Talks will be held next week to discuss a possible deal between the two gas producing countries.
Iran wants Omani plants to process its gas
The scheme would involve piping gas from a shared reservoir off the northeast of the Musandum Peninsula to Oman for conversion into liquefied natural gas (LNG), which is compressed and frozen for export to the industrialised world. Part of the gas production would also be used domestically in Iran and Oman as well. The talks are not connected to the Salman field, which the UAE is hoping to exploit with Iran to send gas to Sharjah through a pipeline built by Crescent Petroleum.
The Oman deal represents Iran's best hope to get involved in the global LNG trade after US pressure forced Western companies to pull out of its own developing liquefaction programme, according to Samuel Ciszuk, an analyst at Global Insight. Iran has the world's second-largest reserves of gas after Russia. "It's quickly becoming Iran's only lifeline to export gas," he said. "It's almost the only Iranian project with a prospect of gaining access to LNG technology at all."
In late May, Ali Khayrandish, the managing director of Iran LNG, told a conference in Abu Dhabi that the country would be ready to export its first LNG cargo by the end of 2010. But Mr Ciszuk cast doubt on those forecasts. "I think 2010 is virtually impossible," he said. "If you look at what's being built, it's things like foundations, tank farms and jetties. When it actually comes to the plant itself, no progress has been made."
Several European oil companies, including Royal Dutch Shell, Total, Repsol and Statoil Hydro, have recently pulled out of projects to help develop South Pars, a giant gas field that would source gas for Iran LNG. Political considerations aside, the scheme to export gas through Oman would be a boon for both sides, Mr Ciszuk said. Oman, which has built expensive LNG facilities but is now suffering from a shortage of gas, is looking for new sources.
Iran, which has no LNG facilities of its own, is looking to break the stranglehold of sanctions and limited access to foreign companies that has retarded efforts to export its reserves. A joint venture could provide for technological transfer and allow Iranian personnel to gain experience in the global LNG trade, Mr Ciszuk said. "If there wasn't any political pressure, the Omanis would be very interested," he said.
Manouchehr Takin, an analyst at the Centre for Global Energy Studies in London, said the negotiations were "a good sign", and a chance for Oman and Iran to increase their economic ties. He noted that of all the GCC countries, Oman had historically been closest to the region's neighbour to the north. Those historical ties might induce Oman to shrug off American pressure and sign a deal, he said. But Mr Ciszuk said that although Oman had often played a neutral role in the tense relationship between Tehran and Washington, he doubted the country would risk angering the Americans by actually signing a deal. "The political cost would be immense of doing anything."
He said that for the time being, Oman was biding its time and was simply interested in keeping "the door open" to a future agreement. The countries signed a broad agreement to co-operate on oil and gas production more than a year ago, but little has been announced since.