High alternative costs mean Iran prefer gas pipelines

Iran find it more beneficial to export natural gas via pipeline than by tanker after cooling it to liquid due to cost issues and sanctions that limit access to Western technology, an Iranian official said on Sunday.

Akbar Torkan, head of planning at the Oil Ministry, also said France's Total and Royal Dutch Shell were behind schedule in carrying out multi-billion-dollar liquefied natural gas (LNG) export projects in Iran.

'They are very slow in the execution of their projects and we are not satisfied,' Torkan told Reuters. 'We hope that we will be able to find ... some solution.'

'If not ... we cannot wait for ever,' he said on the sidelines of a natural gas exporting conference in Tehran.

Total said in July its Phase 11 project of Iran's giant South Pars gas field was effectively frozen, although it would not abandon the project. Shell said in June it would pull out of South Pars Phase 13, but was not abandoning Iran altogether.

European firms have become increasingly wary of investing in Iran due to heightened tension over Tehran's disputed nuclear programme. Iran sits on the world's second-largest gas reserves after Russia but sanctions have slowed sector development.

Iran, which is also the world's fourth-largest oil exporter, has not yet exported any LNG but has previously said it will be able to produce 77 million tonnes a year by 2014.

Torkan, however, suggested Iran's focus was shifting to pipelines. He said they did not face the same sanctions 'limitations' as LNG investments. Construction of Iran's first LNG plant began at Tombak in the Gulf over a year ago.

'We will not halt the LNG projects. But for expansion we prefer to expand the capacity of pipelines,' Torkan said. 'One of the reasons is sanctions.'

The cost level was another factor: 'The cost of transferring gas in pipelines is lower than exporting it with the LNG system,' the Oil Ministry website Shana quoted him as saying.

Torkan listed Germany, Austria, Switzerland and Italy as target markets for Iranian gas and said supplying them via pipeline was more in Iran's 'benefit' than LNG shipments.

Washington, which bars its own firms from doing business in Iran's energy sector, accuses Tehran of trying to develop nuclear weapons and has spearheaded a drive for sanctions.

Iran says its work is for purely peaceful purposes but its refusal to halt sensitive atom activities has drawn three rounds of U.N. sanctions and separate U.S. measures. Equipment needed for LNG projects is mostly made in the United States or Europe.

Without LNG plants to export gas by tanker to the highest bidder, Iran could pump some gas by pipeline to neighbours, analysts say. But they are relatively small markets.

The only large-scale pipeline project, which would pump gas across Pakistan to India, is fraught with security concerns and pricing disputes, the analysts say. It is doubtful the European Union would support Tehran's suggestion it could hook up to the planned Nabucco pipeline to bring Central Asian gas to Europe.

Author: Jo Amey