TBY talks to Ali Khayrandish, President of Iran LNG.
TBY Iran was well known for its oil exporting capability, but when did it decide to enter into the field of liquefied natural gas (LNG) exports?
ALI KHAYRANDISH The main feasibility studies started in the early part of the new millennium, and the government decided to initiate three or four LNG projects. This had two important repercussions: First, in changing the strategy of the country from only oil and oil products to gas and gas products; and the second being the entrance of the private sector into the country’s mega projects. By allowing the private sector into major areas like liquefaction and the other mega projects can make institutions powerful enough to change the strategy of the country’s economy. The government never had a large enough budget for the expansion of the LNG sector, so this became a very good case study of the private sector coming in and showing its ability. The government remains a minor investor in my project, at 49% at first, but its share will fall to about 20% by 2012.
Was it difficult to persuade the government to allow private sector participation in this industry?
It was a challenge because everybody, including those in government, wanted to keep the best part of the economy in their hands. Nobody wanted to lose it. However, because of policies introduced some four or five years ago on the privatization of state assets, they started to think about the possibility. We don’t want only Iranian private sector players but also the private sectors of other countries to come and help us make this privatization program real and efficient. We want to deliver LNG on time and make the private sector of the country more powerful.
The oil and gas sector is dominated by state companies. When did you start the company, and how are your relationships with the other state-owned companies?
We established our company at the end of July 2006, but the project really started in July of 2007. A year was needed for its establishment, its branches, central office, and the employment of staff. Outside Iran some international companies think that we are a state-owned company, and we have experienced some complications because of that. Inside Iran we have some problems as most of the state-owned companies hesitate because we are a private sector company.
They say if we were a state-owned company they could work with us more efficiently, but because we are a private company then they are unsure as to what the policy is on working with us. So, we have a few issues to resolve, but I think that step-by-step we will find ourselves in a better position.
So you founded the company to buy gas, liquefy it, and then export it to international customers?
Yes, but we are buying sour gas. Usually, when you say gas you mean sweet gas, but that’s not what we’re buying. We are buying sour gas from the South Pars region and then liquefying it. We first purify it, make it sweet, then we liquefy it and store it, and then export it through our shipping, marine and port services companies, of which we have two. These companies are our subsidiaries.
At what stage are you now?
At the main plant, which is located close to Assaluyeh in Kangan, our progress is at about 38%. We had some problems because of cash flow, and this has been the main reason why we could not reach the goals of the project. We hoped to be about 54% complete by this stage. Also due to the lack of capital we had to change our policy to complete the internal projects step by step. We started the production of electricity in August. We are going to expand our power plant within a year to reach a full production capacity of about 1,100 MW. Our sweetening plant will also start production by approximately early 2012, and it will produce 56 million cubic meters of sweet gas a day. We are receiving 58 million cubic meters and exporting 52 to 53 million cubic meters a day of sweet gas to the national grid until the liquefaction projects are complete.
And these liquefaction projects will be completed in 2012?
Yes, in 2012 we will start the production of LNG if we receive the necessary budget from our shareholders. If we can achieve this goal, then we will send our first export cargo of liquefied natural gas in 2012.
Did the global financial crisis also affect your plans because you have foreign investors?
Not only because of the presence of foreign investors, but also because of their decision-making processes—they had some problems during the recession. They had to think twice about making new investments. We also experienced difficulties because of the finances of our internal shareholders, because petroleum prices were falling, and we were not able to obtain the investment we had targeted from both the government and private sector.
When liquefaction begins, what will be your production capacity? Will you export it all?
For the transportation of gas you have different means. If you have a pipe with a diameter of zero inches, then gas can be transported zero miles. If the diameter is 56 inches, then a maximum of 2,000 miles is logical to transport the gas by pipeline. Any more than this, and LNG is better. In the smaller diameters for pipelines, LNG is more logical for lower distances. But you can assume that for a radius of about 2,000 miles we can export the gas by pipeline. It’s logical and economical. For more than this, it is better to liquefy the gas. This demonstrates that we are not going to export the LNG inside of this radius. We have to export LNG over longer distances to markets such as India, Japan, China, or Europe.
Does Europe have a large demand for natural gas?
Not now. The more attractive markets for us are India and China as I don’t think that the countries of Europe are going to undergo big changes in terms of GDP growth. China’s growth pattern means that every year it needs an additional 5 million tons. But in Europe, for example, if it needs 20 million tons this year, next year it might need 20.5 million tons or so, not much more. When we start we have to enter new markets. These markets mostly comprise India and China, although Korea and Thailand are also under consideration.
The domestic consumption of gas is very high in Iran. Do you think this level of consumption will allow you or other companies to increase exports?
Yes, because first I think that domestic consumption will change drastically after the lifting of subsidies. Also, production is set to increase in Iran to about 1,000 million cubic meters in the coming years (400 million cubic meters more than now) by 2015 at the latest, and this is more than enough for injection and export.
Are you going to take all your feedstock from the South Pars region or are there other onshore fields you are looking to utilize?
We have many onshore as well as offshore fields that have only one owner, and this owner is Iran. But when you have something like South Pars where there are only two people on either side of the table, you want to at least have your share in your hand.
How does Iran LNG and its exports compare to other countries, like Qatar? How much do you look to export by 2015?
With the right funding, then in no more than one year from now we can stand on our feet independently. By that time we should have six to seven trains producing about 38-40 million tons of LNG and about 3.5 million tons of LPG. I think by then we will also have trains under construction for 20-25 million tons of LNG and 20 to 30 ships as LNG carriers. We will be a company with sales revenue of about $25 billion to $28 billion per year.
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