Tehran touts LNG project plans

The country's debut LNG project faces familiar sanctions and feedstock supply barriers, writes Nader Itayim

Iran has restarted work on a major gas liquefaction project that it was forced to abandon several years ago owing to sanctions, and plans to have it operational before the current administration's time in office ends in mid-2025.

The two-train 10.8mn t/yr Iran LNG project is one of three LNG export projects the gas-rich country was planning to launch in the early 2000s, only for them to be shelved several years later because of international sanctions related to Tehran's nuclear programme. The two other projects were the 10mn t/yr Pars LNG and 16.2mn t/yr Persian LNG plants on Iran's Mideast Gulf coast, which were being led by TotalEnergies and Shell, respectively.

Iran's perpetually thwarted LNG ambitions come with an extra layer of frustration for Tehran, as it had planned to source gas for the projects from the same supergiant reservoir it shares with Qatar. Known as South Pars to Iran, and the North Field to Qatar, Doha has used it to develop a 77mn t/yr LNG industry, and is due to expand capacity by 48mn t/yr by 2027.

The Pars and Persian LNG plants were still at the early stages of development when they were abandoned, but work at the Iran LNG project at Assaluyeh in Iran's southern Bushehr province had advanced to the point that preparations to install the liquefaction trains had been largely completed. German industrial engineering company Linde was originally supposed to provide the liquefaction equipment, but the sanctions imposed in the mid-2000s and then again in the early 2010s hindered its ability to supply the technology, stalling progress.

Iran now insists that work on the project has already resumed, despite US sanctions still being very much in place, and that the administration of President Ebrahim Raisi is pushing to accelerate work to meet its new deadline. "We have been able to activate the large Iran LNG project, which had been abandoned for more than eight years," Iran's oil minister Javad Owji said this week. There are 700 people working on the project and its utilities have all been prepared, he said. Gas-sweetening units for the plant will be "put into operation by early next year", referring to the Iranian calendar year that begins on 21 March.

South Pars: Bigger, longer and uncut

This renewed push by the government to complete what would be Iran's first LNG project comes as the global market has tightened on soaring European demand following the disruption of Russian pipeline gas supplies to Europe since Russia's invasion of Ukraine. But delivering on these ambitions will not be straightforward, especially as sanctions continue to hinder its access to the finance and know-how needed. Russia's Gazprom has been touted as a potential project partner amid tightening Russian-Iranian energy links, but stronger western sanctions on Russia have exacerbated its own challenges in developing new LNG projects.

More fundamentally, Iran faces the challenge of freeing up enough gas to feed what would be a major liquefaction project. Despite being the world's third-largest gas producer, high per capita consumption has severely limited export volumes. Of the 257bn m³ it produced in 2021, it used 241bn m³ domestically, leaving under 20bn m³ for export by pipeline, mainly to Turkey and Iraq. About 13.5bn m³/yr of additional output would be needed to feed the 10.5mn t/yr Iran LNG project. Iran is set to bring about double this volume on line from two phases — 11 and 14 — of South Pars over the coming 12-24 months as part of a wider plan to boost domestic output to 547bn m³/yr by 2030 from about 368bn m³/yr today. But unless Tehran somehow curbs the runaway demand growth the country has been recording for much of the past decade, even these additions may not be enough for Iran to realise its LNG export ambitions.