Iran seeks foreign investors for gas pipeline

Fri, 21 November 2008

IRAN is considering allowing international companies to build and run an $8-billion gas export pipeline in an effort to boost sales to Europe, a top government official said recently. The pipeline is set to connect Iran’s giant South Pars gasfield in the Persian Gulf with Turkey and European customers, National Iranian Gas Co managing director Seyyed Reza Kasaeizadeh is reported as saying. Four companies, two from Iran and one each from Europe and Asia, are bidding for the contract to build the 1,800-km pipeline by 2014 under a build-own-operate, or BOO, deal, Mr Kasaeizadeh said.

Iran, is the world's second-largest owner of gas reserves, and is struggling to develop its oil and gas infrastructure as access to foreign companies and their expertise is limited by tighter economic sanctions intended to halt the country's nuclear research activities. A BOO contract gives rights to develop, finance, design, build, own, operate, and maintain the project. "Two Iranian contractors are ready to do it as a BOO, as are two foreign companies. This is new, for a foreign company to do a BOO for gas pipelines," Mr Kasaeizadeh said in his last interview as head of NIGC before taking up the top post at National Iranian Gas Export Co, or NIGEC. The contract will be awarded to one Iranian company and one foreign company or the two Iranian bidders may form a consortium with one of the international firms, he added, speaking at the NIGC headquarters in Tehran. While Iran is moving ahead with the plan to export some of its vast gas resources to Europe via pipeline, the country is also working to secure LNG technology, for which there is also a shortage due to sanctions over its controversial nuclear energy programme. The new Iranian Gas Trunkline 9, or IGAT-9, would be part of the planned 'Persian pipeline' project that aims to transport gas from South Pars to the city of Bazargan at the border with Turkey, and on to Italy, Austria and Switzerland, according to Mr Kasaeizadeh. The South Pars field, which has an estimated 436tcf in gas reserves, is offshore Assaluyeh, in Iran's southern Bushehr province, in the Persian Gulf. Alternatively, Iran may export the gas to Europe via the 3,300-km Nabucco pipeline, which aims to transport 31bn cum/yr of gas from the Caspian region, the Middle East, and Egypt to Europe through Turkey, Bulgaria, Hungary, Romania, and Austria. Talks about Iran's participation in the scheme are continuing, although potential Iranian involvement in Nabucco and alternative plans for gas exports to Europe are facing stiff resistance from the US, which is seeking to curb international business with Tehran. Total and Royal Dutch Shell, which had been in talks with Iran about LNG projects, earlier this year, are reported to have said they won't enter any new energy deals because of the country's heightened political risk. Iran is nevertheless seeking the participation of foreign firms in its IGAT-9 scheme in a bid to secure partial funding for the project, Mr Kasaeizadeh said. "For this pipeline, we have 17 compressor stations. Each compressor station has around four turbo-compressors. The cost of each station is around $100million," he said. The cost of the pipeline will also be driven up by the difficult territory the route will traverse, which includes some notable mountainous areas. It is unclear how international participants in the project would secure financing, as sanctions have also hampered Iran's ability to secure funds from international banks, most of which have stopped doing any new business with the Islamic Republic. But Mr Kasaeizadeh said sanctions won't hinder Iran's plans. "Sanctions have not had any effect on our work. It is possible that it affects work in other places, but it has not had any effect on our work." NIGC is understood already to have secured access to the raw materials required to build its pipelines, having signed import contracts before a set of stricter sanctions was imposed on the country, he said. "We have a long-term contract with European companies. Because our contract was already signed and we are now working on it together, we have had no problem because it was before the sanctions," Mr Kasaeizadeh continued. "We manufacture the pipe in Iran: we only have to bring the raw materials from outside. Large pipes are carbon steel for which we get the raw materials from abroad," he added. NIGC also has contracts with European companies for the supply of turbines and compressors: "One contract we have got is with Siemens, and another contract is with Ukrainian companies including Zorya Mashproekt and Sumy Frunze NPO."