Iran's gas production threatened by mounting sanctions

08 September 2010

Development of gas fields facing delays

Iran sits atop the world’s second largest proven reserves of gas but a lack of refining capacity is forcing it to import up to 40 per cent of its gasoline needs. The fourth round of sanctions imposed by the UN Security Council on 9 June this year, were aimed deliberately at targeting that vulnerability.

Tehran has responded by announcing it will offer $3bn in domestic bonds to help finance the development of its South Pars gas field, one of the largest in the world with at least 300 trillion cubic feet of gas reserves in place according to some estimates.

It has already sold $1.5bn of these planned bonds ahead of schedule. The total $3bn was intended to be offered over six stages, with the first portion of the bonds offered on 21 August, followed by a second offering on 11 September.

However, the success of the first offering led the government to bring the sale of the next two portions forward to 5 September and they had fully sold out on 6 September.

In addition to the domestic bonds, Tehran also plans to offer another $3bn in foreign currency to speed up the development of South Pars.  

However, the bond issuance will not be able to make up for the technical expertise that international firms could bring to the table.

Development of the field has already been repeatedly delayed over the past few years as several international companies have reconsidered energy ties to Iran in light of mounting sanctions pressure.

Now there are signs that Iranian companies are struggling to meet the full sweep of the sector’s development needs. In July, the engineering arm of Iran’s Islamic Revolutionary Guard, which controls at least a third of the economy, partially withdrew from developing the South Pars field.

The government has said it needs $200bn in investments in the energy sector by 2015, a financing gap which Iran will not be capable of plugging single-handedly. Tehran will have to confront its political deadlock with the west if it is serious about increasing its gas production and ensuring its economic growth remains on track.

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