FACTS: Iran needs South Pars timely completions to avoid crisis

By OGJ editors
HOUSTON, Oct. 17 -- Iran's natural gas production from South Pars gas field Phases 6, 7, 8, and 9—all expected to be completed this fall—could prevent another massive energy crisis in Iran this winter, according to Siamak Adibi in a September FACTS Global Energy Energy Briefs report. Much would depend on the phases' completing on schedule and on the winter's not being excessively cold.

In the frigid 2007-08 winter, Iran consumed a peak 21.2 bscfd of gas, Adibi reported, while total production averaged 16.5 bscfd. The shortage resulted in a massive reduction of gas reinjection into Iranian oil fields and a supply cut to electric power plants, industrial projects, and 200,000 residential and commercial consumers. Iran also halted gas exports to Turkey.

Although Iran agreed to increase its gas imports from Turkmenistan in second-quarter 2008 to as much as 1.1 bscfd this winter to decrease Iran's gas deficit, it found Turkmenistan gas imports last year to be unreliable. Turkmenistan stopped deliveries of 800 MMscfd of gas in January when Iran's gas shortage increased to maximum levels and then raised the price of its gas to $4.90/MMbtu from the 2007 fixed price of $2.64/MMbtu.

In April, Iran agreed to pay the higher price and renewed imports. Turkmenistan said that after 2009, its gas price would be linked to oil in a new price formula.

Demand increasing
In an attempt to control growing domestic gas demand and decrease subsidies for high-volume end users, Iran raised domestic prices substantially, especially for residential and commercial use, using a pricing mechanism based on consumption that can elevate the price to nearly eight times the former base price of 39¢/MMbtu. However, this mechanism has been unsuccessful in reducing demand. The country is expected to experience strong gas demand growth of 7-8% during 2008-20, FACTS Global Energy forecast.

Accelerating demand in Iran is beyond National Iranian Oil Co.'s control "because of a disconnect between downstream and upstream activities in Iran," FACTS reported. "[National Iranian Gas Co.], which controls Iran's downstream development, is separate from NIOC and has different planning views. The development of the downstream section has always been faster than upstream activities, and gas shortages may not be surprising, especially in peak winter demand."

NIGC estimates that a cold 2008-09 winter could raise domestic gas consumption to a peak of 24.7 bscfd, according to the FACTS report. Based on NIOC official statistics, the country's maximum total gas production will be 19 bscfd at yearend. This could result in a repeat of last winter's gas shortage and supply crisis—although it could be more moderate than that of early 2008 because the new South Pars phases completion.

Near-term gas output
In 2007 NIOC subsidiary National Iranian South Oil Co. (NISOC) supplied 65% of Iran's gas production. Although it expects to increase production by an additional 0.9 bscfd of gas this year by developing Tange Bijar gas field and drilling more wells in Nar, Kangan, Homa, Shanul, Varavi, or Tabnak gas fields, the gas from South Pars Phases 9 and 10 will be urgently needed to prevent "a massive energy crisis" this winter, FACTS reported.

-- Phases 9 and 10. Development of Phases 9 and 10 of the South Pars gas field development, which would release 2 bscfd of gas to the domestic market, was nearing completion in September, and gas is expected to flow from Phase 9 this month, with Phase 10 flow expected in November.

"The gas crisis may be more critical for years 2009-11 when delayed South Pars phases will not be completed earlier than 2012," FACTS reported.

-- Phases 6-8. Although South Pars Phases 6-8 will produce another 3.6 bscfd of gas, 152,000 b/d of condensate, and 1.6 million tonnes/year of LPG, the gas is scheduled to be delivered via a 512-km, 56-in. pipeline to Agha-Jari oil field in Khuzestan Province for reinjection. Phase 6 was scheduled for completion this summer, and gas is expected to flow from Phases 7 and 8 late this year and early 2009.

Later S Pars phases
"The gas crisis may be more critical for years 2009-11 when delayed South Pars phases will not be completed earlier than 2012," FACTS reported.

-- Phase 12. This phase, which will produce 3 bscfd of gas and 110,000 b/d of condensate, will not be completed until late 2012-early 2013. About 1 bscfd of gas from Phase 12 has been allocated for Iran's domestic market.

However, another 2 bscfd of gas from Phase 12, which has been designated as feedstock for Iran's LNG plant, might well be delivered to the domestic market until the long-delayed LNG project starts up in 2015, said FACTS.

-- Phases 17 and 18. NIOC and National Iranian Drilling Co. recently signed a contract valued at more than $1 billion for drilling 27 wells in Phases 17 and 18, which are intended to produce 2 bscfd of gas and 80,000 b/d of condensate. They are expected to be completed in 2013-14.

-- Phase 13. Although Phases 13 and 14 formerly were allocated to Iran's LNG project, Royal Dutch Shell PLC and Repsol YPF SA have delayed a final investment decision (FID) on participating in the Persian LNG project, thus delaying it.

However, because Phase 13 is located near the Iran-Qatar marine border, its development is generating sense of urgency.

"The longer Iran delays development of Phase 13, the more likely it is to lose some of its gas reserves to gas migration, as Qatar is extensively exploiting the adjoining North Field," said FACTS. Phase 13 is thought to have a relatively high output of gas and condensate productivity levels.

So although Iran originally scheduled Phase 13 development to follow Phases 15 and 16, it is now expected to reverse the order of their development

-- Phases 15 and 16. NIOC signed a contract with a consortium of Khatam Al Anbia Construction Headquarters of Iran, the Iranian Offshore Engineering & Construction Co., Saaf, and Iran Shipbuilding & Offshore Industries Complex Co. to produce 2 bscfd of gas and 80,000 b/d of condensate from South Pars in Phases 15 and 16.

However, the EPC contractor will install the offshore platforms in the Phase 13 areas instead of the area of Phases 15 and 16, and Phases 14-16 will be considered for the Persian LNG project.

After 2015 development
Other phases are unlikely to be completed before 2015.

-- Phase 11. Long delays have precluded Phase 11's providing gas for the domestic market before 2015. Considered for Pars LNG, Phase 11 is unlikely to see its FID before Iran's next presidential election—in summer 2009 at the earliest, FACTS said.

Total SA recently said Iran's political environment is too risky right now for investment, and it has postponed making an investment decision. NIOC responded that it will not wait for Total's decision and is able to develop Phase 11with local companies.

"We think Total effectively has withdrawn from the project by postponing its FID because of Iran's current political situation. However the company is still officially involved," Adibi said in the FACTS report. "Even the cancellation of Pars LNG and the appointment of new contractors to develop Phase 11 is unlikely to provide gas from Phase 11 for the Iranian domestic market before 2015."

-- Phases 19-24. These phases have also been delayed, and their development is expected to be completed after 2015.

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