South Pars Project’s Progress

Elaborating on the situation and progress of work on South Pars Project, Asadollah Salehiforouz says the field is an independent gas field shared between Iran and Qatar. It is located in the Persian Gulf and its distance from the borderline to coastal waters of Iran is about 100 kilometers. The first exploration well in the field was drilled in 1990.

To develop the field, the Oil Ministry set up Oil Engineering and Development Company and since financing the project was not possible after accepting UN resolution No. 598, the Economy Council approved the project to be continued on a buyback basis.

Managing director of Pars Oil and Gas Company stated that the field enjoyed unique reserves.

South Pars gas field enjoys about 8% of total known gas reserves of the world. Figures obtained after conducting seismological studies as well as drilling appraisal and developmental wells, have indicated Iran’s share to be more than initial estimates.

The field’s reserves, which are approximately 13 trillion cubic meters account for 50% of the country’s gas reserves. The volume of gas liquids in the field is about 17 billion barrels, which will undoubtedly increase.

With regard to the development of South Pars field by March 2003, the managing director noted that the first phase was given over to the Iranian Petropars Company after it was 20% complete.

The company was registered through Iran’s investment abroad. So far, 12 wells on two platforms have been drilled in this phase and the work on the related refineries is 97% complete and some units are being made operational. After installation of production and residential platforms (the latter can accommodate more than 100 people), as well as putting wells on a network and completing the marine pipeline pertaining to phase 1 of South Pars Project, the phase would come on-stream in the near future and start production.

The main partners to the plan are Industrial Development and Renovation Organization and Dailem Company of South Korea. The utility part of the project is being implemented by Mapna Company from Iran. Many contractors have been hired to implement it with Iranian specialists being in charge of an overall 60% of the project.

The contracts related to phases 2 and 3 were signed as buybacks in 1997. The project was initially made operational in March 2002. The contractor is a consortium comprising the French TOTAL, Malaysian Petronas as well as Russian Gasprom companies with respective shares of 40%, 30% and 30%. The main contractor of the refinery is Hyundai Company of South Korea, which implements most of the project through Iranian sub-contractors. About 36 Iranian sub-contractors carry on the main activities in the refinery under supervision of Hyundai and TOTAL companies.

Contractors for phases 4 and 5 of South Pars are Iranian Petropars and the Italian Agip companies with respective shares of 60% and 40%. After conclusion of the contract, 20% of it was ceded to Niko Company and the three companies are now implementing the project.

Contracts for phases 4 and 5 were signed in August 2000 and the first unit is to come on-stream in August 2004. Implementation of the project continues on schedule and it is expected to yield 50 million cubic meters of gas, 80,000 barrels gas liquids and 400 tons sulfur on a daily basis. Based on current projections, each year one million tons of LPG (liquefied petroleum gas) and one million tons ethane would be produced by the two phases. Ethane is a feed for petrochemical complexes and enjoys a high added value.

Ethane production has not been anticipated for phases 1, 2 and 3, but later it was decided that the whole produced gas must be transferred to a petrochemical complex which is being constructed near the refineries. There, substances used for producing LPG (C3 and C4) would be separated. The gas then would be returned for increase in production and injection into the cross-country gas network.

Referring to drilling of appraisal wells for these phases and drilling a developmental well, Salehiforouz added that the project has progressed by 28%, which conforms to schedule and is one of the refineries that must become operational 27 months after signing the contract.

Phases 6, 7 and 8 have been designed for the daily production of 80 million cubic meters of sour gas. The gas will be dried after refining, sweetening and separation of associated gas liquids as well as regulation of dew point. It will then be transferred to the south of country through a pipeline and four pressure boosting stations in Aghajari, to be used for injection into oil fields. Also, half a million tons of LPG would be separated and exported along with 120,000 barrels of gas liquids to return the costs.

These phases include installation of three production wells in the sea and gas would be transferred to the refinery through three 32-inch pipelines with the length of 105 kilometers. Contracts related to marine pipeline, as well as manufacture of jackets and topside for the field have been signed and Petropars has recently selected Norway’s Statoil as a partner. Petropars is the main contractor for phase 3 and it has recently taken charge of 40% of the marine part of the project. However, responsibility for the offshore sector has been undertaken by Statoil which is a good decision. Working at sea is a new enterprise and Petropars will gain valuable experiences.

The relevant tender bid has already been held, technical and financial appraisal has been completed and the winner will be announced soon.

The managing director of Pars Oil and Gas Company mentioned daily production of 50 million cubic meters of sweet gas, 80,000 barrels gas fluids, one million tons of LPG and one million tons of ethane as the main goal of phases 9 and 10 of South Pars Project.

