How Oman plays a role in Iran’s plan to become an LNG superpower

Iran is eyeing Oman’s Qalhat expansion for its own plan to be an LNG superpower

Liquefied natural gas (LNG) has become the world’s most sought-after emergency power source following Russia’s invasion of Ukraine on February 24, 2022. This is because it is readily available in spot markets and can be quickly moved wherever needed, unlike gas or oil sent through pipelines. Unlike pipeline energy, LNG flow does not require the construction of a vast area of ​​pipelines across different terrains and the associated heavy infrastructure that supports it. Iran is still the largest gas producer in the Middle East, with production tripling over the past decade to about 1 billion cubic meters (bcm/d). It also holds the second largest gas reserves on the planet, after Russia, at around 34 trillion cubic meters (tcm). No wonder the Islamic Republic has long planned to become a global LNG superpower through a variety of methods, including one involving longtime ally Oman.

Iran’s plan to use Oman in its LNG plans was part of the wider cooperation agreement signed between Oman and Iran in 2013, extended in 2014 and fully ratified in August 2015, as discussed in depth in my new book on the new global oil. market order. It focused on the Sultanate importing at least 10 billion cubic meters of natural gas per year (bcm/year) from Iran for 25 years. The deal was to begin in 2017, valued at around $60 billion at the time. The target was then changed to 43 bcm/year to be imported for 15 years, and then changed to at least 28 bcm/year for a minimum period of 15 years.

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According to a statement at the signing of the agreement in 2014 by the then director of the National Iranian Gas Export Company (NIGEC), Mehran Amir-Moeini, the Iranian company was already working on the various contractual mechanisms for key phases of the project. Specifically, the land section of the project would comprise about 200 kilometers of 56-inch pipeline (to be built in Iran), running from Rudan to Mount Mobarak in southern Hormozgan province. The sea section would include a 192-kilometer section of 36-inch pipeline along the bed of the Sea of ​​Oman at depths of up to 1,340 meters from Iran to the port of Sohar in Oman. In broad terms, this agreement was intended to allow the full flow of Iranian gas (and later oil) through Oman through the Gulf of Oman and into world oil and gas markets. The route was designed to allow Iran the same sanction-free flows it operated through Iraq at the time and to this day, as detailed in my latest book. On the Omani side, all preliminary works related to seabed surveys, design of the pipeline and its accessories and compressor stations were completed some time ago. The depth of the submarine pipeline was increased in August 2016 due to heightened political tensions between Saudi Arabia and Iran, which resulted in a modified plan to avoid the territorial waters of then-US ally the United Arab Emirates (UAE).

Once the gas reached Oman, the technical aspects of Iran becoming an LNG producer were extremely simple. The original plan, according to Alireza Kameli, director general of the National Iranian Gas Export Company (NIGEC), would have seen Tehran use about 25 percent of Oman’s total LNG production capacity of 1.5 million tons per year for to produce Iranian LNG. This would then have been loaded onto specialized LNG carriers 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 LNG and liquefied petroleum gas (LPG) – to Europe and West Asia, with a focus on China, South Korea and Pakistan.

Before the US withdrawal from the Joint Comprehensive Plan of Action (“JCPOA”, or colloquially “the nuclear deal”) in May 2018, there was no shortage of international oil and gas companies wanting to participate in Iran. – Oman Pipeline. France’s Total, Germany’s Uniper and E.ON, South Korea’s KOGAS, Japan’s Mitsui and Shell have all expressed serious interest in being involved, among others. However, given the potential sanctions-busting nature of the project, the US has included the Iran-Oman LNG project in its efforts to prevent Iran from significantly expanding its hydrocarbon export routes to the booming Asian market . Before the dispute between Saudi Arabia and Qatar flared up again, Washington’s main alternative for Oman was to increase its gas intake from Qatar through the existing Dolphin pipeline, which runs from Qatar to Oman via the United Arab Emirates, or in the form of LNG, but refused. Oman’s desire to revive plans for the Iran-Oman pipeline has been fueled by the UAE’s demands for an ever-increasing fee to allow Iranian gas to transit through its waters, again part of the US strategy to persuade Oman to take gas from Qatar.

However, with US sanctions back in place in 2018, Oman withdrew from the plan, to be replaced by Russia’s Gazprom in Iran’s LNG program, which duly signed two MoUs with NIOC to launch a common dual strategies. regarding gas. The first part covered a roadmap for gas cooperation between the two companies, and the second part detailed the construction of Iran’s LNG facilities in partnership with the Iran Oil Industry Pension Fund. Initially, this would allow Gazprom to effectively take over 60% of its then-own Iran LNG complex from Germany’s Linde, and subsequently be an integral part of the construction of mini-LNG complexes. Gazprom would receive payment for its activity from the sale of gas from this complex, as well as from the production from the fields that feed the gas into it. Those plans, however, 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 has again been interested in participating in the LNG project as part of its broader 25-year deal with Iran, as first revealed anywhere in the world in my September 3, 2019 article on the subject and , also fully detailed my last book.

That said, in mid-April last year, Oman’s Energy Minister Salim al-Aufi said the long-running Iran-Oman pipeline was finally making progress again, with expectations that it would begin operations later this year or early 2025. In addition. , less than a month ago, Oman announced the construction of a new LNG plant in Qalhat with an estimated annual production capacity of 3.8 million metric tons, bringing the Sultanate’s LNG production to 15.2 million metric tons per year. It is expected to be fully operational by 2029.

Beneficial to Iran and China is that the Iran-Oman gas route and accompanying infrastructure will complement Iran’s sanctions-busting Goreh-Jask pipeline, which has the capacity to transport at least 1 million barrels per day of oil from Iran’s main oil fields and running from Goreh in Shoaybiyeh-ye Gharbi rural district of Khuzestan province, 1100 kilometers from Jask port in Hormozgan province in the Gulf of Oman. According to Oman’s Rumhy, Muscat is happy to be a conduit for the gas pipeline that would start in Iran’s South Pars gas field and reach Sohar in northern Oman. This pipeline would then connect to the existing pipeline that runs from there to Salalah near the border with Yemen. It could then be extended deeper into Yemen, where the Iran-backed Houthis are waging a war against the main regional nemesis, Saudi Arabia.

By Simon Watkins for Oilprice.com

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