Pricing of Natural Gas Feed stock Based on Financial Assessment of Small-Scale LNG Plants in Iran

Export of liquefied natural gas (LNG) is one of the basic needs of the Iranian oil, gas and petrochemical industry due to the severe sanctions conditions in Iran, restrictions on export of natural gas through pipelines and increased use of LNG in the energy basket of different countries. However, in recent years, despite some attempts to produce this strategic product, no concrete results have been achieved in this area, and Iran has practically no share in the global LNG market. Despite some previous studies, due to changes in economic conditions in domestic and international markets in recent years, no new studies have been conducted on the economic and technical viability of LNG production in Iran. In addition, due to sanctions against Iran and the unavailability of large-scale licenses, it seems that the only way to develop this industry is to focus on small-scale plants. Therefore, in this paper we examine different aspects of this investment based on real data for small-scale plants and the current conditions of domestic and global markets. In addition, in this study, we simultaneously examine various factors affecting the project and the relationships among them and analyze the sensitivity of financial results to each factor. The results show that construction of small-scale LNG plants in Iran is profitable and offers an acceptable rate of return on investment. In addition, the results of the simultaneous study of factors show that compared to investment and operating costs, these projects are the most sensitive to changes in the LNG price. Given the sensitivity and correlation of LNG and petroleum prices in the Asian region, we analyze this correlation. We then proceed to propose a new feedstock price formula as one of the key factors in the success of these projects. The suggested feedstock price formula ensures a reasonable return on investment, while protecting the interests of the Ministry of Oil and the National Iranian Gas Company. JEL Classification: Q40, Q43, Q34 Keywords: Small-Scale LNG Plants, Internal Rate of Return, Natural Gas Feed Pricing, Oil Prices, Financial-Economic Evaluation