Iran enlists China for South Pars gas project

The country is moving to develop the remaining phases of its biggest gasfield without Western help.

Iran is moving to develop the remaining phases of its biggest gasfield without western help. Tehran signed a US$4.7 billion (Dh17.26bn) "co-operation contract" in Beijing yesterday for the development of phase 11 of the South Pars field in the Gulf with China National Petroleum Corporation (CNPC), replacing the French energy group Total, Iran's official IRNA news agency reported, quoting the head of the National Iranian Oil Company (NIOC).

IRNA said Seifollah Jashnsaz, the managing director of NIOC, had signed the deal after closing negotiations with CNPC in the Chinese capital. Total has a memorandum of understanding with NIOC for the project phase but had failed to reach an agreement on contract terms. Two years ago, with US government pressure on European companies to cut trade ties with Iran, Total said it would delay plans to develop a liquefied natural gas (LNG) plant that would have been fed by gas from phase 11 of South Pars.

In March, Mr Jashnsaz said Total had wasted time on developing phase 11 gas production and that a new partner would enter the project with a "leading share". Total declined yesterday to comment on the report of an Iranian deal with CNPC, but said it might later provide an update on the situation. A company official had previously said talks with Tehran were moving "very slowly" and a decision was still a long way off.

Tehran has viewed the enormous gasfield, with reserves estimated at about 500 trillion cubic feet (cu ft), as its key to establishing Iran as a major gas exporter. But the government's plans to develop three LNG projects associated with South Pars have so far been blocked by UN sanctions against Iran over uranium enrichment, which Washington and some of its staunchest allies believe is linked to a covert nuclear weapons programme. Last week, NIOC awarded a $5bn contract to its Oil Industry and Engineering Company unit to develop phases 20 and 21 of South Pars. The move appeared to push the Anglo-Dutch energy group Royal Dutch Shell out of the picture as a potential developer for those phases.

Shell said last year it was interested in participating in phases 20 and 21 of the gas development, after backing away from a tentative agreement to work on phase 13. In April, NIOC threatened to drop Shell and the Spanish company Repsol from its partner list for South Pars, and gave the companies 45 days to commit to developing phases 12 and 14 of the project, which were to include LNG facilities.

NIOC said it would develop the proposed Persian LNG plant with Chinese help, but analysts say China's national oil companies do not have the technical expertise to tackle such a project. Instead, Iran may develop South Pars gas to satisfy rapidly expanding domestic demand, and for pipeline exports. It has recently signed a deal with Pakistan to build a $7.5bn pipeline to supply its Asian neighbour with about 800 million cubic feet per day of gas, and is working on a second pipeline to deliver South Pars gas to Turkey. Iran's gas reserves, estimated at one trillion cu ft, are the world's second-biggest after Russia. But the NIOC has been slow to develop them. Its current gas exports, all to Turkey, barely offset gas imports into northern Iran from Turkmenistan.

Across the Gulf, Qatar has been rapidly developing its North Field offshore gas deposit which, together with South Pars, forms part of the world's biggest gasfield. Qatar is now the world's biggest LNG exporter. @Email:[e-mail]