Greater Caspian Weekly Overview - January 14 2016
The week in review for gas in the Caspian region
IRAN
Iran inaugurates phases 15 & 16 of South Pars gas field
The news from the South Pars field has been exceptionally positive this past week, starting with the news that phases 15 and 16 of the field came on stream completely January 11, increasing daily output to 50mn m³/d.
The deputy energy minister, Rokneddin Javadi, also said that six new phases of South Pars would become operational by next summer. Iran produces about 420mn m³/d of gas from South Pars. Each standard phase of South Pars--except phase 12, which has 82mn m³/d -- produces 25mn m³/d.
The cost of completion of phases 15 and 16 was $6 bn.
Iran says costs for implementing oil projects will half once sanctions are lifted
Iran’s Oil Minister Bijan Namdar Zanganeh said this week that the costs of implementing oil projects in Iran will be reduced to half after sanctions on the country are lifted.
He expressed hope that all phases of the South Pars gas field, except for phase 14, would come on stream by the end of the incumbent government’s term (August 2017), to produce 700 mn m3/d of gas and one million barrels of gas condensates per day.
A day before commencing phases 15 and 16, the fourth refining unit of the South Pars gas field, which will refine gas from phases 17 and 18, has come on stream. Currently the refinery works with 50 mn m3 /d capacity.
The two phases produce a total of 23mn m³/d from two platforms, with the next two platforms to be launched bringing capacity to 50mn m³/d.
The South Pars/North Field contains 30 trillion m³ of gas and 18 billion barrels of condensate. It covers 9,700 km², of which 3,700 km² are in Iran’s territory in the Persian Gulf, divided into 29 development phases. Qatar has the rest.
Zanganeh said January 11 that Iran needs $20bn to develop the remaining phases of the South Pars gas field.
Iran has invested $64 billion to develop South Pars so far, of which $9 billion was carried out during Hassan Rouhani's presidency (since mid-2013).
"I have just told the president [Rouhani] that to complete developmental activities in the South Pars, we need $500-$600 mn every month over the next two years," Zanganeh said.
By September 2017, nearly all the South Pars phases will come on stream, he said.
Iran is producing gas from phases 1-10, 15 and 16. Phases 12, 17 and 18 are also on stream but not at full capacity.
Iran is preparing to boost its daily gas output from current 700 mn m3 to 1000 mc m3 and increase its gas export to above 200 mn m3 by 2018.
Currently Iran exports about 30 mn m3 of gas to Turkey per year.
Challenges in export
The Iranian secretary-general of the Gas Exporting Countries Forum (GECF), Mohammad Hossein Adeli, told a conference in Tehran that there were major challenges facing the global gas market, most of which resulted from the world economy’s meltdown. The remainder spring from geopolitical changes, he said.
The GECF accounts for most of the world’s gas reserves but it has no equivalence with OPEC; it cannot set production quotas, owing primarily to the differences between oil and gas contracting. And the members are also different: for example Russia is a member of GECF but an observer at OPEC.
Adeli told a conference in Tehran on January 7th that the world economy has not managed to recover from the financial crisis in 2007-2008. This, combined with greater energy efficiency, means gas demand is low.
"The advent of [more sellers of] LNG is another challenge of the gas market," Adeli said and noted that the US has utilised modern technologies to produce gas from shale, so that the country has been turned from a gas importer to an exporter.
Australia, an OECD country with no interest in joining organisations that could be seen as cartels, is already an LNG exporter and its output is rising sharply over the coming few years.
Another problem facing GECF is the re-exports of cargoes--an issue that is symptomatic of the excess LNG supply. This re-export can create pricing problems as the re-exported cargo is often competing for a buyer in the same market as the original producer’s contracted delivery.
The last challenge he identified are geopolitical developments that are having a great effect on the gas market.
For example, developments in Russia, Ukraine, and Europe changed energy policies in Europe and reduced dependence on Russian gas, he said.
This last point is not a challenge for gas in general, so much as for Russia in particular, since Ukraine has been buying gas, although in lower volumes, from other suppliers instead.
And eliminating gas from the fuel mix entirely in Europe will take a lot of investment in time and money as there are no alternative fuels that can do the job gas does so cheaply and dependably. Until that time, the European Union is doing what it can to encourage other gas supplies, including from countries in the Caspian Sea region such as Azerbaijan and Turkmenistan.
Exporting LNG, purchasing FLNGs
Besides exporting gas via pipelines, Iran plans to construct LNG plants and purchase FLNGs to export its gas.
