OGPSS - Iran and the possibility of natural gas exports

There has been much talk in the current Presidential debates about possible changes in US Energy Policy, with Governor Romney suggesting that more Federal land be opened for prospecting for oil. Historically one of the regions included in such lists has been up in the National Petroleum Reserve in Alaska. And, perhaps anticipating the debate, the current Administration has already and recently moved toward opening those territories up for development.** However those fields have now been determined to be more natural gas than oil, and so hopes for finding more oil reserves has shifted into moves offshore, where Shell continues to be optimistic as it begins to sink new wells in the Chukchi sea – although well completions have now moved into next year. However it should be noted that there have been suggestions in the past that more of the hydrocarbons under the Arctic are gas deposits than oil, and this argument has been strengthened by the recent discovery in the Barents Sea of more gas, when oil had been anticipated.

The current large volumes of natural gas that are being developed and marketed, whether in the United States or from Turkmenistan, are making considerable changes in the economies of many countries. Russia, who lost the sales battle to supply natural gas to China now can no longer justify the expense of opening the Shtockman field, as alternate supplies are coming to the market at lower costs, and this will, in turn, cascade on to prices in Europe, where the advent of more gas in the UK is making it more difficult to justify a switch into a greater reliance on renewable sources such as wind and solar.

This entire scenario means that it is not necessarily a good time to have a huge reserve of natural gas, and to go to the market with this as a resource to generate income. This is particularly true, if the country in question is Iran.

Iranian Oil Minister Rostam Qasemi has announced that Iran’s exploitation of the South Pars gas field will equal Qatar’s exploitation of the gas field by the end of Iranian calendar year 1392 (ends March 20, 2014) if $54 billion is invested in gas projects.

Iran and Qatar share the largest natural gas field in the world, a reserve that is known as the North Field in Qatar, and as South Pars in Iran.

Figure 1, The South Pars field which lies between Qatar and Iran in the Persian Gulf (PetroPars Annual Report )

Qatar has been exporting Liquefied Natural Gas for a number of years, and has been well able to manage a steady growth in market penetration, as noted in a previous post, and this quote from two years ago:

Ras Laffan 3 Train 7 is the fourth 7.8 million tons per year LNG plant brought online by Qatar Petroleum and ExxonMobil joint ventures within the past 12 months. It matches the capacity of Ras Laffan 3 Train 6, one of the largest operating LNG production facilities in the world, inaugurated in October 2009. These mega facilities have sufficient scale to competitively reach markets around the globe. Qatar's giant North Field, which is estimated to contain in excess of 900 trillion cubic feet of natural gas, will supply both trains.

For Iran to anticipate that they can generate the infrastructure to compete with Qatar in the short term, given the time taken to invest, not only in the surface plant, but also in the tankers that become dedicated to the customers and the routes that must be followed, is more than naïve. That they can expect to do this at a time when, more than in any time in the recent past, there is an adequacy of supply unseen in a generation, suggests a message that can be meant for local consumption only.

But Iran has other problems. At present, as noted last time, natural gas supplies are barely keeping pace with an acceleration in the volumes required to meet internal demand. Any move to increase production will face competition not only from Russia (with available natural gas supplies once anticipated to be sold to the USA, and, when that fell through, then to China) and Qatar but also potentially from the United States itself, since as The OGJ recently noted

“U.S. LNG export potential is a major issue in Asia, particularly in Seoul and Tokyo,” said Mikkal E. Herberg, research director at the National Bureau of Asian Research (NBR)’s Energy Security Program and the report’s editor, “That’s especially true for the next 5 years until major Australian and other export projects come on line.”

With China getting more of its supply through pipelines this may also weaken the LNG market, even as Iran moves to step into these waters.

So can Iran also move its natural gas by pipeline, it is, after all connected by land to potential customers. Well, apart from the relatively obvious problems of trying to do this at a time when the nations concerned with Iranian nuclear policy are tightening their sanctions on Iran, as they are being seen to have more effect, the question comes back to who might be a potential customer. At present Turkey buys the bulk of Iranian natural gas exports but the European Union is expected to include natural gas in the list of banned exports at the meeting on October 15th. (Armenia and Azerbaijan buy the remainder of the current export volumes). There was a recent explosion in a gas pipeline carrying natural gas from Iran into Turkey, stopping the flow. But while that initially imposed a supply problem for Turkey, this has been met through increased purchases from Russia which currently has plenty. Thus it would appear that while Iran has more than sufficient supplies to move into an increased export position, the current political situation will likely preclude this happening in the short term, and the global over supply may well restrict Iranian penetration into that market in the longer term.

