Iranian LNG facilities in partnership with Iran’s Oil Industry Pension Fund. Initially, this would allow Gazprom to, in effect, take over from Linde on the existing 60 percent-complete LNG complex and later to be integral in the construction of the mini-LNG complexes. Iran and Russia reasoned that mini-LNG complexes – with production capacities ranging from 2,000 to 500,000 tons of LNG per year, compared to a typical large scale plant capacity of between 2.5 and 7.5 million tons per year – would be less vulnerable to U.S. or Israeli attacks. Gazprom would take payment for its work from the sale of gas both from this complex and from part of the output from fields feeding gas into it. As it stands, according to the Iran source, the North Pars field development will be the focus of LNG development efforts at this point, with investment at Phase 11 from China and Russia focused on stabilising the 28 mcm/d production level and then gradually increasing it to the original target of 57 mcm/d. If successful, the method of cooperation between Iran, China, Russia, and Qatar will be used on other Phases of the South Pars site, the Iran source concluded.
By Simon Watkins for Oilprice.com