The Qatar-Iran Mega Gas Field

The political world in the Middle East seems to be in continual flux,with the Iraq and Syria conflicts,  Qatar crisis and the Libyan civil war.     However, the business world seems very different and much more stable,  as investments in oil and gas must be made over decades, not timed to local or regional  politics.   It appears the business deals transcends all the political rhetoric and cultural differences, with the common goal of sound investments for the long term for the mutual benefit of all stakeholders.

The Trump administration seems obsessed with blaming everything linking terrorism to Iran.   It is a theme popular with  Saudi Arabia, the UAE, Bahrain and Egypt, but I think now, it is a pretext for their blockade of Qatar.    The only other non-Arab  country with this fixation is Israel.

The business world doesn’t see this as a problem.   Simply put, “Money talks and nobody walks away from a profitable deal.”   Even the French, who have seen more of their fair share of terror attacks.

Iran and Qatar  economically they have no choice, but to cooperate, as they are “joined at the hip”  by a mega gas field, the South Pars (belonging to Iran) and North Dome (belonging to Qatar) field. The division of the field based on maritime agreements.  Fortunately, for both countries, there is no dispute on gas ownership.

South_Pars

The South Pars  reserves account for roughly 7.5% of the world’s gas reserves and almost 40% of Iran’s total natural gas wealth. The field  is the world’s largest gas field in terms of recoverable gas with a reserves of 1235 trillion cubic feet (tcf).  The second largest gas field, Urengoy, in Russia has 222 tcf.   The field  produces both natural gas and condensed gas liquids (condensates).   See links below for more details.

The field was discovered in 1971, but first production did not occur until 1989.   With the discovery of  a mega field, why wait so long to develop?  Gas discoveries are a blessing and a curse.   Gas,  unlike oil,  can not be easily transported and sent to European and Asian markets.   Gas can be liquified  transported in specially built tankers.  The curse is that mega gas fields require mega investments, in terms of hundreds of billions of dollars.   To develop the field, Iran needed international partners from France (Total) and China (CNPC).

The French company, Total, operates South Pars, which means they are responsible for exploration, development and production, but Iran and the other partners have  approval authority on all activities.   The Pars Oil and Gas Company (POGC). a subsidiary of National Iran Oil Company, has jurisdiction over all South Pars-related projects.

Since the mid-2000s development of the field has stagnated due to a lack of foreign investment and export opportunities because of United Nations (UN) and Western sanctions against Iran.  A partial lifting of these sanctions in 2015 has enabled POGC, which was established in 1998, and the government to move forward with the 24th development phase set out for the field.

Total benefited from the lifting of sanctions as field development, aimed at increasing gas production could continue.  As Republican candidates where crisscrossing the US, denouncing the Iranian nuclear agreement  deal as the most horrible deal of the century,  Total was quietly discussing with Iran on the next development phase of the South Pars field.  By November 2016, Iran announced a memorandum of agreement, and in April 16, 2017,  President Rouhani  concluded contracts for  5 new phases of field development worth 20 billion dollars. See links below. It is expected that Iran’s production will surpass Qatar’s.

All this depends on an accessible market.  It is a big “if.”   Iran ships its gas via pipeline.   Qatar has a far reach to the rest of the world through its liquified natural gas (LNG) facilities.   Qatar exports 1/3 of all LNG worldwide.   Qatar supplies the UAE by the Dolphin pipeline and LNG shipments.

As Iran was announcing development plans in South Pars,  Qatar followed by the announcements of further developments in the North Dome.   The withdrawals from both sides of the field must be done in a way to avoid significant migration across the maritime country boundary.  So it made sense that as Iran planned increases, Qatar would do the same.   Also,  engineers on both sides have to collaborate to avoid excessive withdrawals which could impact total recoverable gas and liquids.   This is called “reservoir management.”

So,  the GCC countries likely could see the gas supply was going to be increasing,  and both Iran and Qatar would seek ways of extending the lines of  supply either by pipeline or LNG tankers.    Interestingly,  even though the UAE has taken the extreme position that the 13 demands are non-negotiable,  the critically important gas from Qatar still flows to the UAE.

The current Qatar crisis likely came to a boil, as a number of actions taken by Qatar.  This includes the payment of ransom to Shite militants in Iraq which could be used to support the claim of terrorism.  It also saved the  lives of members of the royal family.  Others have commented on the open reporting on the 2011 Arab Spring uprising by Al Jazeera, upset many of the Arab countries.  A “respectful press” would have immediately taken the side of the government, not the dissenters.  Qatar’s willingness to accept exiled dissidents from other Arab countries angered Saudi Arabia and the other GCC country.

But, perhaps what has not received enough attention is the economic power of the tiny nation of Qatar, was on the rise.   Could it partner with Iran in the future, by processing Iranian gas for LNG  export?   Could Qatar  invest in  LNG  projects or construction companies?  This would seem to be a perfect fit.

Qatar was really understood that its hydrocarbon assets would not last forever,  and it needed to diversify into other areas.  Exactly what the Saudis are doing right now.

In sum,  Iran’s planned increases in gas production, would result in more gas development  from Qatar, and a push to increase LNG processing capacity.   The other GCC countries knew the rising economic wealth of both Iran and Qatar  would change the balance of power in the Middle East.  While Iran was too big to isolate or pressure, Qatar looked vulnerable.

Stay tuned,

Dave

Links:

Offshore Technology: Developing South Pars: a look at Iran’s mega gas field (undated but likely written prior to April 2017)

Iran opens new South Pars gas field phases worth $20 billion

Qatar crisis: Have the Saudis gone too far?

Middle East Eye:  Iran seeks stronger Ties with Qatar

(Any suggestions- I know there is a lot of discussion on these points, and I’ll add more later)

 

 

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s