Liquefied natural gas (LNG) has become the world’s most
sought-after emergency energy source following Russia’s invasion of Ukraine on February
24, 2022. This is because it is readily available in the spot markets and can
be moved quickly to anywhere, unlike gas or oil sent through pipelines.
Unlike pipelined energy as well, the movement of LNG does
not require the build-out of a vast acreage of pipelines across varying
terrains and the associated heavy infrastructure that supports it.
Iran is the largest gas producer in West Asia, having
tripled production over the past decade to around one billion cubic meters per
day (bcmd). It also holds the second-largest gas reserves on the planet after
Russia, at about 34 trillion cubic meters (tcm).
The Islamic Republic has long planned to become a global LNG
superpower through a variety of methods, including one that involves
longstanding ally Oman.
Iran’s
plan to use Oman in its LNG plans was part of the broader cooperation deal made
between Oman and Iran in 2013, extended in scope in 2014, and fully ratified in
August 2015. It was centered on the Sultanate’s importing at least 10 billion
cubic meters of natural gas per year (bcmy) from Iran for 25 years. The deal
was to have begun in 2017, valued at roughly US$60 billion at that time. The target
was then changed to 43 bcmy to be imported for 15 years, and then finally
altered to at least 28 bcmy for a minimum period of 15 years.
According to a statement at the signing of the 2014 deal
from the then-managing director of the National Iranian Gas Export Company
(NIGEC), Mehran Amir-Moeini, the Iranian company was already working on the
different contract mechanisms for the key phases of the project.
Specifically, the land section of the project would comprise
around 200 kilometers of 56-inch pipeline (to be constructed in Iran), to run
from Rudan to Mobarak Mount in the southern Hormozgan province.
The sea section would include a 192-kilometre section of
36-inch pipeline along the bed of the Oman Sea at depths of up to 1,340 meters,
from Iran to Sohar Port in Oman.
In broad terms, this deal was intended to allow for the
completely free movement of Iranian gas (and later oil) via Oman through the
Gulf of Oman and out into the world oil and gas markets.
The route was designed to allow Iran the same sanctions-free
flows that it was operating via Iraq at that time, and to this day.
From Oman’s side, all the preliminary work related to seabed
surveys, design of the pipeline and its accessories and the compressor stations
was completed some time ago.
The
depth of the subsea pipeline had been increased in August 2016 due to the
heightened political tensions between Saudi Arabia and Iran resulting in a plan
modified to avoid the territorial waters of the then US ally, the United Arab
Emirates (UAE).
Once the gas had made its way to Oman, the technicalities of
Iran becoming an LNG producer were extremely straightforward. The original
plan, according to Alireza Kameli, managing director of the National Iranian
Gas Export Company (NIGEC), would have entailed Tehran utilizing about 25
percent of Oman’s then-total 1.5 million tons per year LNG production capacity
to produce Iranian LNG.
This would then have been loaded on to the specialized LNG transport
vessels for export to European and Asian markets, in return for commission
payments to Oman.
Overall, the Islamic Republic’s plan was to become the
largest exporter of gas – including that in LNG and liquefied petroleum gas
(LPG) forms – to Europe and Western Asia, with a focus on China, South Korea
and Pakistan.
Prior to the withdrawal of the US from the Joint Comprehensive
Plan of Action (JCPOA) or colloquially ‘the nuclear deal’) in May 2018, there
had been no shortage of international oil and gas firms companies looking to
take part in the Iran-Oman pipeline.
France’s Total, Germany’s Uniper and EON, South Korea’s
KOGAS, Japan’s Mitsui, and Shell had all expressed serious interest in being
involved, among others.
Given the potentially sanctions-busting nature of the
project, though, the US included the Iran-Oman LNG project in its efforts to
prevent Iran from meaningfully expanding its hydrocarbons export routes into
the booming market of Asia.
Before the dispute between Saudi and Qatar erupted again,
Washington’s main alternative for Oman was that it increased its uptake of gas
from Qatar, via the existing Dolphin Pipeline that runs from Qatar to Oman
through the UAE, or in LNG form, but it refused.
Oman’s desire to re-energize the plans for the Iran-Oman gas
pipeline was fanned by the UAE’s demands for an increasingly large fee for
allowing the transit of gas from Iran through its waters, again part of the US
strategy to persuade Oman to take its gas from Qatar.
With U.S. sanctions firmly back in place in 2018, though,
Oman backed away from the plan, to be replaced by Russia’s Gazprom in Iran’s
LNG program, which duly signed two memoranda of understanding with the NIOC
concerning the rollout of a two-fold joint strategy regarding gas.
The first part concerned a gas cooperation roadmap between
the two companies, and the second part detailed the construction of Iranian LNG
facilities in partnership with Iran’s Oil Industry Pension Fund. Initially,
this would allow Gazprom to effectively take over from Germany’s Linde on its
own then-60 percent complete Iran LNG complex, and later to be integral in the
construction of mini-LNG complexes.
Gazprom would take payment for its work from the sale of gas
both from this complex and from part of the output from fields feeding gas into
it.
These plans, though, were again put on hold due to increased
US sanctions against both Iran and Russia, and a relatively poor global LNG
price outlook at the time. Additionally, China was again interested in taking
part in the LNG project as part of its wider 25-year deal with Iran.
That said, the middle of April last year saw Oman Energy
Minister, Salim al-Aufi, state that the long-stalled Iran-Oman pipeline was
finally progressing once again, with expectations that it will commence
operations late this year or early 2025.
Less than a month ago Oman announced the construction of a
new LNG plant in Qalhat, with an annual production capacity estimated at 3.8
million metric tons, raising the Sultanate’s LNG production to 15.2 million
metric tons per year. It is expected to be fully operational by 2029.
Beneficially for Iran, and China, is that the Iran-Oman gas
route and adjunct infrastructure will complement Iran’s sanctions-busting
Goreh-Jask pipeline, which has the capacity to transport at least one million
bpd of oil from Iran’s major oil fields and runs from Goreh in the
Shoaybiyeh-ye Gharbi Rural District of Khuzestan Province 1100 kilometres to
the port of Jask in Hormozgan province on the Gulf of Oman.
Muscat is happy to be a conduit for the gas pipeline that
would begin in Iran’s supergiant South Pars gas field and run to Sohar in the
north of Oman. This pipeline would then link up to the existing pipeline that
runs from there to Salalah near the Yemeni border.