Fitch: Iran’s LNG developments to take time

Iran is not expected to export large volumes of liquefied natural gas before mid-2020, according to Fitch Ratings.

Iran has the long-term potential to become one of the world’s top gas producers, thanks to its 34 trillion cubic meters of natural gas reserves, or around 18% of the world’s total, Fitch Ratings says. But even if international sanctions on the country are lifted, it will take at least five years to ramp up production and build the pipelines necessary to become a large gas exporter. The higher cost and complexity of liquefied natural gas projects means significant LNG exports would take a decade or longer to materialize.

From 2005 to 2014 Iranian gas production increased nearly 70% to around 173 billion cubic meters. The International Energy Agency estimates that Iran currently exports only about 9 bcm to Turkey, Armenia and Azerbaijan. Historically, Iran has never been a major exporter of natural gas, with most of its limited exports going to the former USSR in the late 1970s.

Several significant gas projects in Iran are in different stages of implementation. Iran’s share in estimated proven reserves of the giant South Pars gas field is about 14 tcm, while its current production capacity is only about 107 bcm. The IEA expects 67 bcm of additional capacity to be commissioned at South Pars before the end of this decade. Another major project is the North Pars field with estimated reserves of 1.3 tcm. In 2006, the China National Offshore Oil Corporation signed a USD16bn deal to develop North Pars and build a 20 million tons per annum LNG plant. Fitch understands that because of the international sanctions these and other export-oriented projects are experiencing substantial delays as most foreign oil companies have stopped dealing with Iran.

In the meantime, Iran’s gas consumption has increased dramatically, rising 66% between 2005 and 2014 to 170 bcm. This rate of growth has been second only to China and has made Iran the world’s fourth biggest gas consumer behind the U.S., Russia and China. It is therefore expected that a significant part of the newly commissioned capacity over the next few years will continue serving the domestic market.

Iran is planning a number of gas export pipelines pending the removal of international sanctions. One example is IGAT-9, a 35 bcm per year pipeline that Iran plans to use to send gas from South Pars to Europe via Turkey. There are currently no transit pipelines in Turkey to deliver gas to the European markets. The only pipeline currently under construction there, the 16 bcm Trans-Anatolian Natural Gas Pipeline is scheduled for completion by 2019 and would bring 10 bcm of Azeri gas via Turkey and Greece to Italy via another yet-to-be-constructed Trans Adriatic Pipeline.

While it may be possible to increase the throughput of TANAP and TAP to accommodate Iranian gas by building one or several gas compression stations, Fitch Ratings estimate that such construction as well as gas production ramp-up in Iran could take several years.

Source: Fitch Ratings; Image: POGC