IHS Global Insight Perspective | |
Significance | Seifollah Jashnsaz, managing director of the National Iranian Oil Company (NIOC) has not clarified whether Total will be relieved of its full stake in the integrated LNG venture, some part of it, or just the stake in the upstream phase; he also refrained from revealing who the new partner was. |
Implications | Total has been unable to proceed with the development of the venture given the international sanctions, and since last year there have been repeated rumours that the Pars LNG venture would be broken away from its upstream phase and joined with another, later, phase in the giant South Pars field. This would be similar to Iran's rescheduling of Shell and Repsol's Persian LNG venture less than a year ago. |
Outlook | Iran needs foreign technology for its LNG projects and has been reluctant to expel the non-performing majors, knowing by now that seemingly eager Chinese and Russian competitors are as reluctant as Total or Shell to actually break sanctions and launch investment, while lacking the downstream expertise. Development of the sectors closest to the Qatari maritime border is nevertheless a priority. |
Upping the Ante
"This company [Total] has procrastinated in commissioning this national project", Iran's IRNA news agency has quoted Seifollah Jashnsaz, managing director of the National Iranian Oil Company (NIOC), as saying, referring to the 10-million-t/y Pars LNG development, adding that "on the basis of coordination with Total officials, another partner will join Phase 11 of the South Pars gas field and Total's leadership share will be transferred [to the new partner]". Total is the operator of the integrated Pars LNG development, holding a 30% stake, with Malaysia's Petronas holding a 10% partnering stake after having withdrawn from half its stake some years ago. NIOC holds the remaining 50% (Petronas's former 10% remain officially unallocated). The upstream phase of the project—Phase 11—is wholly developed by Total and Petronas under a buy-back contract, where operator Total holds 60% and Petronas 40%.
Total and Petronas have repeatedly come under pressure from Iran to commence development of the 1.8-bcf/d gas production capacity, as well as the downstream liquefaction facility, but both companies have simultaneously been under immense pressure from the United States—and in the last eighteen months also the European Union (EU)—to curtail their investments in Iran, effectively putting a halt to the project before a final investment decision (originally due in late 2005) was ever taken. Petronas has been the partner least eager to keep its involvement, but has been unable to find a buyer for its stake, demonstrating the general unattractiveness associated with Iran by IOCs and NOCs when it comes to actually commit funds to its energy ventures.
With international sanctions having tightened over the past year, it is today completely unlikely that Total and Petronas would be in a position to move forward with the project. Knowing this, Iran is either trying to make an international political point—demonstrating to the United States and the EU that engagement and direct negotiations could unlock large investment opportunities for IOCs in Iran—or trying to release at least the upstream development of Phase 11 from the integrated scheme and bring it onstream through domestic efforts. This is much needed in order to meet its spiralling internal gas demand and stop the South Pars reservoir's gas reserves from potentially migrating to the highly developed southern Qatari part of the joint North Field/South Pars structure. Given the timing and the ferocity of Jashnsaz's statement, the latter is likely, with a potential rescheduling of the Pars LNG project, along the lines of last year's Shell/Repsol agreement about decoupling Persian LNG from Phase 13, long having been rumoured (see Iran: 13 May 2008: Iran Reshuffles South Pars Development, Delays Shell/Repsol LNG Project to Salvage Momentum).
Fearing Reserve Migration
Iran has increasingly come to fear that its failure to mirror Qatar in its successful and swift development of the shared North Field/South Pars field's production capacity is likely to cause reserves to migrate as pressure falls in the Qatari south and draws gas away from the northern Iranian sectors. This potential loss of reserves has not been officially proven, but is an issue now being taken very seriously in both countries, with the Qataris fully aware of the similarities with Iraqi grievances in the wake of that country's invasion of Kuwait in 1990.
Iran for its part needs to rapidly develop production capacity on those sectors of the giant field closest to the Qatari maritime border, Phase 11 being one of them. In addition, Iran has undertaken the development of several preceding upstream phases by now on its own, planning to bring phases 9 and 10 fully onstream this year and thus make the development of Phase 11 a logical continuation. Although its domestic capabilities have been stretched and the results have been less effective given its shortage of advanced technology (with lower production capacity than on those phases previously developed by IOCs), at least significant production capacity has been brought onstream. With Iranian demand rocketing, both from private and industrial consumption and from a continually growing need for gas reinjection to maintain crude production capacity at its ageing oilfields, there is an insistent call for more reserves to be developed that the Iranians cannot ignore.
Mystery Partner
Iran has over the past two to three years been approached by mainly Chinese and Russian companies willing to sign memoranda of understanding (MoU) for integrated LNG deals or oil development contracts, in the absence of the more technologically competitive Western majors. None of these companies, however, possesses the most advanced LNG technology, and as time has passed it has become clear to the Iranians that these are in no position to commit to any large investments either, as they too are unwilling to break the international sanctions regime facing the Islamic Republic.
Hence, Jashnsaz's "mystery partner"—to take Total's (and most likely Petronas's) stake in the project—could well be a domestic company, with the capacity to develop the upstream Phase 11, while Total's Pars LNG venture could be rescheduled as one of the field's last phases, not slated to come onstream until sometime past the middle of next decade. Over the past year Chinese companies have been mentioned as likely takers of Total's Phase 11 upstream stake, although their reluctance to commit financially soon enough for the Iranians in general is a lesson well learnt by the NIOC and its subsidiaries by now.
Outlook and Implications
Given Iran's reliance on the Western majors to get hold of LNG technology, a full revoking of Total's stake in the integrated Pars LNG venture is unlikely. Rather, Iran might strip it of the upstream share in the Phase 11 buy-back contract and look to bundle the LNG venture up with an upstream phase much later in the overall South Pars development scheme.
The current sanctions regime has, however, been very successful in halting investment in Iran, making it relatively unlikely that another foreign company would be invited, as their reluctance to commit funds and undertake development swiftly would defeat the Iranian objective of booting Total out of Phase 11 in order to develop its maritime border areas more quickly. While the investment of a Chinese or Russian company cannot be ruled out, the contract is much more likely to go to one of the semi- or fully state-owned Iranian entities involved in the development of some of the previous upstream South Pars phases.
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