The contract for the refinery was signed in August 2002 and its contractor is a consortium comprising South Korean LG Company, Oil Industries Engineering and Construction Company as well as Marine Installations Company; 60% of the work would be done by two Iranian contractors and 40% would be carried out by the South Korean contractor.

The main difference between the two phases and phases 1 through 8 is that phase 1 through 8 were carried out according to buyback scheme while phase 9 and 10 would be implemented through finance. The contractor has already prepared sureties and the down payment is also ready. These two phases have two wellhead platforms with 24 active wells and products would reach the coast through two pipelines. The sweetening refinery of both phases is located on the shore and the work is similar to phases 4 and 5.

Salehiforouz noted that the project for phases 11 and 12 would be carried out outside Assalouyeh region, 70 kilometers west of that region toward Bushehr, in an area known as Tonbak.

The project for implementing these two phases, as well as phase 13, aims at LNG (liquefied natural gas) production. Usually gas is transferred via pipeline for a distance of about 2,000 kilometers. For farther destinations, methane is usually liquefied and is carried to remote destinations such as China, Japan and India under a temperature of -160 degrees centigrade by special ships for carrying LNG.

For this phase, tender documents have been handed out and technical appraisal carried out. Since LNG sales would need a suitable market and since production without marketing would be in vain, on the order of the esteemed oil minister, phase 11 has been made ready to be handed over to the contractor. The winner would be announced soon. As for phase 12, relevant information would be given to contractors after drilling an appraisal well, so that they could forward more accurate proposals. After that, the winner of the tender would be announced and the plan would be ceded for implementation. Like phases 11 and 12, installations related to phase 13 would also be constructed in Tonbak region.

Phase 14 has been considered for GTL production and aims to convert natural gas to intermediate products of distillation, which use new technology. At present, part of GTL production pertains to phase 14 which is being implemented in Assaluyeh next to petrochemical projects in cooperation with the National Petrochemical Company as well as Royal-Dutch Shell. On the whole, so far, the above 14 phases have been defined and contracts for 10 phases have been signed. Bids for other phases are also underway and, as announced before, four new phases capable of producing 100 million cubic meters of gas have been projected for the current Iranian calendar year (started 21 March 2003) and defining new blocks by the consultant is underway.

Managing director of South Oil and Gas Company announced that an oil field parallel to the gas field has been discovered at a depth of 1,000 meters from the sea level.

Due to lack of accurate information on the field proposals made for developing the field have quoted high prices. Therefore, it was decided that Pars Oil and Gas Company drill three appraisal wells at three developmental blocks, so that adequate information could be presented to bidders. This has been carried out and one of the wells is yielding up to five thousand barrels of crude oil per day. After distribution of tender documents, the last phase of negotiations would be carried out with contractor. It is projected that the first phase of the field would produce up to 35,000 barrels of crude oil per day, which will reach 100,000 barrels per day after development of the field.

The estimated reserves of South Pars field stand at about 13 trillion cubic meters, but the figures change with drilling every new well. Also, 3D seismological studies will be carried out on the whole South Pars field whose contractor will soon be selected.

Information obtained through drilling developmental wells will be useful for designing the reservoir and estimating its contents. Meanwhile, the figure might change when more information is obtained.

Explaining on phases 2 and 3, the managing director stated that when the contract for developing the two phases was signed in October 1997 and after Conoco left the bid, TOTAL declared readiness to develop the field and this was the first buyback contract that was signed.

South Pars is a big project and is currently producing 50 million cubic meters gas, which is equal to one fourth of the gas produced by France. The project started with drilling two appraisal wells in the sea because in such projects, the contractor must be sure about the amount of gas reserve in the special block to invest in it. Fortunately, the appraisal well was complete on time and the contractor started to work.

In buyback deals, after selection of the main contractor through an international tender, that contractor would choose sub-contractors through the same method that governmental organizations use for selecting contractors. In this way, the main contractor provides Pars Oil and Gas Company, which represents the National Iranian Oil Company, with a list of sub-contractors and the contractor would base its work on the agreement reached on that list.

An international tender is usually held by sending the documents in special envelops used for financial and technical instruments. After receiving the envelops one copy is held at Pars Oil and Gas Company in the protected mode and the envelopes are opened in the presence of representatives from both companies, assessed and then the contractor is chosen.

There were many problems at the beginning because of the availability of a minimum of facilities. It was a rough terrain to such an extent that the bus carrying the President during his visit in February 1999 could not go up the hills related to phases 2 and 3 because they were too steep. However, after less than three years, the same point has become a refinery producing about 50 million cubic meters gas per day and 11,000 people are working under tough climatic conditions of Assaluyeh port with a humidity of 99% and a temperature that rises to 50 degrees centigrade in summer.

