Will South Pars help bring Iran's economy back to life?

The newly inaugurated phases 15 and 16 of Iran's giant South Pars project have the potential to greatly boost the country's economy.

al-monitor A worker walks down a walkway on the SPQ1 gas platform on the southern edge of Iran's South Pars gas field in the Persian Gulf, off Assalouyeh, Jan. 26, 2011.  Photo by REUTERS/Caren Firouz.

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qatar, pipeline, natural gas, natural gas projects, lng, iranian government, irgc, gas exports

Dec 30, 2015

The Persian Gulf is home to one of the largest independent gas reservoirs in the world. Shared between Iran and Qatar, the Iranian section of this giant field is called South Pars, while the Qatari section is named North Dome. South Pars holds some 14 trillion cubic meters of natural gas and 18 billion barrels of gas condensates. This is equivalent to 7.5% of the world’s natural gas, and half of Iran’s total reserves. In this vein, the International Energy Agency ranks Iran as the fourth-largest gas producer in the world, producing 4.6% of the global total. Yet Iran is not even among the world’s top 10 gas exporters.

To remedy this situation, Iran is prioritizing development of South Pars while simultaneously increasing gas exports. Thus, for Iran, phases 15 and 16 of its giant South Pars gas field are perhaps its most important. The head of South Pars phases 15 and 16 Consortium, Hassan Sharifabadi, recently announced the inauguration of the project at an official ceremony attended by President Hassan Rouhani. These phases will have a significant impact on Iran’s economy and political environment. At present, the output from South Pars satisfies 55% of Iran’s domestic gas consumption, which is normally 430 million cubic meters a day. However, Madjid Boujarzadeh, the National Iranian Gas Company’s spokesman, has said that consumption recently increased to 500 million cubic meters a day due to seasonal growth during the cold months.

Iran’s need for greater natural gas output is driven by multiple factors.

According to Iranian Oil Minister Bijan Namdar Zangeneh, there is a lack of sufficient gas supply to the country’s power plants. As a result, Iran had to supply 46% of power plant fuel needs with liquid fuels in 2013. This ratio was reduced to 28% in 2014. Iran’s plan is to have decreased this amount by 15-20% by the end of the current Iranian year, which ends in March. In this vein, the Iranian government hopes that the launch of phases 15 and 16 of South Pars will be a crucial step toward resolving the long-standing issue of domestic gas shortages.

Natural gas also plays an important role in the petrochemical industry. Iran has several petrochemical facilities in Pars Special Economic Energy Zone, which includes 43,000 hectares (166 square miles) spread over three operational zones: South Pars (Zone 1), Pars Kangan (Zone 2) and North Pars (Zone 3). Most of the major petrochemical facilities in this southern part of Iran, including Pardis, Pars, Mobin and Zagros, use natural gas as their primary feedstock. In contrast, other petrochemical facilities such as Nouri (Borzouyeh), Aria Sasol, Mehr, Jam and Morvarid mainly use gas condensates, ethane and ethylene as feedstock. Thus, one of the persistent difficulties of plants such as Pardis, Pars and Mobin, which have led them to operate below their nominal capacity, has been a lack of sufficient feedstock. Considering Iran's plans to increase exports of petrochemical products, especially amid the massive decline in natural gas and oil prices as well as reduced investment in upstream crude operations, the expansion of these petrochemical facilities has been made a top priority by the Oil Ministry. If phases 15 and 16 of South Pars reach their nominal capacity, they can substantially resolve the petrochemical feedstock deficiency, thus significantly increasing Iran's revenue from downstream operations at a time when upstream activities are facing a crisis.

Iran additionally needs to quickly expand its existing gas production facilities and finalize nascent plants to keep up with the ongoing rise in global demand for natural gas. This is particularly the case with reference to liquefied natural gas (LNG), which provides exporters and clients alike with more flexibility in transportation and storage.

Just last month, Iran hosted the third summit of the Gas Exporting Countries Forum. Most of the participants showed a noteworthy interest in increasing their exports. In this vein, South Pars phases 15 and 16 will provide Iran with more flexibility to expand its export capacity not only through pipelines such as the recently agreed-upon Iran-Oman-India undersea pipeline, but also via future LNG shipments. These phases will assist Iran in expanding its export capacity, particularly in the case of a technical breakdown in other phases of South Pars. Getting phases 15 and 16 of South Pars fully up and running will clearly send the message to new — and existing — clients that the Oil Ministry is capable of supplying more gas, and that Iran’s declared plans are not merely words. Importantly, Iran can also use its gas exports as a stabilizing factor in its relations with clients, and particularly those in the Middle East and the Caucasus. 

On a domestic level, beside the economic benefits of the project, phases 15 and 16 of South Pars have a significant place in the Islamic Republic’s narrative of self-sufficiency (khodkafaee). Although these phases are not the largest producing phases, they are indeed phases that have been largely developed by local firms. After the intensification of Western sanctions in 2011, several foreign contractors left South Pars. Thus, the Oil Ministry had no option but to turn to Iranian contractors to complete unfinished units as well as build planned units in order to make the entire project operational in a timely fashion. The consortium in charge of developing offshore and onshore units of phases 15 and 16 consists of Iranian companies Aria Naft Shahab Co., Iranian Offshore Engineering and Construction Company, Iran Shipbuilding and Offshore Industries Complex Co., Saff Group and Dana Energy. In addition to these firms, some of which are National Iranian Oil Company subsidiaries, the Khatam al-Anbiya Construction Headquarters, a subsidiary of Iran’s Islamic Revolutionary Guard Corps, also had a significant role in gas refinery construction in these phases.

As such, for Iran, domestic companies’ completion of phases 15 and 16 is in essence the materialization of the Islamic Republic’s motto of “we are able” (maa mitavanim). In this vein, the inauguration of these phases constitutes a message from the Oil Ministry to Iranian media and the public that its policy is to follow the supreme leader's command to move toward creating a “resistance economy” (eqtesad-e moqavemati), which emphasizes conservation of raw materials and focus on exports of finished goods and products, and especially petrochemicals. 

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