Iran would be rational to start working on its LNG exports...before it's too late

Iran would be rational to start working on its LNG exports although under the international sanctions it is almost mission impossible.

A few media have reported this week that Iran was looking for funds to accelerate South Pars development, that China's CNPC remains involved in South Pars 11 (previously operated by France's Total) and propaganda from state-Iranian-owned newspapers have announced that Iran would start exporting LNG by 2013.

So why all this noise suddenly around LNG exports? What is Iran really able to achieve in terms of gas development?

1) Iran wants to show it is still in the gas game.

The gas market is drastically changing. Gas reserves are no longer concentrated in the hands of a happy few. The North American shale gas revolution which has already decreased the influence of established producers--notably Russia--could spread to other places worldwide including Europe and China. In addition, the emergence of new LNG exporters due to large recent gas discoveries offshore Israel and Cyprus as well as offshore Mozambique and Tanzania reaffirm the global abundance of gas and will create competition with potential future Iranian LNG exports--if ever developed. If Iran does not develop its gas in the next 5 years, its gas may stay in the ground forever. Post 2020, Iranian gas will face even bigger competition to reach European and Asian markets from new Middle East suppliers as Iraqi gas, Libyan gas, and Israeli gas ramp up. The second half of this decade will be crucial as those new suppliers secure long-term contracts which will provide them with a minimum of security of demand to proceed with the large investments necessary for their upstream facilities.

2) Pipeline exports could always be an alternative, but Iran wants to keep all the options on the table, especially LNG as it is more flexible and does not depend on one single market and route.

The US is strongly supporting the TAPI pipeline which would bring Turkmenistan gas to Afghanistan, Pakistan and India. The security instability and politics of the region will be the main obstacle for the feasibility of such pipeline but its main "reason d'être" is that it undermines the competitive route of the IPI pipeline (Iran-Pakistan-India). Pipeline gas from the Caspian is the greater challenger to Iran's pipeline exports. As a result, it is in Iran's interest to hedge its risk and develop as fast as possible LNG projects to reach out maximum of diversified markets.

3) Iran needs to show its intention to develop its domestic gas potential to its giant gas neighbor Qatar. 

Beyond 2014, Qatar will have to decide whether it extends its moratorium on the development of new supplies, which will impact the reserves of the shared gas field between Iran and Qatar.

4) Iran can start the pre-FEED (Preliminary Front End Engineering Design) but does not have the expertise and technological knowledge to develop a liquefaction plant on its own. 

As long as international sanctions prevail, Iran will be limited in terms of progress in its LNG scheme. Teheran can go ahead with feasibility study and pre-feed, but will not be able to take FID or start construction even with the help of Chinese companies. China's state-owned companies do not have the expertise to build LNG plants. European IOCs have developed their own liquefaction technology but had to leave Iran under the sanctions and would be severely punished for helping Iran developing its LNG scheme.