The threat of a sharp rise in gas prices and supply disruptions is growing as Europe heads into winter without the assurance of plentiful, cheap gas from Russia. These gas supplies could come to a complete halt if the European Union (EU) gives final approval to a cap on gas prices from Russia at its November 24 meeting. Russian gas giant Gazprom has said that if the EU introduces this gas price cap, it will suspend all exports of its gas to EU countries. Gas imports from Russia accounted for around 40% of the EU’s gas supply in 2021. Aware of the multiple opportunities to exploit this situation in its favor and in favor of its key ally, Russia, the Iran made it clear last week that it was increasing its gas production. operations at the supergiant South Pars natural gas field, with a focus on its controversial Phase 11. According to National Iranian Oil Company (NIOC) Managing Director Mohsen Khojastehmehr last week: “The activities of the South Pars Phase 11 development project are ongoing, and this Phase 11 winter gas will be available”. This comment echoed the recent statement of the Iranian Minister of Petroleum, Javad Owji: “At the initiative of our colleagues at the National Iranian Oil Company, we promise that the first phase of gas production of the South Pars Phase 11 development project , which has only been exchanged on paper between different domestic and foreign entrepreneurs for 20 years, will start this winter. Owji said in August that South Pars Phase 11 is expected to produce 10 to 11 million cubic meters per day (mcm/d) in the first phase of development.
From this starting point, with the help of Russia, gas production from phase 11 and all 23 other phases of South Pars will increase significantly, said a senior oil industry official who works in close collaboration with the Iranian Ministry of Petroleum. OilPrice.com Last week. With approximately 14.2 trillion cubic meters (tcm) of gas reserves in place plus 18 billion barrels of gas condensate, South Pars already accounts for about 40% of the estimated total of 33.8 tcm of gas reserves in the Iran (mainly located in southern Fars, Bushehr, and Hormozgan) and around 80% of its gas production. The 3,700 square kilometer (km2) South Pars sector of the 9,700 km2 basin shared with Qatar (in the form of the 6,000 km2 North Dome) is also key to Iran’s overall strategy to support production. of natural gas across the country of at least 1 billion cubic meters per day (bcm/d).
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The initial target production capacity for Phase 11 was 57 mcm/d and that is still the production target, according to Owji. The first phase of the current development program, according to Petropars, the Iranian main developer of the project, includes the drilling of 30 wells as well as the fabrication and erection of two production platforms, each containing 15 wells, the objective being to produce 2 billion cubic feet (56.6 mcm/d) of gas per day as well as 80,000 barrels of liquefied natural gas (LNG). This will require the construction of additional liquefied natural gas (LNG) related facilities and two 32-inch pipelines, with a total length of 270 kilometers (km). The second phase of the development program will address the likely pressure drop during the first three years of full production, with the progressive installation of pressure equipment related to the various enhanced gas recovery techniques.
The problem that Iran had faced in advancing phase 11, and to a lesser extent all other phases of South Pars, was its inability to put in place the right equipment, technology, processes and people on the project and keep them there. Several high-profile international companies had been involved at one time or another in South Pars Phase 11, only to withdraw due to the tightening of sanctions in 2011/2012, or the reimposition of sanctions in 2018. Given the size and scope of Phase 11, it became a focal point of U.S. attention following its unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) in May 2018 and active reimposition sanctions towards the end of this year. At that time, the French supermajor, then Total (now TotalEnergies), held a 50.1% stake in the US$4.8 billion Phase 11 project and had already invested around US$1 billion in it. .
According to the Iranian source interviewed exclusively by OilPrice.com: “On the eve of the signing of the next round of funding for Phase 11, the US Treasury Department phoned senior bankers at the bank that was arranging the money and said that if the financing took place, then the United States launched a full historical investigation into all of the bank’s transactions since 1979 with all the countries that had been blacklisted by the United States, and they have said the same to the French government. Naturally, France withdrew from phase 11, at which time the China National Petroleum Corporation (CNPC) automatically took over Total’s stake (of 50.1%) – as it automatically happened in the terms of the contracts – to add it to its existing 30% stake. The remaining 19.9% stake was held by Petropars.
CNPC, in turn, was ready to continue the development of phase 11, given the extremely advantageous conditions offered to it by China, as analyzed in depth in my latest book on world oil markets, and the value of the South Pars field. The current value at the time was US$116 billion, shortly after reaching 135 billion US dollars, and now it is higher again, according to the Iranian source. But above all, the United States increased pressure on China in trade war under the unpredictable former President, Donald Trump. This, added to the fact that China was already locked into the supercharged new 25-year deal with Iran, as exclusively snapped by me in September 2019, prompted Beijing to adopt a lower public profile on Iran’s high-visibility oil and gas fields wherever possible. Topping that list was South Pars Phase 11, so CNPC publicly pulled out of the project in October 2019.
The main difference now is Russia’s unfettered involvement in Iranian gas projects. The foundations were laid just before Russian President Vladimir Putin’s visit to Tehran in July, with the signing of a US$40 billion memorandum of understanding (MoU) between the Russian gas giant, Gazprom, and the National Iranian Oil Company (NIOC). Among other agreements contained in the MoU, Gazprom pledged to provide full assistance to NIOC in the US$10 billion development of the Kish and North Pars gas fields, with a view to producing more than 10 million cubic meters per day. The memorandum of understanding also pledged a US$15 billion project to increase pressure in the supergiant South Pars gas field on Iran’s maritime border with Qatar. Gazprom will also participate in the completion of various liquefied natural gas (LNG) projects and the construction of export gas pipelines.
These agreements were designed by the Kremlin to give it even more control over future gas supplies from Iran which could have initially found refuge in southern Europe, before being routed north to take advantage of the gas shortage in European countries. There may well be several interested buyers in Europe for gas coming from Russia or Iran but sold by other intermediaries, like perhaps gas coming from Iraq not authorized. In Europe, Iran has used this method of “rebranding” to sell its own oil as Iraqi oil during decades of sanctions in order to move it to some of the less tightly guarded ports in southern Europe. These included those of Albania, Montenegro, Bosnia and Herzegovina, Serbia, Macedonia and Croatia and from these the oil was easily transported to Europe’s largest oil consumers including the Turkey. Concealing cargo on ships has been another effective method by which Iran has been able to transport its oil wherever it pleases throughout the year as well, and there is no reason why both methods should not may not be equally effective for LNG shipments when Iran and Russia decide when is the right time to start them.
By Simon Watkins for Oilprice.com
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