** September Alaskan pipeline flows were at 517 kbdm against the average for this year of 537 kbd, however as winter gets established the latest volume reported for 10/09/12 was 580 kbd, moving the pipeline away for the critical numbers.

OGPSS - An introduction to Iran

The theme of these posts, over the past eighteen months, has been to look at the leading producer nations that provide crude oil to the world, and see whether it is realistic to anticipate significant increases in their production. Posts have now looked at North America, Russia, Saudi Arabia and China based on the original list of rankings produced by the EIA in 2009. And, as I noted before beginning the China posts the interesting question at the moment relates to a) how much oil is Iran currently producing and b) how much, realistically, can it be expected to produce.

These are not questions with the same answer, since the current sanctions that have been imposed on the country have clearly already had an impact on the amount of oil that is being exported from Iran. Nevertheless the volumes produced have fallen below those now achieved by China, and for that reason China was given priority when it came to the order of writing these posts. But back at the beginning of 2011 there was no doubt that Iran was one of the top 5 producers (particularly if one combines the USA and Canada into the new “politically correct” term of North America as a way of dodging questions on long-term US production levels).

If one looks at the latest, September OPEC Monthly Oil Market Report (MOMR) for example, there is now a gap of 1 mbd between the official production claims, which are shown below, and the reports from other sources, which follow.

Figure 1. OPEC production reports, from the originating country (OPEC September MOMR )

Figure 2. OPEC production reports, as provided by secondary sources (OPEC September MOMR )

In passing it should be noted that OPEC is anticipating global oil demand to grow 0.9 mbd in 2012, and 0.8 mbd in 2013. To meet that OPEC anticipates that non-OPEC production gains will be 0.7 mbd in 2012, and 0.9 mbd in 2013, taking some of the pressure away from the OPEC producers. Within OPEC production, the gains from NGL’s are anticipated to further increase by 0.4 mbd in 2012, and 0.2 mbd in 2013. These figures again ease the need for OPEC to show increases in production to meet export demands, at the time that their internal consumption continues to rise.

Iran is thus, by the original criterion, the last of the Big Five to be looked at, although, in light of current production numbers it has clearly fallen into the second tier, and with current production below 3 mbd it joins others (Mexico and Veneuela, for example) who have fallen through from upper second tier into the lower second tier of nations that produce below 3 mbd, though this is likely transient, depending on how long sanctions last and, more critically, are effective.

If there is little likelihood of major increases in production from Russia, Saudi Arabia, and China, and that I take some of the optimism over North American production gains with a considerable grain of salt, then global increases in production must come from nations that are now producing below 3 mbd. With that size of an industry it is difficult to anticipate spectacular increases from a single producer. Rather individual country gains (with the exception of Iraq, which could increase production to 4 mbd) will likely only be perhaps on the order of 100 kbd. As a result, if global needs are to be satisfied, there has to be a whole series of overall gains in a multiplicity of countries. For it is only in this way that the total can combine to sustain the optimism of those who see a cornucopia of oil flooding our future through at least the next ten years.

That Iraq has moved into the second tier above 3 mbd this month (by both their own and other counts) makes it a separate point of discussion. But first there is Iran. And with President Mahmoud Ahmadinejad giving a more subdued speech before the UN this week as sanctions continue to bite, the role of crude in the Iranian economy may be becoming more evident to their government. Domestic consumption runs at about half of production, but the country needs the income from exports.

Figure 3. Iranian Oil statistics (Energy Export Databrowser )

Euan Mearns illustrated the range of Iranian oil facilities in his post last December prior to the embargo.

Figure 4. Iranian oil and gas fields and infrastructure (Euan Mearns at TOD)

Oil production in Iran has increased since the days in 2005 when, for a while, it appeared that the country had reached a point of declining oil production, and where natural gas injection was being debated as the possible answer. At that time as the debate over Iran “going nuclear” was beginning to build there was already a rationale for the development of nuclear power in the country.

