Iran can seize gas initiative

27 June 2008
Tehran has a lucrative window of opportunity to exploit its resources. Modernisation of approach will encourage oil majors and investment.

For a country that can, and often does, boast of holding the second largest gas reserves in the world, Iran’s energy industry remains a conundrum.

A lack of foreign finance and expertise has stifled development of the gas sector and a slew of major gas projects, including the giant South Pars field developments, are facing delays.

Work is going slowly and projects tendered to local contractors are suffering because of a lack of international firms who can provide the engineering, procurement and construction services that are badly needed. Some firms have steered clear because of Iran’s controversial nuclear programme, but others have done so because of the climate in the country.

This is unfortunate for Iran as it now has a lucrative window of opportunity.

There is still a question mark over the long-term stability of Russia, which holds by far the largest gas reserves in the world, while Qatar, with the third largest, may extend its moratorium on gas developments until 2013.

If ever Tehran were to grasp the initiative, the time is now. Like many in the region, it faces the delicate task of weighing up domestic demand for its gas supplies with more lucrative, long-term export deals with international partners.

Unfortunately, by trying to satisfy them all, Tehran runs the risk of pleasing none.

Last month, the UK/Dutch Shell Group and Spain’s Repsol pulled out of Iran’s biggest gas project at South Pars. This was due to renewed US pressure over Iran’s nuclear programme, but also an inflexible contractual approach from Tehran.

The restricted nature of upstream deals is unlikely to change anytime soon, given that the current limits are written into Iran’s constitution. But it should.

Given the laboured pro-gress of its gas sector to date, Iran needs to modernise its approach to encourage more oil majors and investment. Only then will it be able to make the most of its current opportunity.

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