Some European companies are negotiating with Iran to build LNG, FLNG, and FPSO tankers for the country, the head of NITC, Ali Akbar Safaei said on January 13.
He added that companies from Germany, France, and Belgium have been negotiating with NITC to build the tankers but that nothing has been finalised yet.
The managing director of the National Iranian Gas Company (NIGC), Hamid-Reza Araqi, has said Iran is negotiating to launch five LNG projects within the next three years. Iran already has a contract with German Linde to build the "Iran LNG" project, which is planned to deliver 10.5mn mt/year. Sanctions imposed on Iran, relating to its nuclear power program, halted work on the Iran LNG project when it was about halfway through.
Halting liquid fuel burning in power plants
Beside exporting gas, Iran has planned to halt consuming liquid fuels like diesel and mazut (low-quality fuel oil, mainly used in generating plants).
In 2012, Iran consumed about 22 bn litres of liquid fuels in power plants. Thanks to increasing gas delivery to the electricity generation sector, this volume plunged to below 10 billion liters during the first 286 days of the current fiscal year, which started on March 21, 2015.
During this period (March 21 to Dec 31), the power sector’s diesel demand fell 38.4% and its heavy fuel oil demand by 31.5%. During this period, Iran delivered about 47 bn m3 of natural gas to the power sector.
Iran needs delivering 70 bn m3 per annum to power plants to halt burning liquid fuels.
CAUCASUS
Turkey hopes to catch up with Azeri gas by 2017
Turkish state importer Botas hopes to receive more gas from the Shah Deniz Phase 1 project by the end of 2017 to compensate for lower intake in the past, Zaman newspaper reported on January 12.
Botas pays before delivery from the Shah Deniz consortium, set at 6.6bn m³/yr. Over the past years, Azerbaijan has exported less than this volume owing to a lack of pipeline capacity inside Turkey. A gas compressor station was only installed in Erzurum in 2014.
The report says that the terms of the take or pay clause mean the total debt due to Azerbaijan for gas that Botas did not take–but had agreed to–was TL205.6 mn lira ($114.9 mn) as of the end of 2012 and TL687 mn by the the end of 2013. This debt had risen further to TL892.9 mn by the end of 2014.
Russia’s exports to Europe, Turkey hit 159.4bn m³
Exports of Russian gas to the "far abroad" rose 8% in 2015, compared with the previous year, reaching 159.4bn m3, Gazprom CEO Alexey Miller said January 11.
"I would like to mention a significant growth of Russian gas deliveries to our biggest consumers. In 2015, exports to Germany rose 17.1%; to Italy, by 12.6%; to France, by 36.8%; to the UK, by 10.2%; and to Austria, by 11.5%. One should add that in 2015 Gazprom hit an absolute record of gas export to Germany: 45.3 bn m³," Miller said.
"The main reason for the growth of gas exports to the "far abroad" was a reduction of gas extraction in Europe. We see that this tendency has been growing. Growth of gas export to far abroad by 11.8 bn m3 during one year shows the necessity of building Nord Stream 2," Miller added.
Both Norway and the UK saw production go up last year, with Norway also exporting a record amount of gas. But production was down in the Netherlands as the government has capped production at the Groningen field, to allay fears of tremors caused by operations there.
The "far abroad" consists of countries in Europe outside Russia except Ukraine, Belarus and Turkey. The "near abroad" is the former Soviet Union except the Baltic States.
CENTRAL ASIA
National oil and gas company created in Turkmenistan
President of Turkmenistan Gurbanguly Berdimuhamedov signed a decree on the creation of the Closed Joint-Stock Company "Turkmen National Oil and Gas Company (NAPECO)" at a government session on January 8, reports the press service of the President.
NAPECO will include the State Agency for Management and Use of Hydrocarbon Resources, Turkmengaz and Turkmennebit State Concerns, Turkmengeologiya State Corporation, the Turkmenbashi complex of oil refineries and the International Joint-Stock Bank "Garagum".
The main goal of NAPECO is conducting exploration and drilling operations, oil and gas, implementation of international projects in the energy sector and others.
Additionally this week in Turkmenistan, the Ministry of Oil and Mineral Resources was renamed as the Ministry of Oil and Gas by the President's decree. Myratgeldi Meredov was appointed the new Minister of Oil and Gas.
Muhammetnur Halylov, the former head of oil and gas ministry, was appointed the director of the Research Institute of Natural Gas of Turkmengaz State Concern.
llham Shaban is Natural Gas Europe's expert on the Caspian region's energy issues