engineerlive.com: Iranian anti-gas-export lobby strengthens

January 29, 2008  
 
As Iran’s deadline for Shell and Total — with partners — to commit to their LNG projects draws near the companies are again demonstrating activity, but only to a reversible degree; meanwhile, domestic political tension surrounding Iran’s gas is mounting.

Shell, along with partnering Spanish company Repsol-YPF, has launched a prequalification round for suppliers of subsea pipelines to its Persian LNG venture and its connected South Pars gas field upstream development phases 13 and 14, Upstream reported.

Prequalification bids to supply 400km of coated subsea pipelines to connect three gas-producing offshore installations with Persian LNG’s onshore downstream sweetening and liquefaction facilities 135km away at Bandar Tombak, on Iran’s Persian Gulf coast, were to be delivered to Shell’s Dubai office last week.

This newfound decisiveness should not, however, be overstated, as the prequalification round in itself entails no obligations or commitments. Shell and Repsol have yet to launch severely delayed tenders that were originally due to go ahead in mid-2007. These include tenders for four 2,200-tonne jackets, which Upstream believes might go ahead during the first quarter and might possibly be followed by a topsides construction tender in the latter part of the year, where much of the work could be carried out by Iranian companies.

Pressure from Shell and Repsol’s downstream partner, the National Iranian Gas Export Company (NIGEC) has been focused on breaking up the project’s large engineering, procurement, and construction (EPC) phases into smaller contract packages in order to better control and cut costs. Japan’s Chiyoda conducted a modified front-end engineering and design (FEED) study for the Persian LNG venture last year to that effect, and NIGEC has threatened to go ahead with the publication of tender documents for the liquefaction facilities during this year, regardless of whether or not Shell and Repsol commit to investing in the project.

As time has passed and a minimum of activity has been undertaken on the project, the globally escalating costs have upset the initial calculations, which by now are several years old. Both the Shell-Repsol consortium and Total-Petronas’s Pars LNG venture had reported construction costs in excess of US$10 billion by the middle of last year — figures that might be substantially higher by now, especially given Iran’s international isolation.

Total today joined Shell in demonstrating concern and activity at its Pars LNG project, launching a new cost review of the project together ‘with the Iranian government’, Reuters reported. The Pars LNG export terminal is planned to come onstream as Iran’s first liquefaction terminal, but the completion date has been pushed back from 2009, and today does not look likely to be reached before 2012.

In anticipation of Iran’s June 2008 deadline for the companies involved in Pars and Persian LNG to give their final commitments to the project, new cost reviews will be essential for the companies to defend their positions and justify further delays in the face of US, UK and French sanction threats.

Iran needs the companies’ LNG technology and know-how, but has also been keen to get the projects under way soon in order to monetise its vast gas reserves. However, costs rising significantly over US$10 billion would be a large impediment to development, making cost recovery and profit margins a serious issue to renegotiate for both the IOCs and the Iranian government.

On another front, the government has come to face pressure from a resurgent anti-export lobby in the Iranian parliament, pushing for a change of priorities in the utilisation of gas in the Islamic Republic. The current gas crisis has exposed Iran’s fragile supply balance, with countrywide gas shortages during the harshest winter for years sparked by Turkmenistan halting its gas exports to Iran (which total around 5 per cent of Iran’s domestic supply needs) and Iran being unable to compensate for the shortfall even by shutting off the export of a comparable amount of gas to Turkey. As a result, popular sentiment has turned against Iran’s export ventures and the government’s gas policies.

A recent attempt by President Mahmoud Ahmedinejad to block a law requiring the government to supply US$724-million-worth of imported gas (or gas diverted from oil production injection facilities) to the hardest-hit areas of the country—where 64 people have died as a result of the cold—using emergency funds, was yesterday demonstratively overruled by Supreme Leader, Ayatollah Sayyid Ali Khamenei.

In a letter to the parliament’s speaker, Gholamali Haddad-Adel, Khamenei backed the parliament’s view, rebuffing the president’s line that it had acted unconstitutionally, according to U.K. daily The Guardian.

Following the Supreme Leader’s recent appointment of Mohammad Zolghadr as Deputy Head of the Armed Forces for the Basij (a volunteer militia) shortly after President Ahmedinejad had sacked him from his post as deputy interior minister, yesterday’s snub has been widely interpreted as Ayatollah Khamenei distancing himself from an increasingly beleaguered president and government.

Extra supplies of gas to the domestic grid system will be very difficult to attain without the risk of lowering Iran’s oil output temporarily, at a time when the government’s revenues are being drawn on heavily to complete a host of industrial and infrastructure projects launched by Ahmedinejad in the past few years. Further rationing, on the other hand, will weaken the president even more, as the disastrous outcome of the gas dispute with Turkmenistan has underlined the government’s inability to strengthen Iran’s economy and develop the country at a time of record oil-export revenue.

If Ahmedinejad continues to lose force and stature — and particularly the crucial support of Supreme Leader Khamenei — it will benefit the parliamentary faction supporting a strategy to first supply Iran and maximise oil exports by greater gas injections, the pressure on LNG ventures to go ahead might indeed ease up a bit by the time Shell’s and Total’s deadline expires and the companies present extremely high costs for the project’s proceeding.

Extending the domestic grid and raising volumes has been shown to be a crucial requirement and has received wide public support following the nationwide shortages, in turn increasing strong support for the anti-export front.

With Ahmedinejad increasingly coming under fire for economic mismanagement and pursuing the wrong priorities in his energy policy, just in time for March’s parliamentary elections, the willingness for a coming parliament to agree to the vast investments required to pursue LNG export capacities might be curtailed, at least for the coming budgetary year. If so, both the global cost escalations and the harsh winter might have helped the Shell- and Total-led consortia to again play for time and hope that international conditions change.

http://www.engineerlive.com/in-our-opinion/19871/iranian-antigasexport-lobby-strengthens.thtml

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