The question to be answered is: "How has Iran’s petroleum industry managed to survive without investment and technology?" Many pundits believe that the key to Iran’s petroleum industry success is its investment in local firms.

Development of oil and gas fields that Iran shares with neighbors has been the most outstanding among petroleum industry projects. Iran has, over recent years, managed to take significant steps with regard to the development of jointly-owned fields. A case in point is the South Pars gas field. Iran shares this giant field, the largest in the world, with neighboring Qatar. Despite US sanctions, National Iranian Oil Company (NIOC) continues to prioritize development of South Pars. Iran has managed to outdo Qatar in terms of recovery from South Pars, although sanctions have blocked international companies from investing in Iran. Development of South Pars continues by reliance on domestic potential.

The petroleum industry is witnessing improved cooperation on the part of domestic companies and manufacturers. The issue of domestic manufacturing is taking added significance in Iran. Some strengths of local companies include specialized manpower, cost-saving vision, high flexibility, high power of bargaining and win-win talks, ability to export technical and engineering knowhow and services, and access to hardware and software among others.

75% Share in Gas Supply

With full development of remaining South Pars phases (SP11 and SP14), South Pars would increase its share of gas supply in Iran from the current 75% to 82%. Relying on its domestic manpower and innovative knowhow, South Pars has turned out instrumental in Iran’s economy, a clear sign of the firm determination of Iranian petroleum industry staff. South Pars is expected to see its share of national energy mix reach 70%. Of course, commissioning of the Persian Gulf Star refinery in Hormuzgan Province to be fed with South Pars condensate has played a key role in this big achievement. Therefore, 40% of domestic gasoline needs is supplied by South Pars.

Iran started developing its own portion of South Pars about 20 years ago. Since then, in addition to gas recovery, a civilization has taken shape in the Persian Gulf, which shows the completion of the value chain in the oil and gas industry.

When the first administration of President Hassan Rouhani took office, Iran was recovering about 280 mcm/d of gas from South Pars. That was while Qatar has outdone Iran a decade before.

To make up for delays, Iran prioritized phase development of South Pars. Within seven years, the South Pars output reached 700 mcm. The field is currently supplying 75% of Iran’s gas needs.

More than $80 billion has so far been invested in South Pars. The field saw its output increase 2.5-fold from 2013 to 2021.

Preventing Output Drop

Maximum recovery from jointly owned oil and gas fields has been a major cause of concern for the Petroleum Ministry. The South Pars production capacity has increased, but after full development of all phases, the main issue would be to maintain production levels and prevent a fall in output levels. That would require big investment, application of modern technologies and development of some adjacent gas fields as South Pars output is expected to start falling within five years.

Some plans were drawn up for that purpose and necessary studies had started. But sanctions blocked attraction of necessary investment for that purpose. However, development of hydrocarbon fields located near South Pars has started over recent years.

Foresight and Hope

Studies indicate that 108 gas wells had become operational by March 2013 in South Pars. But over a seven-year period, 228 new wells were drilled and now 336 wells are operating in total. Furthermore, 11 offshore platforms had been installed in South Pars up to 2013, but under the Rouhani administration, 26 new platforms were installed and now 37 offshore platforms are producing gas.

Regarding pipelines, 1,050km had been laid by 2013. But over seven years, 2,160km of new pipeline was laid. Currently 3,200km of offshore pipeline is carrying gas from sea to onshore refineries. As for the refining trains, 20 trains were processing gas for injection into national trunkline by 2013, but over the past seven years, another 30 new refining trains became operational.

In terms of investment, prior to the Rouhani administration, $55 billion had been totally invested in South Pars. But over the past seven years, $25 billion has been invested.

With developing South Pars, Iran would not have sufficient feedstock for operating the Persian Gulf Star Refinery. In that case, Iran would never become an exporter of gasoline and it would have even to import gasoline for its domestic needs.

What makes Iran outdoing Qatar more important is that only one-third of South Pars lies in Iran’s waters. Despite a smaller space for drilling wells and installing platforms, Iran has managed to recover more gas than Qatar from South Pars.

Sustainable Gas Exports

The Gas Exporting Countries Forum (GECF) has over the past two years announced its perspectives about the future of natural gas. According to the GECF, global demand for natural gas would increase 50% over two decades. According to estimates, the US, Russia, China and Iran would remain four major suppliers of gas.

Gas is currently accounting for 22% of global energy, which would reach 26% by 2040. Meantime, since South Pars is owned jointly by Iran and Qatar, and no border may be defined for shared fields, development for maximum recovery would be of high significance for both sides.

Development of South Pars phases disturbed equations of US tough sanctions against Iran’s petroleum industry. Therefore, Iran’s oil and gas industry overcame many of challenges to energy exports and by diversifying this sector and selling refined petroleum products, the conditions became easier under sanctions.

Development of an industrial civilization in the Persian Gulf and big investment during various periods of sanctions in the Iranian sector of the world’s largest gas field has tied the huge reservoir to national economy. Therefore, South Pars enjoys a special status generating economic, political and international power for Iran amid the unfavorable conditions of sanctions.

Enhanced recovery from the largest independent gas reservoir in the world has reduced Iran’s dependence on gas imports from neighboring nations, while thanks to increased gas exports from South Pars have made Iran an exporter of gas.

Iran is currently pumping gas to Turkey and Iraq. Iraq, which is OPEC’s second largest oil producer, relies on Iran’s gas as feedstock for its power plants. Iran’s private sector is also making arrangements for a plan to export gas to Afghanistan.

