The new abundance is the result of one of the most ambitious programmes ever carried out in Iran: the development of the world’s largest non-associated gas field, South Pars.

Located offshore between Iran and Qatar in the Gulf, and stretching over about 3,700 square kilometres, the giant field holds total estimated reserves of 1,400 trillion cubic feet (tcf) of natural gas, 464 tcf of which are in Iranian territory, with the remainder owned by Qatar. But the development of South Pars has lagged behind the North field programme on the Qatari side. Although it was discovered in 1989, South Pars is only now beginning to produce visible returns.

The scale of the first South Pars project brought on stream, the $2,000 million development of phases 2-3 by France’s TotalFinaElf, gives an indication of what the future may hold. This project alone has increased the amount of disposable gas in the country by 2,000 million cubic feet a day (cf/d), representing a 25 per cent jump in total Iranian production. ‘The amount is equivalent to half the daily gas consumption of a country the size of France,’ says Michel Naylies, managing director of Total South Pars, TotalFinaElf’s local subsidiary.

But it is not only its scale that sets the project apart. From the outset, the scheme faced major obstacles. TotalFinaElf and partners Gazprom of Russia and Malaysia’s Petronas signed up for the project in 1997. That was just a year after the US Congress had passed the Iran-Libya Sanctions Act (ILSA), which seeks to punish foreign companies that invest more than $20 million in the Iranian or Libyan energy sector. Although the foreign companies were never punished for investing in the Islamic republic, they were unable to access US technology and expertise. But in the end, Washington’s embargo had little effect: TotalFinaElf completed the project on time and within budget.

Environmental conditions and the location of the onshore gas treatment site near the once quiet fishing village of Bandar Assaluyeh presented their own challenges. With the closest major city, Bushehr, more than 270 kilometres away and basic infrastructure virtually non-existent, the project companies were initially faced with turning the desert site south of the Zagros mountain range into an industrial complex.

‘When we arrived at the site, temperatures were close to 50°C and humidity levels were 90 per cent and more,’ says Francois Vatier, TotalFinaElf group representative in Iran. ‘However, the main problem was not a hostile environment, but the remoteness of the location.’

As a result, machinery and equipment had to travel long distances, and workers’ accommodation and utilities had to be set up before works on the project itself were ready to kick off. The result is impressive. Today, the 150-hectare site includes plants producing 120 MW of power, 160 tonnes an hour of steam and 4,000 cubic metres a day (cm/d) of potable water.

Challenges have also been overcome on the technological front. Instead of opting for the standard solution to treat the field’s sour gas offshore – a technique applied by the local Petropars on the neighbouring phase 1 development – TotalFinaElf decided to go for a wet gas scheme. With this approach, the untreated gas is injected with monoethylene glycol (MEG) and methyldi-ethylamine – to avoid corrosion and formation of hydrates – and then transported onshore via pipeline. The additives are piped through a 105-kilometre, 4.5-inch-diameter subsea line running parallel to the 32-inch-diameter gas transportation lines.

‘Using the MEG system to protect the pipelines against corrosion has saved us about $400 million,’ says Christophe de Margerie, TotalFinaElf’s executive vice-president for exploration and production. ‘Without this scheme we would have needed to install a large platform for offshore separation facilities.’

By April, TotalFinaElf will have drilled the last five out of 20 wells and the handover to the new operator, South Pars Gas Company (SPGC), a subsidiary of National Iranian Gas Company (NIGC), will be complete. But phases 2 and 3 mark only the beginning. The government has already approved a further 12 phases for development.

Not everything on the South Pars programme has worked out as smoothly as phases 2-3. Phase 1, the first phase scheduled to come on stream, has faced numerous delays, notably on the project’s offshore portion. Slow progress on the construction of a pipeline linking the offshore SPD-1 platform with the onshore site has been one of the main reasons for falling behind schedule.

‘Offshore, we are looking most probably at completion by the end of May,’ Akbar Torkan, chairman and president of Petropars, said in mid-January. ‘On the onshore facilities, we are in the process of commissioning and we hope to finish everything up before the end of the Iranian year [on 20 March].’

While construction on phases 4-5 is running ahead of schedule, the development of phases 6-8 and 9-10 is still in their early stages. Contract awards are awaited soon on phases 11-14, which are dedicated to liquefied natural gas (LNG) and gas-to-liquids (GTL) production (see table).

The target is to develop South Pars over 25 phases. With each phase requiring an investment of about $1,000 million for both onshore and offshore facilities, the total amount of money involved is nearly three times the size of Yemen’s gross domestic product.

The enormous sums involved indicate the position South Pars occupies in Iran’s long-term energy plans. Developing the field is an essential part of the government’s overall economic strategy. Besides meeting domestic demand, the South Pars gas will be used to raise production at existing oil fields through reinjection and to develop the local petrochemicals base. Furthermore, gas is intended to drive Iran’s export ambitions through the development of an LNG industry and regional gas pipeline networks.

Plans to export Iranian gas have been around for decades. But the only gas export deal concluded so far is with Turkey – a 25-year agreement to supply 10,000 million cubic metres a year (cm/y) via the 1,200-kilometre Tabriz-Ankara pipeline. Other cross-border deals – with Kuwait and India – are still in their early stages. Future plans target European destinations as potential export markets.

More advanced are talks between NIOC, TotalFinaElf and Petronas about setting up an LNG project. The parties have made progress towards reaching a joint venture agreement, but thorny issues remain – notably, whether the project will cover both the development of the allocated South Pars phase and the downstream element. ‘We insist that Pars LNG has to be an integrated project,’ says De Margerie.

The South Pars development has already had a direct impact on the once remote Bandar Assaluyeh area. It has opened up a number of economic spin-offs and provided huge employment opportunities. Up to 10,000 Iranian workers and technicians were involved in phases 2-3 alone. Moreover, more than 600 have received specialised training in oil and gas technologies at the hands of TotalFinaElf, benefiting from much-needed know-how transfer. For a country with an unemployment rate of 16 per cent and rising, it is a welcome development.

Iran’s fiscal position is set to benefit from South Pars too. At present, oil remains the key source of the government’s income, earning as much as 50 per cent of all revenues and accounting for 80 per cent of all export receipts. This may have served the budget well in the past two years, when oil prices remained well above $20 a barrel. However, the volatility of the global oil market and subsequent crude price swings have too often exposed the country to forces beyond its control.

This will change over the next decade. Fuelled by rising global demand, gas exports – whether in the form of LNG, or via pipeline – and other gas-based downstream products will provide an increasingly important stream of income. The trend towards economic diversification on the back of gas is much evident in the development of the local petrochemicals industry. Total petrochemicals production is planned to reach about 40 million tonnes a year by 2013, making Iran a major global producer.

Qatar has shown the way to turn gas into a solid source of income. With the addition of LNG to its export list, the country has managed to reduce its dependence on oil exports to 75 per cent of government revenues from more than 80 per cent only five years ago. By 2005, LNG is expected to bring in as much revenue as crude exports. This trend is supported by lucrative long-term gas export deals and a generally less volatile gas price.

Iran is going down a similar road. NIOC estimates put potential future revenues from a fully developed South Pars gas field at up to $6,000 million a year. That is equivalent to about 30 per cent of oil export revenues in 2001/02 and above last year’s income from non-oil exports. The figures underline the role South Pars will play in the Islamic republic’s future economic development. They should also prove to Iranians that this winter has indeed opened up a new era.