Out of 10,000-12,000 people who initially started to work there the number of non-Iranians did not exceed 1,000 because most of the work was carried out by qualified Iranian contractors. In view of the timetable, South Pars Project is one of the most rapid projects in the world.

TOTAL claims that phases 2 and 3 have progressed at a pace of 8% per month, which has been maintained over several months.

A conference on oil and gas projects is held in the United States every three years. TOTAL has presented South Pars Project as an exemplary project in that conference.

Construction of the refinery started in February 1999 and it joined the cross-country network on 10 March 2002. Since the first production in March 2002, the refinery has injected 7.7 billion cubic meters of gas into the cross-country network and has produced about 13 million barrels of gas liquids, more than 12 million barrels of which has been exported in 30 consignments making possible repayment of about $250 million of foreign liabilities.

Referring to modern technology used in South Pars refinery, the official stated that one of the platforms is located 105 kilometers off the coast and is controlled remotely from the shore, that is, nobody lives on that platform.

Gas transfer is carried out through a three-phased method, which includes gas-associated water, gas liquids and natural gas. This is a brand new technology and even Qatar, which started to work on the field earlier than Iran has not used this technology.

During phase 1, gas transfer from the sea would be carried out in two stages. That is, refining is carried out on the spot and the water accompanying gas, which is corrosive, is separated from it and liquids and gas are transferred to the shore. However, this is not true about phases 2 and 3 and other phases would be accomplished in three stages. Therefore, the project has led to transfer of a new production technology and a new technology for controlling operations to the country. The refinery has been operating since March 2002.

We attracted a total of 700 graduates about two years ago and they were trained under the best conditions. At present, they are running the refineries and will soon officially take charge of responsibilities. TOTAL will continue to supervise production with a limited group of its own experts until its investment has returned. Therefore, this project is one of the most rapid projects in the world and enjoys state-of-the-art technology.

The official noted that the gas produced by the refinery was of high quality with a less than 5 ppm sulfur content.

The composition of the produced gas is exemplar and is acceptable in comparison to gas produced by other wells. If phases 2 and 3 were not made operational during the current year we would have faced gas shortage in the winter, which could have untoward consequences for households and big industries. If the decision had not been made, we would have not spent a comfortable winter during the current year. This gas has been considered for industrial uses and big industries such as iron smelting as well as petrochemical complexes, households and exports.

Salehiforouz mentioned shortage of facilities in the region as an initial problem for implementing South Pars Project.

Formalities that prolonged discharge of goods were another problem while we had difficulties for supplying drinking water and transportation. However, the decision made by the High Council of Free Zones to establish the Assaluyeh special zone solved many problems. When President Khatami inaugurated Assaluyeh special zone in 1999, he was accompanied by the then head of Customs Administration, Mehdi Karbasian, who agreed to opening of a customs office in the zone and now, goods are discharged from ships in a single day and installed on their foundations.

At present, we are using a port where ships up to a capacity of 50,000 tons can berth while there was no port at the beginning and we had to construct a temporary dock for discharge of goods, which delayed our work due to foul weather and lack of breakwater. Today, an international airport has been built next to the project and it takes a direct flight 45 minutes from Assaluyeh to Tehran. The airport is five kilometers from where the activities are going on. Also, transportation in a region where about 40,000-50,000 are working in various workshops on a single narrow road could not be totally safe. For this reason, facilities for employees of the project have been established 70 kilometers away in a region known as Jam. Residential units have been built there and employees and their families can now get there through a four-lane highway.

Fortunately, after the start of the three phases, experienced contractors were established in the zone and there are suitable facilities such as high-tonnage cranes as well as machinery used for construction of refinery. If our facilities at the beginning were zero, they are now 95. There are good living facilities and establishment of the free zone has helped a lot.

Elaborating on joint projects which complemented South Pars Project, Salehiforouz stated that Iranian contractors from Khatam headquarters have built a water pool to be used by the cooling system of the refinery, which has a capacity of 25,000 cubic meters per hour.

To transfer the refinery’s gas, especially from phases 1, 2 and 3 to cross-country network, a 70-kilometers pipeline was constructed which was totally carried out by the Iranian specialists. The pipes were made in Ahvaz Pipe Company and contractors were Iranian too. The project belonged to Pars Oil and Gas Company and was implemented in one of the most difficult-to-pass regions and was really a big job. If the pipeline had not been made ready on time, the refinery would have not been able to start work on schedule. We must have delivered gas to refinery to start its work. Therefore, we made the pipeline and the gas was transferred in a reverse manner from Fajr Refinery, 70 kilometers away, and was used for making turbines, boilers and compressors operational. This was done until the gas for the refinery came from the sea and, at present, gas is transferred inversely from this refinery to Fajr Refinery thence to cross-country network.

