Iran Plans Natural Gas Exports With First Working FLNG

Crippling E.U. and U.S. export sanctions on Iran may be lifted next year in exchange for compliance with July's nuclear accord, and Iran is already making plans for exports of oil – and natural gas.

“A memorandum of understanding has been signed with a respectable German company which possesses the technology to build LNG tankers. Preliminary accords have also reached with several South Korean and Chinese firms,” said Esmaeil Sadeqi, an Iranian project manager, speaking to a media source.

Iran has existing shipyard facilities capable of handling large vessels, including two drydocks sized appropriately for VLCCs and VLNGs. Under the MOU, the technology transfer for sophisticated VLNG construction would come from foreign partner firms.

Separately, Iranian media reported November 9 that Minister of Petroleum Bijan Zangeneh is in discussions with Belgian Secretary of State for Foreign Trade Pieter De Crem regarding a partnership with Belgium’s Exmar. Under the agreement, Exmar would supply Iran with what would be the world’s first functioning Floating Liquified Natural Gas (FLNG) barge. 

“If the two sides show flexibility and technical and economic negotiations bear results, [the Belgian side] will bring FLNG facilities to the Kharg region in not a distant time and Iran will begin producing LNG for the first time,” he said.

Iranian oil output is already in the range of 2.8 million bpd, analysts say, with the possibility of more than a million more bpd by the end of 2016. Once the nation puts this output on the saturated global market, prices could fall still further below the current $50 Brent crude range. And now it appears set to do the same in the well-supplied LNG market as well. 

While rival gas exporter Qatar has already secured a lucrative market in Asia, Iran's LNG sales strategy is focused on Europe. The E.U. would benefit for both economic and strategic reasons; Europe gets the majority of its natural gas from Russia via pipeline, and Russia has been known to restrict supply as a way of exerting diplomatic pressure.

Media reports indicate that Iran has preliminary agreements with Spain as its primary gateway to the European market. The peninsula has the largest LNG receiving terminal capacity in Europe, and is planning an expansion of its pipeline connections to the E.U. gas grid.

Pipelines may eventually carry the gas further than just a quick hop across the Pyrenees. "Iran is considering several routes to deliver gas to Europe, possibly around five or six routes," Azizollah Ramezani, the head of the National Iranian Gas Company's liaison office told a media outlet.

Specifically, he suggested that Iran might consider the “Turkish Stream” pipeline – a proposed Russian-Turkish venture to transport gas across the Black Sea. But as of November 6, media reports indicated that construction on the project was not a Turkish government priority and would be discussed again in 2016. A VLNG fleet may be Iran's best export bet for the foreseeable future.