State-owned National Iranian Oil Company (NIOC) has warned China National Petroleum Corporation (CNPC) that it may lose its contract at the South Pars gas field if it continues to delay the field’s development.

Iran will start negotiations with domestic companies to replace CNPC if delays continue, according to state-owned Mehr news agency, although no official was named in the report.

Mehr also cites CNPC officials which claim financial restrictions are causing problems with moving ahead with the $5bn development.

CNPC signed a preliminary agreement with NIOC in June 2009 for the development of phase 11 of the South Pars gas field, replacing France’s Total. CNPC took a 12.5 per cent share of the project when the deal was finalised in February 2010. The partners aim to produce about 1.8 billion cubic feet a day (cf/d) of natural gas and 70,000 barrels a day (b/d) of condensates.

Iran has previously issued warnings to foreign firms for delays at South Pars. The UK-Dutch Shell Group and Spain’s Repsol were replaced at Phases 13 and 14 by the local Khatam al-Anbiya, an affiliate of the Iranian Revolutionary Guards Corps (IRGC) in May 2010 (MEED 30:5:10).

State-owned CNPC is China’s largest oil and gas producer and supplier, producing 54.5 per cent of the country’s crude oil and 82.3 per cent of its natural gas. As well as the South Pars gas field, CNPC is active at several sites in Iran, including the Masjed-i-Suleiman, North Azadegan, South Azadegan, and Kuhdasht oil fields.

Although CNPC does not operate in the US, its subsidiary, Petrochina, is listed on the New York Stock Exchange, which could therefore make it be subject to sanctions by US regulators. The Chinese Foreign Ministry insists it continues to observe UN sanctions and draws a clear distinction from the US’ unilateral sanctions.