Iran has awarded $17 billion in contracts to help prevent a significant drop in production at the world’s largest gas reservoir. The South Pars field, covering 3,700 square kilometers, holds about 14.2 trillion cubic meters (tcm) of gas reserves and 18 billion barrels of gas condensate. South Pars is critical, generating almost 80% of Iran’s gas production and accounting for 40% of the country’s total gas reserves, which are mainly located in the southern Fars, Bushehr, and Hormozgan regions.
However, Iran faces competition from Qatar, which shares the South Pars field (known on its side as the North Dome). Qatar has been ramping up its production, using pressure-enhancing techniques that could worsen Iran’s own production outlook. As a result, Iran’s Petroleum Ministry is concerned about a drastic decline in output.
Currently, South Pars produces around 700 million cubic meters (mcm/d) of gas daily. Iran’s Petroleum Ministry has projected a decline of 28 mcm/d per year starting in 2027, with losses increasing to 42 mcm/d per year after 2029. However, a senior source close to the Ministry told OilPrice.com that these projections may underestimate the decline. The National Development Fund of Iran has warned that the country’s total gas production could fall by 25% over the next decade, with South Pars seeing a 30% decline.
Without major upgrades, production could drop to as low as 200 mcm/d by the end of 2026, creating a substantial gap in domestic gas supply, particularly for heating and industrial needs. The success of the newly awarded contracts will depend largely on how the contractors manage the wells. Before the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) in 2018, Iran and Qatar had worked together to develop the field without compromising its future potential. However, after the reimposition of sanctions, local Iranian firms struggled to maintain the field’s integrity, leading to rushed drilling and damaged wells.
In recent months, Iran’s options for external help have become more limited. China, which had previously supported Iran under the Iran-China 25-Year Comprehensive Cooperation Agreement, has scaled back its involvement due to increased scrutiny from the U.S. and its own economic challenges post-COVID. Russia, also hit by sanctions due to the war in Ukraine, has not been able to provide sufficient assistance.
For Iran’s South Pars to avoid further decline, advanced technology and expertise from top Western firms, such as TotalEnergies, are needed. TotalEnergies had previously been involved in Phase 11 of South Pars, including plans to build a massive 20,000-ton platform and several large compressors. However, no Iranian company has the capacity to replicate such infrastructure.
The four companies awarded the $17 billion contracts are Petropars, MAPNA Group, Oil Industries Engineering and Construction, and the Islamic Revolutionary Guard Corps’ Khatam al-Anbiya Construction Headquarters. However, unofficially, there are concerns within the Petroleum Ministry that Russian firms, which have been contracted to work on South Pars between 2019 and 2024, need to make more substantial progress on the project.
Under the new arrangement, Russian firms will receive up to 35% of the increased output, at a 30-35% discount. The deal also positions Russia as a key player in the growing relationship between China and Iran. In response to U.S. sanctions, Russian intermediaries have set up shell companies in Singapore, Malaysia, and Indonesia to act as buyers for China, bypassing the restrictions.
While the financial details remain fluid, the deal is seen as advantageous for Russia, as it will not only control much of the output but also have significant influence over the price at which the gas is sold.
Related Topics:
- Saudi Arabia Grants $2.6-Billion Contract for Natural Gas Power Plant
- Iraq Struggles with Gas Shortage While Exploring New Oil Export Markets
- Türkiye Extends U.s. Sanctions Waiver To Continue Paying For Russian Gas