Iran's Potential Customers Look Elsewhere
Released from the shackles of some of the sanctions, Iran has been accelerating the negotiations for gas export routes especially to neighbours, but two potential clients, Oman and Pakistan, have already managed to find alternative sources that will go some way to meeting their short-term needs.
BP and Oman Oil have signed a heads of agreement with the government of the Sultanate of Oman to add 1,000 km² to the 2,700 km² license area of the Block 61 exploration and production sharing agreement, the UK major said February 14.
Before, in April 2015, BP announced that it was preparing to start natural gas production from Oman's Khazzan field’s first stage by 2017 at a rate of 28.3mn m³/d.
Now, the deal allows the further development of the major Khazzan tight gas field, at a combined cost of around $16bn. Combined plateau production from the two phases is expected to total some 42mn m³/d, so the second phase will add about 5bn m³/yr.
Iran and Oman had already agreed the terms of a subsea pipeline supply deal that could have provided Oman with 10bn m³/yr of Iranian gas.
Oman is producing about 85mn m3/d and has surplus gas to liquefy for export, although it reinjected 9mn m³/d in 2013 into oilfields, indicating a 4.9% increase compared to the previous year.
The country's LNG production capacity is about 10.4mn metric tons/yr but Oman had to decrease it to 7.95mn mt/yr in 2014, according to the latest annual report released by Oman LNG.
There are no official statistics about the gas balance in 2015, but a senior official at the oil and gas ministry said in early 2014 that with the rapid expansion of power generation capacity, industries and refinery projects in the sultanate, gas demand will go up by over 10%/yr from this year.
Oman imports about 2bn m³/yr of Qatari gas through the Dolphin system.
With regard to Oman's 900bn m³ gas reserves and the rising demand of gas for re-injection, Iranian gas might keep its importance for Muscat in long term.
Another Iranian client who has put off imports is Pakistan. It was due to take 22mn m³/d starting in January 2015, but it has not even started building the pipeline in its territory yet.
On the other hand, Pakistan said on February 10 that it had signed a 15-year agreement to import up to 3.75mn mt/yr of LNG from Qatar, or more than 14mn m³/d of natural gas, at a rock-bottom price thanks to cheap Brent crude. And that discount could become steeper if the global LNG glut continues. Traders say that spot cargoes now go for just 12% of Brent.
According to the deal, LNG arriving in any particular month will fetch 13.37% of the preceding three-month average price of a barrel. Taking the present Brent price as a proxy, that would equate to $166/’000 m³.
But Iran was exporting gas to Turkey for as much as $225/'000 m³ before the arbitration court awarded a 15% or so discount, or $33/'000 m³ at that price level. Iranian officials say the gas price for Iraq would be at the same level with Turkey, indicating it would be at least as expensive for Pakistan.
On the other hand, Turkmenistan started building the Turkmenistan-Afghanistan-Pakistan-India pipeline in its own territory in late 2015, aimed at bringing 33bn m³/yr of gas to Afghanistan, Pakistan and India. Tapi is another rival to the Iran-Pakistan pipeline. Pakistan announced in December that it will hold a $200mn equity share of Tapi.
A 700-km portion of the nearly 1,800-km Tapi pipeline will be built in Afghanistan and, according to officials, is scheduled to be completed by 2019.