The killing of two civilians, allegedly by a terrorist team, on Iran’s eastern border with Pakistan, as reported by the Islamic Revolutionary Guards Corps, is the latest bloody incident in a running conflict between Iranian security forces and Baluchi militants.
Jaish al-Adl, the newest incarnation of insurgent groups inspired by ethnic separatism and Sunni Islamism, was blamed for an attack in April that killed ten Iranian border guards.
Sistan-Baluchestan province, which runs along part of the Afghan border as well as all the Pakistani one, is rife with armed gangs smuggling opium, creating a dangerous environment for a pipeline to supply gas to Pakistan. The Iranian 900km leg is finished but the Pakistani 700km section, despite the country’s chronic electricity shortages, is held up by US pressure on Islamabad and wrangles over price.
Pipelines offer inviting targets and are by nature inflexible. Hence, Iran has long coveted the technology and facilities that could convert its largely untapped reserves of natural gas — the world’s largest at 33.5 trillion cubic metres, 18% of the global total — into liquefied natural gas (LNG). It can be exported in purpose-built tankers and sent anywhere.
Iran’s $5 billion agreement with a consortium led by the French major oil and gas company Total for Phase 11 of the South Pars gas field was a major step for Tehran in securing international involvement for developing its reserves. Total delayed signing after a Heads of Agreement in November 2016, seeking assurances it would face punitive action from the United States.
In the face of US sanctions, Iran’s progress in developing South Pars has been far slower than Qatar’s in North Field, its contiguous field. With sanctions easing after Iran’s 2015 nuclear agreement with world powers, Iranian officials are keen to acquire technology from the majors and to meet investment needs that officials put at $185 billion.
However, reports suggest the Total deal will produce gas for domestic consumption, going against an original plan to designate phases upward of ten of South Pars’ 30 for export.
Total is to employ offshore compression facilities, a first for South Pars but nevertheless an alternative to conversion into LNG.
Total is in separate talks over a multibillion-dollar stake in the partly built Iran LNG facility, suggesting the French company, wary of Washington, has separated the LNG component to calibrate its involvement. Its caution over LNG reflects likely US opposition.
Acquiring technology for LNG would be a breakthrough for Iran. While the country consumes domestically nearly all its annual production of 202 billion cubic metres, Qatar has used LNG to expand exports to 124 billion cubic metres.
The markets exist. Many European countries are constructing LNG terminals for imports from North Africa and the Gulf. The Paris-based International Energy Agency forecast the share of natural gas in the world energy market will grow from 21% in 2010 to 25% in 2035 (the only fossil fuel whose share is increasing).
It said demand for LNG will rise even faster. Even if European demand tails off after 2025, as was recently predicted by industry research group Cedigaz, demand is likely to increase 28% in China and 24% in the Middle East by 2035.
With cooperation from the majors, Iranian officials said they can supply 25 billion-30 billion cubic metres of gas a year to Europe and have a target for gas exports, including LNG, of 80 billion cubic metres per year by 2021.
LNG is a possible component in Iran’s talks with an Indian consortium led by state owned ONGC (Oil and Natural Gas Corporation) on the Farzad-B field, which ONGC discovered in 2008 and which contains about 19.5 trillion cubic metres of gas.
A deal could involve $11 billion of investment and include a LNG facility. Delays, which have led to India cutting back oil imports from Tehran, seem to reflect disagreement on terms but it is worth noting that India is the world’s fourth largest LNG buyer.
In welcoming the agreement with Total, Iranian President Hassan Rohani stressed the significance of Iran acquiring advanced technology. This showed his characteristic optimism, as the omission of the LNG component, even if expected, must have been a disappointment.
So opens a crucial period. Iran will continue to expand gas production unless there is a major upset but LNG could make it a major exporter. Speaking to parliament, Oil Minister Bijan Namdar Zangeneh claimed Iran would, by 2021, be exporting 365 million cubic metres of gas a day, higher than Qatar’s current exports.
Echoing Rohani’s optimism, Zangeneh said the Total agreement was “a very good indication” that the international oil companies believed “the return of sanctions is very unlikely, if not impossible.”
Time will tell if he is right.
Gareth Smyth has covered Middle Eastern affairs for 20 years and was chief correspondent for The Financial Times in Iran.
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