BIG LNG PLANS BREWING AT THE NATIONAL IRANIAN

C O N F I D E N T I A L SECTION 01 OF 03 ISTANBUL 000233 SIPDIS LONDON FOR GAYLE; BERLIN FOR PAETZOLD; BAKU FOR HAUGEN; DUBAI FOR IRPO E.O. 12958: DECL: 05/09/2018 TAGS: PREL PGOV ECON ENRG EPET EINV IR TU SUBJECT: BIG LNG PLANS BREWING AT THE NATIONAL IRANIAN TANKER COMPANY REF: (A) MADRID 492 (B) ANKARA 402 (C) 2007 ISTANBUL 1015 Classified By: Deputy Principal Officer Sandra Ourdirk; Reason 1.5 (d). ¶1. (C) Summary and comment: Mohammed Souri, the Chairman of Iran's state-owned National Iranian Tanker Company (NITC), pitched to an oil and gas tanker industry conference in Istanbul on April 22 Iran's ambitious plans in the coming decade to leverage its vast natural gas reserves into commercially competitive liquid natural gas (LNG) exports. Souri predicted Iran's South Pars gas field will produce 83 million tons of LNG by 2020, and said NITC plans to buy 40 LNG tankers to ship that LNG globally, though he noted Iran's efforts to produce LNG from its South Pars field are developing slowly (predicting Iran would start up LNG production in 2012) and depend on help from foreign companies. Souri underscored Iran's support for "a gas OPEC" to coordinate production and pricing. In his only foray into geopolitics (which some in the audience did not appreciate) he warned that any "threat" to close the Straits of Hormuz could double the price of oil and gas. ¶2. (C) Summary and comment continued: Souri is a persuasive salesman whose goal here was to pitch Iran's ambitious LNG production and export plans to an audience concerned more about the economics and logistics of shipping LNG than the political risks associated with investing in Iranian hydrocarbons. We are skeptical of Souri's and Iran's grand LNG plans. Gas production in Iran continues to decline (and LNG production is non-existent) due to lack of investment, as foreign investors act with increasingly risk-averse caution. Indeed, in the short time since this conference, some key foreign companies Iran was counting on to invest in South Pars have pulled back (ref A),making further delays to Iran's LNG start-up date likely. End summary and comment. ¶3. (SBU) At an April 21-22, 2008, conference in Istanbul hosted by the International Association of Independent Tanker Owners (INTERTANKO),National Iranian Tanker Company (NITC) Chairman Mohammed Souri gave an overview of hydrocarbon reserves in the Persian Gulf and described NITC's long-term plans to export liquefied natural gas (LNG) from Iran's South Pars gas field, pitching NITC as an ideal business partners for countries and companies wanting access in the coming decade to LNG from South Pars. ¶4. (SBU) Proven oil reserves in the Persian Gulf: According to Souri, Iran's current proven oil reserves stand at 136 billion barrels, with a daily production of 4.2 million barrels/day (mbd),giving Iran a little under 100 years of reserves at current production rates. Souri underscored that only Saudi Arabia has more proven oil reserves (260 billion barrels),with Iraq (115 billion barrels),Kuwait (99 billion barrels),UAE (97 billion barrels),Qatar (15.5 billion barrels),and Oman (5.6 billion barrels) trailing behind. ¶5. (SBU) Persian Gulf oil exports: Souri indicated that in 2007 the seven leading Persian Gulf oil-exporting countries exported 18.2 million barrels a day (mbd) of oil, primarily to Japan (4.4 mbd),China (3.7 mbd),Europe (2.8 mbd),Korea (2.2 mbd),and the U.S. (2.2. mbd). Souri said that according to National Iranian Oil Company (NIOC) estimates, Persian Gulf oil exports would reach 28.3 mbd by 2020, and 33.8 mbd by 2030. To meet rapidly growing demand, according to Souri, NIOC estimates that Persian Gulf oil exporters will need to invest some 671 billion USD -- including 160 billion USD specifically in Iran -- to build refinery, liquefaction, and export capacity. ¶6. (SBU) Liquid Natural Gas (LNG) Production in the Persian Gulf: Citing estimates from NITC's planning office, Souri explained that among Persian Gulf countries Qatar currently produces 31 million tons of per year (MTPA) of LNG; Oman produces 6.2 MTPA and Abu Dhabi (UAE) produces 6 MTPA, for a total of 43 MTPA of LNG from the Persian Gulf region. Souri acknowledged that despite Iran's vast natural gas reserves it does not yet produce LNG, though Iran's NIOC is negotiating with several foreign oil companies to invest in future LNG exports from its South Pars gas field, "the largest gas field in the world." (Comment: According to press reports, Iran's state-owned Pars Oil and Gas Company, a subsidiary of NIOC, is pursuing the "Pars LNG" project with Total and Petronas and the "Persian LNG" project with Shell and Repsol, as well as pursuing its own LNG development at South Pars. The earliest estimated date for any of these LNG projects to start up is 2012.) Projecting optimism, and avoiding any mention of foreign commercial concerns