The South Pars offshore gas field project, which has dominated the Iranian oil and gas sector in recent years, is nearing the halfway mark. The whole project is to be spread over 25 years, but the National Iranian Oil Company (NIOC) is pressing ahead as fast as possible with the initial stages to catch up with Qatar, with which it shares the giant structure.

Twelve phases of the 25-phase scheme have so far been awarded or are in the tendering stage (see box). With the cost of developing each phase estimated at about $1,000 million, the direct foreign investment and financing sought by Tehran so far exceeds $10,000 million.

The sums involved are a pointer to the position occupied by South Pars in Iran's energy plans. That position is becoming central as foreign investors move in with proposals for subsidiary projects to export gas and various products, and to use the gas as feedstock for downstream petrochemical plants.

Iran has the world's second largest gas reserves after Russia, with South Pars accounting for at least one-third of the total. Latest reserve figures of more than 8 million million cubic metres quoted by Iran for South Pars would give it the bigger share of the structure, known on the Qatari side of the border as the North field. The highest Iranian estimates for South Pars reserves exceed 12 million million cubic metres.

Qatar has had a head start in extracting gas from the shared structure, so Iran is treating South Pars as high priority, so as not to lose reserves to its neighbour across the Gulf.

Unlike other large undeveloped Iranian offshore gas fields, such as the nearby North Pars, South Pars contains very large amounts of easily exportable condensate. Reserves are put at 3,000 million barrels, allowing total exports of about 1 million barrels a day (b/d) when fully developed.

Iran started offshore gas development at North Pars in the early 1990s. Technipetrol of Italy carried out a considerable amount of work, but the absence of condensate there, and growing Qatari exploitation at the North field, prompted NIOC to shelve the North Pars project in favour of South Pars.

South Pars Oil Company, the NIOC subsidiary in charge of the scheme, started the latest stage of tendering, for phases 9-12, in August. Prequalification is in progress, with fuller tenders due out in late 2000. The four phases have attracted attention from most of the big oil firms already operating in Iran, and are offered in two lots. Phases 9 and 10 are to produce gas for domestic use and condensate and liquefied petroleum gas (LPG) for export; the other two phases are exportoriented, based on condensate sales and liquefied natural gas (LNG) facilities.

Indeed, South Pars is responsible for the revival of LNG plans, first discussed 25 years ago. LNG facilities based on South Pars gas may eventually account for the bulk of the country's gas exports - targeted to reach $3,000 million-6,000 million a year in the long term. Some gas exports are scheduled to start in mid-2001 to Turkey via pipeline, but political problems may delay the programme.

Until very recently, LNG was not an option in Iran's gas export plans. However, following a formal proposal by the UK's BG International to bid for construction of LNG facilities for phases 11 and 12 of South Pars, LNG is firmly on the agenda. LNG requires massive investment and long-term supply guarantees, but it allows distant customers to be targeted directly.

In the case of Iran, LNG offers the possibility of supplying the vast Indian market without having to deal with India's political problems with Pakistan; these problems have delayed pipeline transport proposals involving Iran and India for years.

Preliminary talks also started this year between Tehran and Tokyo about possible LNG supplies. The two countries nearly finalised a 20-year LNG agreement in the 1970s, but the plan was abandoned after the 1979 revolution. Another long-term agreement with Norwegian and US companies, for LNG supplies to the US east coast, was also being discussed in the 1970s. If revived, the US link would take much longer to establish, as the two countries would first have to reopen diplomatic ties.

South Pars is also the focus of yet another process, a gas-to-liquids (GTL) facility proposed by Shell. In September, Shell formed a partnership with Iran's National Petrochemical Company to study construction of the 70,000-b/d conversion plant, utilising a new Shell technology for middle distillates.

Both the proposed LNG plant and the GTL facility are likely to be sited at Bandar Assaluyeh, a once tiny port which is to become the main onshore processing centre for gas from South Pars. Assaluyeh also has a special economic zone, where four big petrochemical complexes are being built that will use South Pars gas as feedstock.

South Pars' seemingly unlimited gas reserves have distracted attention from the significant amounts of crude associated with the structure. NIOC expects to produce 100,000 b/d of crude when the South Pars oil project is completed. Tendering for the field was suspended in early 2000 because of uncertainty about reservoir data, but three appraisal wells have since been drilled and NIOC has resumed talks with foreign contractors. A contract may be awarded by the end of the year.