July 2009, Nos. 52&53

Oil & Gas

We Can’t Catch Up with Qatar

We are not satisfied with our performance.” This was the answer given to reporters when they asked Minister of Petroleum Gholamhossein Nozari why Iran was lagging behind Qatar in exploiting the South Pars gas field, which is shared by the two countries.

“We are not satisfied with our performance.” This was the answer given to reporters when they asked Minister of Petroleum Gholamhossein Nozari why Iran was lagging behind Qatar in exploiting the South Pars gas field, which is shared by the two countries. When asked that question the minister preferred not to take sides with any of his deputies, but finally said, “I am not satisfied with what has been done in South Pars in my term, but it is not solely due to inability of the oil industry, but environmental and geographical conditions were also involved.”

Gholamhossein Nozari, Minister of Petroleum

When reporters asked Nozari why Iran was lagging behind Qatar in exploiting South Pars gas field, he tried not to give a direct answer by asking questions from them. However, when reporters criticized him, he noted that Iran only owned one-third of South Pars gas field, adding, “I don’t want to cast doubt on what has been done before me, but due to reasons that I don’t want to explain, development of South Pars gas field has been delayed. We officially started on the field in 2001 and good steps have been taken since then. However, oil majors have a great share in Qatar’s gas projects. On the opposite, many foreign investors have left Iran due to a variety of reasons and many of our projects were hamstrung because we needed goods which should have been provided by other countries. We faced such problems, for example, in developing phases 9 and 10. Due to these limitations, we must avoid hasty judgment. I don’t want to go into details of why we are behind in production and I will never cast doubt on the activities of those with whom I am not familiar.”

Nozari noted that powerful oil companies are helping Qatar in South Pars, but Iran was deprived of those facilities. Referring to many questions faced by Iran in exploiting South Pars gas field, he said, “When we purchase goods and equipment for the field, American companies do not allow them to be offloaded at ports and we cannot use them. We cannot catch up with Qatar.”

As for the delay in developing different phases of South Pars gas field, he said since foreign companies like Persian LNG have left the region, Iran decided to transfer phases like 15 and 16 to where the reservoir pressure is to be transferred and start production in that part.

“Therefore, our goal is to take the rest of the projects to such areas and our priority is working along common borders.” The minister of petroleum then pointed to natural problems in common fields and said, “The slope of the field and location of the reserves have caused natural obstacles to exploitation of the field and those natural problems should not be blamed on project implementers.” Explaining on Iran’s share in the common field, he refrained from admitting that Iran lagged behind Qatar and said, “In terms of share, we are not behind the Qatari side, but we are not satisfied with the status quo. We have talked to the Qataris to take optimal advantage of the field.”

Although South Pars was to become a major economic hub in Iran, now after a long time that has passed since its inauguration, it is clear that Iran lags behind the Qatari side by years. Experts had already noted that, though the Ministry of Petroleum officials rejected it. It has been even confirmed by Akbar Torkan, the deputy minister of petroleum, who has frankly noted that Iran is 11 years behind Qatar in exploiting South Pars gas field.

Oil officials of the eighth government have frequently explained on that. For example, Mehdi Hosseini, former deputy minister of petroleum under president Mohammad Khatami, has confirmed that Iran lags behind Qatar and has even stated that the Qataris may be using Iran’s share of the field because scientific research has proven that gas moves toward the side where the highest exploitation is carried out.

However, Ali Vakili, managing director of Pars Oil and Gas Company, rejected the remarks made by his predecessor in a meeting with reporters. He claimed that Iran’s share of South Pars gas field was equal to Qatar. He also rejected claims that Qatar has produced 12.2 billion cubic meters of gas from the field.

Unlike Vakili, Seifollah Jashnsaz, another Ministry of Petroleum official, had already noted that Iran lagged behind Qatar.

The managing director of Pars Oil and Gas Company emphasized that Iran is not behind in exploiting South Pars gas field and added, “Last year and in the peak consumption season, we produced 204 million cubic meters of gas from South Pars and average production stands at 200 million cubic meters.”

Vakili noted that delayed exploitation of South Pars gas field cannot be blamed on the ninth government and was due to such problems as the imposed war (the Iraqi war against Iran – 1980-88). He claimed that both countries produced equal amounts of gas now.

At the same time, Akbar Torkan recently stated that Qatar was extracting 2.2 billion cubic feet more gas than Iran.