regarding the risks of investing in Iran's hydrocarbon sector, Souri said that Iran ISTANBUL 00000233 002 OF 003 plans to produce 83 million tons of LNG from South Pars by ¶2020. ¶7. (SBU) Preparing for LNG growth worldwide: NITC estimates that by 2030, 50% of world natural gas production will be shipped in the form of LNG. According to Souri, Persian Gulf states hold about 41% of world gas reserves, suggesting that "expanding our ability to export Persian Gulf LNG is a critical need both for Iran and for global markets." Souri said Iran is working with "the major gas players of the region" to support the establishment of a natural gas producers' organization -- "a gas OPEC" -- to coordinate the production and sales of natural gas, including LNG. "This would have a significant, drastic impact on LNG movement worldwide." (Comment: According to press accounts, energy officials from leading gas producing states met in Tehran April 28 under the auspices of the Gas Exporting Countries Forum (GECF),to continue discussions on this idea.) ¶8. (SBU) More tankers needed: NITC is the largest shipping company among Persian Gulf states, with over 25% of Persian Gulf tanker fleet capacity by gross deadweight, and is poised to become the world's fourth largest supertanker operator by 2009, according to Souri. By 2009, NITC will have a fleet of 51 tankers, including 28 "very large crude carriers" -- supertankers -- of which 19 are operational and nine are due to be delivered from South Korean shipyards in 2008-9. (Comment: A listing of NITC's A-class, D-class, F-class, H-class, N-class, and S-class tankers, dating from June 2005, is available at NITC's website, www.nitc.co.ir.) To meet future LNG exports needs, according to Souri, NITC is also planning to order 40 LNG tankers "as soon as Iran's LNG projects start operations." ¶9. (SBU) The Hormuz Strait, "the key to Persian Gulf supplies": Souri underscored the strategic importance of the Strait of Hormuz (and control over the islands in the Strait) to the free flow of hydrocarbon supplies from the Persian Gulf to world markets, noting that 30,000 vessels pass through the Strait of Hormuz every year, carrying "one fifth of the world's daily oil consumption" -- 17.1 million barrels of oil a day (mbd). Souri predicted this volume would almost double -- to 33 mbd -- by 2030. Venturing briefly away from economics and into geo-politics, Souri warned that "any action to block, or even threaten to block, this vitally important waterway will impact drastically on the price of oil, which could double as a result." ¶10. (SBU) Souri wrapped up his presentation by highlighting NITC's seamanship training center, which provides NITC with about 150 cadets a year. Souri noted this was one of Iran's six professional training seamanship training academies. (Comment: According to NITC's website, www.nitc.co.ir, total NITC personnel number some 2400 seafaring crew, plus support staff in Tehran and elsewhere.) Souri also noted NITC's unvarnished disciplinary record of having had none of its cadets detained in foreign ports in the past 15 years. ¶11. (C) Comment: As with recent previous Iranian energy delegations in Istanbul (ref C),Souri's objective at this conference was to pitch Iran's hydrocarbon sector -- in particular Iranian LNG, carried to global markets by NITC tankers -- as both a dominant player and cooperative partner in helping countries meet rising global energy demands. Souri avoided any reference to the significant political risks associated with investing in Iran's hydrocarbon sector, and at one point tried to distance NITC itself from the Iranian regime by claiming it is a private, non-government-owned, company (by virtue of the fact that 67% of the company's equity is controlled by Iranian state employee and oil industry employee retirement funds). On the other hand, Souri's one foray into geopolitics -- arguing that any foreign "threat" to close the Strait of Hormuz would double the price of oil -- was received poorly by some in the audience, including a Middle East oil shipping executive who told us that making such a politically controversial remark at an industry conference undercut NITC's credibility. ¶12. (C) Comment continued, and bio note: Overall Souri's long-standing industry experience and connections gained from 23 years as NITC's chairman, and his excellent English language skills (having graduated with a mechanical engineering degree from Howard University in Washington D.C. and having translated several books from English to Persian) make him a persuasive salesman for the Iranian regime's LNG ambitions. But as ref A tellingly reports, key foreign companies like Shell and Repsol may now be looking to sell their stake in their LNG-related South Pars project, which could result in even further delays to NITC's and Iran's ambitious LNG export plans. End Comment. ISTANBUL 00000233 003 OF 003 WIENER