A leading analyst believes that Iran awarding the South Pars phase 11 development to China National Petroleum Corporation (CNPC) after finally losing patience with Total and Petronas was necessary in order for the country to meet demand.
The contract, worth US$4.7 billion will see the Chinese company develop a 1.76 billion cubic feet per day (bcf/d) of natural gas from the massive field. An Iranian official blamed Total for delaying the signing of the contract due to international sanctions against the Persian country.
Samuel Ciszuk, IHS Global Insight’s Middle East energy analyst believes that Iran needed to act after the long winded discussions showed no sign of being resolved.
“Iran is finally making real its years-old threats to relieve some of the prevaricating Western IOCs of their upstream development contracts, in order to get investment and development going,” Ciszuk said.
“Whether CNPC will actually invest and move forward remains to be seen. Over the years Chinese companies have been as reluctant to commit financially to potentially sanctions-busting deals as their IOC and NOC counterparts.”
“Nevertheless, CNPC—like its compatriot CNOOC at the North Pars project—indicates a willingness to gamble on the current softening of the Iranian nuclear disagreement resulting in eased relations all round,” he added.
Ciszuk also believes that it is not only the political implications of the deal that have made Total reticent to committing to a deal.
“Iran’s harsh investment and financial terms offered under its buy-back contract framework has been another, often less-discussed, reason for the companies’ reluctance to commit financially,” Ciszuk said.
“Every worsening of the political climate weakens the companies’ [Total and Petronas] desire to invest further, given that Iran’s government and parliament has largely continued to refuse to offer investment term improvements to compensate for the rising political risks,” he added.
Ciszuk also believes that Iran are being pro-active in handing the project to CNPC as the country’s domestic needs are rising.
“Iran faces a virtually stalled gas development sector, while domestic gas demand is rocketing, making it increasingly costly to have upstream phases on the South Pars field standing idle,” Ciszuk said.
“By handing the upstream segment of the Pars LNG project to CNPC, Iran hopes to start utilising this gas within a few years, deciding later what to do with a potential LNG venture, if sufficient feedstock is available then.” He added.