Jump forward seven years and that debate is now at a much more intense level. The Israeli Prime Minister is seriously concerned over the development of nuclear weapons in Iran, as are other countries in the region, and around the world. The relative need for Iran to establish a nuclear-based electricity program, while used as a justification of the program by their government, has been largely neglected in the concern over the potential for weapons development. Sharing the largest gas field in the world (the South Pars: North Field) with Qatar, Iran has a resource that is being used at an increasing rate internally, with slight amounts being imported in the remote northern part of the country, where it is easier to use gas from abroad than to lay the delivery lines in country.

Figure 5. The South Pars: North Field Gas field shared by Iran and Qatar. (petroleum reports via The Encyclopedia of Earth)

Figure 6. Iranian natural gas statistics (statistics (Energy Export Databrowser )

And so, with the above as background, the next couple of posts will look at the Iranian situation in a little more detail.

P40. Pick Points

Half-a-dozen or so stories of interest:

Just recently it has seemed that the Iran-Pakistan-India pipeline is in trouble again, which has energy supply problems for India and Pakistan (see P39) but it has some unfortunate consequences for Iran also. So Iran is increasing co-operation with Russia, It is also looking to sign a deal with Total for developing the second phase of the South Pars gas field, though the French are a little cagey about when this might happen. Statoil Hydro has been handling Phases 6, 7 & 8, and the drilling platforms are on their way, with 45 days to the start of operations. To date 10 wells have been drilled with the goal being 30, for a total production of 0.1 billion cu m (bcm)/day of natural gas. Plans are just getting started to do the design for phases 22-24. However, following an Iranian official remarking that Iran had sovereignty over Bahrein, the kingdom has stopped further discussions with Iran over the purchase of natural gas, and while the is an MOU in place for Bahrein to buy 1 billion cu ft per day, it is now talking to Qatar (who owns the other half of the South Pars field). Iran, on the other hand, having agreed to help Turkmenistan develop the Yoloten field could also act as a link for Turkmen natural gas, through Turkey to Europe (bypassing Russia). The new agreement calls for the export of 10 bcm to Iran, and there is infrastructure in place that could carry 40 bcm to Turkey. Though some of the gas may be used to supply areas of Iran that are difficult to reach from South Pars. This will be in addition to the 8 bcm that Turkmenistan already exports. How far Europe will move in accepting Iranian gas is still in question.

Unfortunately for President Ahmadinejad, the Iranian oil situation remains a mess and without increases in price, oil subsidies are expensive to the government. And oil is now below $35. Bloomberg also anticipates that tomorrows EIA report will show that gasoline dropped 0.5 mb , while distillate dropped 1.5 mb over the week. By the way the deal I mentioned yesterday for China to loan Rosneft and Transneft money carries with it that the oil that China will get will cost it $20 a barrel.

Indonesia is encouraging the planting of palm oil plantations with a new permitting initiative. Palm oil is also used for cooking and world prices have fallen some 44%, boosting purchases by countries like India who bought 856,690 tons last month (it bought 457,601 tons a year ago). It is hurting Malaysia, however, and Greenpeace is leading protests because of the clearing of rain forests. Yet there is still a significant tonnage available, and domestic prices in India have fallen below import prices. This is hurting domestic production of oil.

In a speech on Wednesday to the regional utility commissioners Energy Secretary Chu said that he will devote more of his time to scientific research and alternative energy, not global oil supply and demand. Because the stimulus authorization for wind is for the amount of loan guarantees, and these loans default at between 3 and 12%, the actual amount that might be supported by the $6 billion program is $60 billion, and if it all goes to wind, then it could underwrite the construction of 30,000 MW of wind power. (But a) where to put it and b) how to move the power to where it is needed). He hopes to cut his first checks in April or May. In regard to cleaning up the regulation to ease power grid construction, Congress is hoping to introduce legislation in April or May.

Bangladesh is still debating the relative benefits of increased coal mining.

The European Commission is also expecting that it can help boost their economies by investing in energy.

More stories can be found at The Energy Bulletin and Drumbeat at The Oil Drum.