Iran has doubled its gas exports to neighboring countries from 2013. It shows that gas exports have grown more than 93% over seven years despite US sanctions in place.

According to CEO of National Iranian Gas Company (NIGC) Hassan Montazer Torbati, by feeding gas into power plants, $75 billion has been saved since 2013.

“Without a 2.5-fold increase in the South Pars production, at least 150 billion liters of liquid fuel had to be consumed. But by supplying gas to power plants, the equivalent of $75 billion has been saved and Iran has switched from importer to exporter of petroleum products,” he said.

2nd/3rd Jumps in Petchem

The network of interaction between customers of South Pars does not end here. Midstream and downstream industries, particularly the petrochemical industry with gas-based feedstock (gas condensate, natural gas, ethane and LPG), are major beneficiaries from this energy hub in the heart of the Persian Gulf.

The petrochemical industry is a major player in generating hard currency revenue for Iran in non-oil exports. Owing to huge gas reserves and gas products at South Pars, Iran enjoys a better position than the regional and world nations in this regard.

The life and death of this lucrative industry depends on feeding petrochemical plants. Undoubtedly, increasing the gas production capacity and byproducts in South Pars has been instrumental in drawing up the roadmap for the petrochemical industry for the second and third jumps up to 2025.

Iran is determined to commission 27 petrochemical plants with an investment of $17 billion up to next March, bringing the total number of petrochemical plants in the country to 83. The petrochemical plants would be fed with 62 million tonnes a year of feedstock, or equivalent to 1.4 mb/d of crude oil. Therefore, Iran’s petrochemical industry would see its annual output capacity reach 100 million tonnes after the second jump with an investment of $70 billion, whose products would be worth more than $25 billion.

On this basis, despite Iran being faced with economic problems caused by tough sanctions, a record increase in petrochemical production is seen in Iran in the current calendar year. That would serve as a powerful arm for dealing with sanctions, playing a role in the global trade market and leading hard currency generation.

According to CEO of National Petrochemical Company (NPC) Behzad Mohammadi, Iran’s revenue from petrochemical exports would reach a record $25 billion by next year, which would continue to increase to $34 billion over five years.

Gas Supply Development

Since 2013, rural households’ access to natural gas has more than doubled to cover 84% of villages. Overall, 95% of Iranians have access to natural gas.

From 2013 to early 2021, more than 20,000 villages with nearly 1.76 million households have had access to gas. Over the same period, 193 cities with more than 641,000 households have also been linked with natural gas network. Currently 98.4% of Iran’s urban and 84% of rural population is connected to gas network. The figures were respectively 95% and 54% in 2013.

In parallel with widespread activities undertaken to expand the urban and rural gas distribution network since 2013, measures have been taken to prevent any accumulation of natural gas in South Pars. To that end, 31 compressor stations and more than 5,000km of transmission pipeline have been installed. NIGC and its subsidiaries are currently building 2,205km of pipeline, 1,042km of which has been laid.

Increased gas exports have been also indirectly behind the increase in petroleum products exports as gas supply projects have expanded across the country.

Were it not for the accelerated increase in the South Pars production from 2013 to 2020, Iran would have faced serious problems in gas supply and it had to pay exorbitant prices for gas imports from neighbors as 17,000 villages, 143 cities as well as petrochemicals, refineries and power plants would have been consuming liquid fuel.

It is noteworthy that the gas consumed as fuel in petrochemical plants and refineries has increased from 46 bcm in 2012 to more than 56 bcm in 2018. The share of liquid fuel at power plants increased up to 95% thanks to natural gas replacement, while gas supply to power plants increased 61% to 66 bcm in 2018.

In case South Pars recovery had stayed unchanged at 280 mcm/d recorded in 2013, Iran would not enjoy a high position among gas producers in the world and its exports level would have been at best similar to that of 2013. But thanks to increased gas production from South Pars, Iran is now the third largest gas producer, just behind the US and Russia. Furthermore, Iran’s average gas export is currently earning $4.8 billion mainly thanks to South Pars.

JCPOA, Gate for South Pars Equipment

Many South Pars phases have been developed over recent years thanks to domestic capabilities. Many South Pars phases have been developed, but restoration of sanctions and subsequently prohibition on importing certain equipment has caused problems for the development of South Pars.

Immediately after Iran and six world powers implemented the JCPOA nuclear deal, Iran could bring in equipment it had purchased years ago for South Pars, but they were stuck at European and Asian customs.

Germany was the first country to send a delegation to Iran after the JCPOA implementation. German Siemens agreed to release the equipment that Iran had paid for. A total of 10 compressors including four off-gas compressors and six cooling compressors were brought into Iran to be installed in SP12. Another 6 Siemens-made compressors were delivered in March 2016 for SP17-18. Furthermore, pipes, joints and valves among other equipment that had been purchased from European firms were brought into Iran for installation in SP17, SP18 and SP20-21. In SP14, valves were installed while SP19 and SP20 received ethane recovery turboexpanders – all thanks to the JCPOA.

The JCPOA removed extra costs and zeroed commissions. Oil companies that had to sell their products at low prices to buy necessary equipment at higher than world prices saw their problem resolved with the JCPOA implementation without having to pay any extra costs. Before the JCPOA implementation, the dealers had imposed heavy costs on Iran for money transfer and equipment imports.

By Javad Asghari

Courtesy of Iran Petroleum