Oil majors refuse to agree to June deadline for Iran's South Pars

18 April 2008

Oil Minister reiterates threat to offer stakes to rivals if commitment is not made.

France's Total and the UK/Dutch Shell Group say they are unlikely to commit to two major gas projects in Iran's South Pars field by the June deadline set by Tehran, because of concerns over the financial and political climate.

Iranian Oil Minister Gholam-hossein Nozari reiterated in mid-April that June would be the final deadline for Shell and Total to commit to their respective projects before their stakes are offered to rivals.

Total is looking to develop a $10bn liquefied natural gas (LNG) project using feedstock from phase 11 of the South Pars field, while Shell is hoping to explore phase 13 of the field.

One senior executive from Total says no deal can be signed given the current US-led sanctions against Tehran.

"We have to recognise that it would be inappropriate to commit billions of dollars of investment today until Iran joins the international community," says the executive. "We keep things warm in the oven but at the same time there is no possibility of huge investments as things stand."

Total says the complexity of constructing two LNG trains when there is little infrastructure in place adds to the problem. The trains are due to produce about 4.5 million tonnes a year (t/y) each. "This is the first LNG project in Iran so you can imagine how even more complex it is," says the executive. "The technical and contractual side requires time but, taking into account the situation today, we cannot make these huge investments."

Shell says its technical work on the project is continuing but is unlikely to be completed before the June deadline. The company declined to say whether it would commit to the project.

"There is a lot of work to respond to the challenging contracting market and to make sure that we have structured the design in the right way," says Malcolm Brinded, Shell's head of exploration and production. "That is going to take us longer."

The National Iranian Oil Company (NIOC) instructed Pars Oil & Gas Company (POGC) in early April to speed up progress on several key phases of the South Pars gas field development project (MEED 7:4:08).

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