Iran-Oman gas pipeline project requires lifting of US sanctions

Iran’s official IRNA news agency reported that during Oil Minister Javad Owji’s visit to Oman, the two countries agreed to relaunch an offshore gas pipeline project.

Neither Oman’s oil ministry nor the Omani media confirmed the deal after Saturday’s meeting.

Iran and Oman signed a memorandum of understanding in 2003 to build a 200 km pipeline between Kuh-e Mobarak in Iran and the port of Sohar in Oman, estimated at the time to be around $1.2 billion. Based on the agreement, Iran was to start delivering 10 billion cubic meters per year (bcm/year) to Oman in 2008 for 25 years. But the deal never materialized due to growing tensions between Iran and the West, leading to international sanctions being phased in around 2010 to curb Tehran’s nuclear program.

Neither Iran nor Oman has the technology to lay a pipeline in the deep waters of the Arabian Sea, which in some places reach the depth of a kilometer. As long as US sanctions against Iran remain, no major global corporation will be willing to get involved in the pipeline project.

Iran only has the capacity to build offshore pipelines less than 150 meters deep.

A view of Iran’s oil and gas center at Asalouyeh on the Persian Gulf

Over the past two decades, Iran and Oman have had dozens of meetings to keep the deal alive, with no progress. The last time, several months before the American withdrawal from the nuclear agreement with Iran (JCPOA) in May 2018, Iran and Oman had agreed to revive the project.

Why does Oman need Iranian gas?

Over the past decade, Oman’s annual gas production growth has averaged 4.4%, but its annual demand has increased by 6.3%. The country then began to face a shortage of gas for its LNG plants with a capacity of 10.7 million tonnes (about 15 billion m3/year) to liquefy the gas and export it to international markets.

According to statistics from British Petroleum, Oman’s LNG exports broke a record 14.8 bcm in 2019, but fell to 14 bcm in 2020.

Iran plans to use the unused capacity of Oman’s LNG plants (2 billion m3/year in the future) to liquefy its gas and export it to international markets. The rest of Iranian gas should be delivered to Oman for domestic use.

BP has developed the Khazzan gas field in Oman to increase its production capacity and the capacity of Oman’s LNG plants is also expected to increase to around 16 bcm/year in 2022.

But, Oman’s gas reserves are only 700 billion m3 and given its annual domestic demand of 50 billion m3/year (including 13 billion m3/year of gas injection into oil fields for improve their productivity) as well as the capacity of the LNG plant of 16 billion m3/year, it must import gas in the long term.

Iran, with 33 trillion cubic meters of gas reserves, ranks second in the world after Russia, but faces huge gas shortages in winter when domestic demand peaks. Iran is deprived of foreign expertise and an investment estimated at 40 billion dollars required to increase its gas production.

On the other hand, Iran’s gas demand increased by 6 billion cubic meters to 238 billion cubic meters last year. Its annual gas demand growth has averaged 5.2% over the past decade, while its gas production growth is very low due to the sanctions.

Mohsen Khojastepur, former Managing Director of Iran’s National Oil Company said in November 2021 that if new investments are not made in the natural gas industry, the country will become a net importer in the next few years.

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