Iran puts hope in South Pars gasfield development

A view of Iran’s South Pars Gas and Oil Field

Oil and gas rich Iran is rationing gas as heavy snow blankets much of the country and the cold weather prompts a rise in energy demand.

About 2,000 CNG stations were shut nationwide by Wednesday and the gas supply to some industries and power stations were stopped so the authorities could maintain household supply. The oil ministry meanwhile has appealed for people to conserve gas to guarantee supplies to the country’s northern provinces, which have been hit by the heaviest snow in 60 years.

The shortages are at least partly due to international sanctions over Iran’s nuclear programme, which have starved the energy sector of investment and equipment, leaving it performing at well below its potential.

At South Pars, the world’s largest gasfield, bustling workers and the sound of drilling belie the crisis in the sector. The field’s development is behind schedule, although local officials refuse to say by how much. They also play down the effect of sanctions, but acknowledge that they have prevented the release of crucial equipment from Europe and Asia.

“Imports of some parts are affected by sanctions. Ten compressors are stuck in Germany, but 22 compressors are working,” says Alireza Ebadi, head of the onshore area of Section 12 – the biggest division in South Pars – which is expected to come partially on stream in the coming months.

Standing in the shadow of the site’s refinery, which is built in the relatively narrow gap between the mountains of the Assaluyeh energy zone and the waters of the Gulf, he adds: “We have thought of some ways to meet our production plans even if sanctions continue.” But he does not give details.

Senior officials in the gas sector have refused to comment on how the government of President Hassan Rouhani – which has promised to improve the economy – is going to make up for the effect of sanctions and the decade-long absence of oil majors due to the unattractive terms of Iran’s buyback contracts.

But as the country suffers gas shortages in what he described as “the worst and most difficult winter” for many years, oil minister Bijan Namdar Zanganeh says developing South Pars is one of his top priorities over the next four years.

Workers and officials in South Pars hope the six-month nuclear deal struck late last year with the major powers – the US, UK, France, Russia, China and Germany – will lead to a final agreement that will ease sanctions on the oil sector.

Tehran began restricting its nuclear programme last month in exchange for modest sanctions relief, including the release of $4.2bn of frozen funds and the suspension of restrictions on some sectors, such as petrochemicals and car production. But sanctions on the oil and banking sectors will remain in effect until a final agreement is reached.

Analysts believe the Islamic regime hopes the attractions of the country’s energy sector, which they estimate needs about $230bn in investment over the next four years, could tempt European majors to defy sanctions, although in recent years several international companies, including Italy’s Eni, France’s Total, Royal Dutch Shell, Norway’s StatoilHydro and Japan’s Inpex have refused to sign big contracts with Iran.

No western companies can currently be seen in South Pars – the earlier phases of which were developed by Total and StatoilHydro. But authorities have said they are negotiating with European majors about possible deals when sanctions are relaxed and have promised to devise a new service contract.

In the meantime, Mr Zanganeh has prioritised the development of five sections of the field – 12, 15, 16, 17 and 18 – in an attempt to compensate for the years of slow progress. They are being developed by quasi-state owned companies, including some affiliated to the Revolutionary Guards.

Iran’s President Hassan Rouhani is looking to pursue a foreign policy of moderation after tough financial sanctions have brought the Islamic Republic’s economy to a standstill

Companies related to the Guards hold contracts worth more than $17bn in South Pars, many of which were granted without tenders by former president Mahmoud Ahmadi-Nejad. Iranian analysts believe Mr Zanganeh wants to cut the force’s influence in the field, which they say would be necessary to attract foreign investment. It remains unclear how this would affect the contracts that have already been signed.

But Hamid-Reza Masoudi, director of section 19 in South Pars, which is being developed by the quasi-state-owned Petropars company, is proud of the fact that “all” engineering, construction and installations in recent years have been done by Iranians. The oil minister, he says, has given fresh impetus to the sector since he took over last summer.

“Mr Zanganeh has helped a lot so far by solving some financial issues and holding regular meetings,” he says. “We certainly see more dynamism and activities.”

Despite the optimism, reports that bakeries in snow-hit provinces have shut because of gas cuts have prompted hoarding in other areas by people worried that their bread supply will be hit too.

“It is regretful for a country which has the highest gas reserves to face such a problem [gas shortage],” Mr Rouhani said in a televised speech late on Wednesday.

By Financial Times


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