Apart from such problems as the imposed war after which Iran’s projects in South Pars started in 1990s, the acme of those activities was under the eighth government when five phases of the field came on-stream and contracts for further phases including phases 6 to 8, 9 and 10 were signed with foreign investors. Under four years of the ninth government, foreign investors have left Iran and due to inefficiency of the ninth government’s authorities and weakness of domestic contractors, implementation of further phases of the field has been delayed and the contract for some phases including phase 11 has been canceled by foreign investors. However, Vakili, like other officials of the ninth government who easily deny all the realities, does not agree that Iran is behind in exploiting South Pars gas field. He added that Iran has land borders with its neighbors and unlike Qatar; it does not have to export its gas as LNG. “Qatar has no land borders and has to export its gas as LNG. If Iran is planning to export LNG, it is because the country aims to diversify exports.”

Ali Vakili also noted that five phases of South Pars have been made operational last year, adding, “After inauguration of the refinery for phases 9 and 10 and though the third platform of phases 6, 7, and 8 has not been made operational, those phases are yielding a daily amount of 50-60 million cubic meters of gas.”

As for the latest situation of South Pars gas field, he said, “Three offshore platforms have been installed in phases 6 to 8 and onshore refineries have been commissioned. The three phases are now producing three times the gas that was initially planned.”

Managing director of Pars Oil and Gas Company further noted that in phases 9 and 10, onshore refineries have been made operational, platforms have been commissioned and undersea pipelines have been finished and even drilling on the reservoir has been carried out. However, since some wellhead equipment has been seized by an American company in Norway, gas production at sea has not started yet.

The official stated that a committee has been established to enhance recovery from South Pars gas field in cooperation with the Qatari side. He added that Iran has filed a lawsuit with international authorities to claim remuneration for losses resulting from seizure of equipment needed to develop phases 9 and 10.

He said a new method will be used to produce gas from phase 9 and production from that phase is expected to begin in July.

Qatar continues gas production: Despite what Ali Vakili said about equal gas production by Iran and Qatar, the Associated Press has reported that Qatar is increasing gas production from South Pars. According to that report, despite reduction in world demand for energy, Qatar has sped up production from the field and has invested billions of dollars in the project.

After Qatar Gas 2 project was made operational through an investment of more than 13.2 billion dollars, Qatari sources have announced that a huge project has been launched to produce gas and LNG which is to be made operational by 2010.

Through Qatar Gas 2 project, Doha is planning to increase LNG production to 15.6 million tons in order to supply UK and US.

When all gas projects of Qatar are made operational, the country’s LNG production capacity will be doubled and reach 77 million tons by the end of 2010 to make Qatar the world’s top producer of LNG.

Wherefrom $6bn will be supplied?: In another part of his remarks, Vakili said 6 billion dollars of investment will be made in various phases of South Pars gas field before the end of the current Iranian calendar year (started March 21, 2009). He has apparently forgotten that the ninth government and his term in office will end in a few months and that investment should be attracted by the 10th government officials.

Despite what the managing director of the Pars Oil and Gas Company has said, the French Total, which was among few foreign investors in South Pars, has refrained from taking part in development of phase 11 and has noted that South Pars gas field, is no more attractive for that company.

Explaining about 6 billion dollars in investments, Vakili has noted that the president is to order the Central Bank of Iran to allocate 2 billion dollars to development of oil and gas projects, one billion of which will be allocated to phase 12.

“According to a prior agreement, one billion dollars will come from the Oil Stabilization Fund for phases 15 and 16. Through another order by the president, the Central Bank is supposed to allocate 2 billion dollars to oil and gas projects, including 1.5 billion dollars to South Pars. Negotiations are underway on finance and, on the whole, credits allocated to South Pars development during the current year will be higher than last year,” he said.

Vakili noted that a total of 3 billion dollars has been invested in South Pars gas field in 2007 which has increased to 4 billion dollars in 2008.

“Also, out of six billion dollars of predicted investment, 80 percent will come through domestic and 20 percent from foreign resources,” he said.

The downturn in global oil prices, however, has greatly reduced Iran’s oil revenue in the current year because more than 80 percent of the country’s revenue depends on oil sales. On the other hand, due to global economic recession, domestic oil and gas companies are not capable of investment in and implementation of oil industry projects.