Iran needs viable gas exports plan

10 August 2010

There is more to Shell’s decision to scale back operations in Tehran than the fallout of the UN sanctions

Shell’s decision to scale back staff numbers at its Tehran office is not just the latest symptom of Iran’s growing isolation. It also points to a change in Iran’s strategy for exporting its huge natural gas resources.

Despite holding the second largest natural gas reserves, the Islamic republic continues to play only small role in the global gas market. Talks with Pakistan and India continue, leaving Turkey as its only current customer.

International oil companies have been working to develop exports.

After more than eight years of talks with Tehran, the UK-Dutch Shell has yet to make a formal decision on its plans for the development of phases 13 and 14 of the South Pars field. Its partner, Spain’s Repsol has already pulled out of the scheme.

In June, there were still hopes that the company could reprise a downstream role in the integrated Persian LNG project.

This optimism, which was never strong, now seems to have been put to rest. The UN voted for fresh sanctions on Iran placing greater pressure on Shell to exit the scheme, which it is yet to do officially. The sanctions coincide with a shift in Iran’s focus away from LNG and towards pipeline deals with its neighbours. Its officials have since been in Iraq over the past few weeks discussing the possibility of exporting gas for Iraq’s power stations.

Pipelines are favoured by many in Iran because they are cheaper and do not need sophisticated technology from the West. 

But even pipeline exports will not be straightforward. Almost 96 per cent of Iran’s production is used domestically, and its consumption is growing.

There remains a substantial body in the country that believes Iran’s output should remain within its borders. Without a viable export strategy they are unlikely to be disappointed.

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