Iran’s oil minister and his Omani counterpart have agreed to revive a long-stalled project to build a sub-sea pipeline to send Iranian gas to Oman. But lingering sanctions and the changing supply-demand realities in both countries may mean the plan is much easier said than done.
The agreement, reported by Iran’s state news agency Irna, was reached during a meeting between Iranian oil minister Javad Owji and his Omani opposite number Mohammed al-Rumhy in Muscat, ahead of a state visit by Iran’s president Ebrahim Raisi to the sultanate on Monday.
The project was first agreed in 2013 as part of a wider deal to send around 10.3bn m³/yr of Iranian gas to Oman for 15 years, beginning in 2015. More than half of the volume was earmarked for Oman’s domestic use, but the remainder was intended to feed the 10.4mn t/yr Qalhat LNG export facility.
That deal was signed against the backdrop of the nuclear negotiations between Iran, the US and EU, which ultimately resulted in the 2015 Iran nuclear deal, known formally as the Joint Comprehensive Plan of Action (JCPOA), and the lifting of all the nuclear-related US and EU sanctions placed on Tehran in 2012.
But Iran and Oman were unable to proceed with any physical work until early 2016, when the US sanctions on Iran were finally raised. The project stalled again before any real progress could be made after former US president Donald Trump unilaterally exited the nuclear deal in 2018 and reimposed sanctions on Iran.
What gas?
Even if diplomatic efforts to revive the JCPOA were to succeed, the project faces numerous headwinds because of the changing supply and demand landscapes in both countries.
Although Iran is the world’s third-largest gas producer, it is also its fourth-largest gas consumer and struggled for many years to keep a lid on consumption growth.
Tehran would first need to free up gas to feed the pipeline. The country produced 250.8bn m³ in 2020, but 233.1bn m³ of this was used domestically, according to the latest BP Statistical Review of World Energy, leaving just under 18bn m³ for pipeline exports — which mainly went to Turkey and Iraq, with minor volumes also reaching Azerbaijan and Armenia.
Iran has plans to boost production from the offshore South Pars gas field phases 11 and 14 in the next Iranian calendar year, which would raise production by 16.4bn m³ from a year earlier. And Iran has already been in discussions to boost exports to Iraq, and possibly even Turkey, in the near future.
Gas rich
Meanwhile, Oman production has risen dramatically since 2013, when the country was short of gas and sought Iranian help to meet its growing industrial and enhanced oil recovery (EOR) needs. Oman’s gas output rose 20pc between 2013 and 2020, the last year for which full data is available, according to BP.
Production rose to 36.9bn m³/yr from 30.9bn m³/yr after Oman started producing gas from the massive Khazzan tight gas project in block 61. The first production phase came on line in 2017, and the field has been producing at its 1bn ft³/d plateau target since mid-2018. A second phase, dubbed Ghazeer, has since also come on line and reached plateau output of 500mn ft³/d (5.15bn m³/yr) in 2021. BP has said on completion that the project in its entirety has the capacity to deliver around 30pc of the country’s total gas demand.
Last year, Oman also started production at its Yibal Khuff field, which is producing around 5mn m³/d — or 1.82bn m³/yr. These additions, alongside the 2bn m³/yr Oman imports from Qatar through the Dolphin pipeline, have left the sultanate in much less immediate need for Iranian gas than it was a decade ago.
Increased domestic production may be already more than enough to feed the additional 1.5mn t/yr of export capacity at the Qalhat terminal, which stems from debottlenecking works Oman has been carrying out in recent months. And minister al-Rumhy had previously said that, owing to the lack of export capacity, part of the additional production from Khazzan would instead displace output from older dry gas fields. That said, things may be different in the second half of the decade, with Oman LNG’s existing export concession and supply contracts due to expire by 2025.
Source » argusmedia