Equipping the airport was also a great job. Flight control system used in the airport is one of the most advanced in the country. It has a 3,800-meter runway designed for Airbus planes on which Boeing 747s can also land and take off.

Appreciating all those who have endeavored to make phases 2 and 3 operational, managing director of Pars Oil and Gas Company pointed out that any progress in those phases was a result of special attention paid by the oil minister.

Mr. Zanganeh visits South Pars Project once a month and we, along with directors and executives of the project, present our reports every two weeks. This has played a special role in encouraging Pars Oil and Gas Company as well as all those who work in the region. When the highest ranking official pays periodical visits to a project, it reminds foreign contractors of its importance.

Until four or five years ago, Iranian specialists had little experience about offshore projects. Now they are self-sufficient.

The first thing we did was to manufacture jackets for production platforms one of which was built outside the country and the other one was simultaneously manufactured inside the country. After that, the first platform, that is, the same modern platform which is controlled remotely and is equipped with the most modern equipment including power generators and safety system for gas valves, was made in Persian Gulf Shipyards by the Iranian specialists under supervision of TOTAL.

It was a really complicated project and the resultant delay did not affect it greatly. The platform is currently transferring 26-27 million cubic meters gas from the sea.

Referring to domestic manufacture of sour gas pipeline, the official noted that the pipeline was manufactured at Ahvaz Pipe Company, registering the company among sour gas pipe manufacturers.

At that time we could not coat the pipes inside the country and took them outside the country for the purpose. This is currently done in Khorramshahr. The Offshore Installations Engineering Company has installed a factory that had been purchased previously and manufactured all the pipes needed for phases 1, 2, and 3, which totaled 18,000 branches or about 9,000 tons pipe for the second and third phases. If we intended to import the pipes, we would have faced major problems. However, when they are manufactured domestically, they create a lot of jobs. At least 1,000 people were employed in Khorramshahr.

Salehiforouz mentioned laying pipes at sea via barges as one of the most important activities of the company, adding, fortunately, taking advantage of Abuzar 1200 barge, which was previously floating and was then converted to a barge was carried out successfully. Abuzar 1200 has so far laid 22 kilometers of the pipeline for the first phase and, now, we have a pipe-laying ship. Contractor companies were very cooperative in this regard. Anyway, we can claim that we are now self-sufficient in this regard, which is a great achievement.

The managing director of Pars Oil and Gas Company noted that there were five yards for manufacturing marine installations in the country, adding, these facilities are established in Khorramshahr, Bushehr and Bandar Abbas. At present, we have contractors capable of manufacturing marine platforms. Therefore, one of the necessary platforms for phases 2 and 3 was manufactured in Bandar Abbas and another one was made outside the country. However, platforms for phases 4 through 8 would be manufactured inside the country. This has reduced prices, so that, the price of platforms which stood at about $123 million for phases 2 and 3 has reduced to 93-94 million dollars and the cost of pipeline which was $105 million for phases 2 and 3 has fallen to $70 million for phases 4 and 5. These companies were established inside the country, enjoy technical certificates and are currently performing under supervision of the main contractor companies.

He mentioned manpower training and technology transfer as other achievements of the South Pars Project.

We had 800-strong specialized workforce who had been trained and are running the refinery according to the most modern technology. During the construction period, about 10,000-12,000 were employed directly or indirectly at Assaluyeh workshops and you can barely find a workshop that has not played a role in South Pars. Therefore, since the project will further develop in the near future and petrochemical industries would be added, the number of employees in the region will reach 40,000-50,000.

We had projected about 14,000 employees for phases 4 and 5 because those phases have two products more than phases 2 and 3. There are other plans. Phases 6, 7, and 8 are just beginning. Therefore, we can employ 40,000-50,000 directly or indirectly.

Referring to the value of South Pars products, Salehiforouz noted that each phase of the field produces 50 million cubic meters of gas per day and if every cubic meter replaced one liter of oil products, which on average is priced at 14 cents, the saving would amount to $7 million per day.

The field is currently producing about 80,000 barrels of gas fluids. If we assume that every barrel is worth $25, the value would be about $2 million. In addition, about one million tons of LPG would be produced in phases 4 and 5 annually, every ton of which is currently worth $350. Ethane, which is used as petrochemical feedstock has an added value of up to 15 times, all of which is a great achievement for the country.