Doha ends moratorium on North Field development in face of new competition from Tehran

Sunday 02/07/2017

Washington - Qatar’s development of its giant North Field, which began more than 20 years ago, propelled the small Gulf state into the position as the world’s largest exporter of liquefied natural gas (LNG). It also provided Doha with the substantial wealth and political clout to stand independently from its Gulf Arab neighbours on geopo­litical issues, including interaction with Iran. Doha’s distinctive stance towards Tehran has contributed to the crisis with other Gulf states.

However, Qatar’s announcement that it has lifted a 12-year morato­rium on new projects in the North Field, which it shares with Iran, is setting the stage for fierce competi­tion between Doha and Tehran for global gas market share. That com­petition could strain diplomatic re­lations that the two Gulf countries carefully cultivated.

Iran is moving quickly to expand its own gas potential now that it is free from the most stringent inter­national sanctions and is expected to surpass Doha’s production lev­els from their shared gas field this year.

Since the easing of sanctions in January 2016, Iran has prioritised developing its portion of the North Field, known as South Pars, be­cause it badly needs more gas to meet domestic power demand and for re-injection into ageing crude reservoirs. In November 2016, Iran signed a deal with French energy giant Total to develop its South Pars II project.

Qatar has been the largest global LNG exporter since 2006 but its top position is threatened by sev­eral gas-producing rivals, includ­ing Australia, which is expected to wrestle that crown away from Doha either this year or next. The Qatari regime needs a boost in gas production in the face of sliding oil production, sustained low oil pric­es and extravagant infrastructure expenditures as it prepares to host the 2022 FIFA World Cup.

The North Field, deemed the world’s largest natural gas field, stretches 9,700 in Gulf wa­ters between Qatar and Iran. Qa­tar’s portion, accounting for two-thirds of the field, is in the southern section. Qatar has aggressively developed North Field gas, while Iran got off to a slower start with its South Pars area due to internation­al sanctions that imposed financial and technological constraints.

Doha’s 2005 decision to place a moratorium on exploration in the North Field derived as much from political calculations as techni­cal and economic determinations. Rapid production had raised con­cerns about pressure levels in the field and the field’s depletion. Per­haps more importantly Doha was keenly aware that it was drawing Iran’s ire through its fast expansion of the North Field while Tehran was unable to progress past initial South Pars development phases, leading to accusations in Iran that Doha was “stealing” Iranian gas from the shared field.

The Qatari moratorium, put in place 12 years ago, was as much to appease Tehran as it was to safe­guard the reservoir from potential damage.

Iran shares several oil and gas cross-border fields and has been vocal when it believes its Gulf neighbours have been cheating Tehran. In December 2011, Emad Hosseini, then spokesman for the Iranian parliament’s energy com­mittee, accused Gulf Arab states sharing maritime borders with Iran of collaborating to exploit those fields to Tehran’s disadvantage.

Hosseini said: “Sometimes Saudi Arabia helps Kuwait extract more oil and gas in the shared fields. Sometimes Kuwait helps the Unit­ed Arab Emirates and sometimes the United Arab Emirates helps Oman.” In reference to the North Field, Hosseini said that “Qatar ex­ploits many times more than Iran from the shared gas field and start­ed its exploitation several years earlier than Iran. There should be a way to solve this problem.”

While diplomatic concerns may have prompted Doha to put further development of the North Field on hold for more than a decade, the fact that Qatar could lose market share to its neighbour as it faces intense competition from other gas producers was a clear incen­tive for lifting the moratorium. In announcing the end of the mora­torium, Qatar Petroleum (QP) CEO Saad Sherida al-Kaabi said the state energy firm would develop a new project in the North Field that would increase Qatar’s natural gas production capacity approximately 10% within seven years.

In February, when asked about the effects of Iran moving forward with work on South Pars, Kaabi in­sisted that Iranian development of its portion of the shared field “has nothing to do with what we do with the moratorium. It never did and it never will.” Two months later, the QP CEO declared that the morato­rium on new North Field develop­ment had been lifted.