Tehran seeks $20bn from Gulf investors

10 October 2008
Cash injection is needed for liquefied natural gas plants as sanctions deter international oil majors.

Iran is seeking up to $20bn in private investment from the Gulf for two liquefied natural gas (LNG) projects after oil majors claimed UN sanctions were stopping them from investing in the schemes.

Tehran says the international oil companies (IOCs) will be kept on as technical advisers.

France’s Total, which is seeking to develop the South Pars LNG project, and the UK/Dutch Shell Group, which has signed an upstream agreement for the Iran LNG facility, both told Tehran in May this year that they could not commit to either development because of the US sanctions, triggered by heightened tension over Tehran’s disputed nuclear power programme (MEED 13:5:08).

Investment being sought by Tehran from Gulf investors$20bn
Original LNG capacity planned by France’s Total at South Pars10 million t/y
Cost of South Pars plant, up from $3bn proposed by Total$10bn
t/y=tonnes a year; LNG=liquefied natural gas. Source: Petroleum Ministry

At the time, Total said it remained hopeful of agreeing a deal in the longer term, despite the problems over international sanctions.

Shell also said it was considering developing projects at a later date.

Akbar Torkan, deputy head of planning affairs at the Petroleum Ministry, tells MEED that while he is not happy with the progress of either project, a compromise may be found by injecting funds from other investors in the Gulf, to ensure the schemes go ahead.

“There are some other sources of money in the area - Gulf countries - that are capable of supplying the necessary funds for this development, and we are in discussions about this,” he says.

“We think there are ways to develop the phases that will mean we do not have any sanctions restrictions from the US.”

Torkan declines to name the investors with which Tehran is holding talks.

Despite threats earlier this year that Iran might seek to replace Total and Shell on the schemes with other oil companies, Torkan says the new arrangement would still involve the firms, but in different capacities.

“They [Total and Shell] have some restriction on investing in Iran and we know that,” he says.

“But they do not have any restrictions on technical co-operation with us. Because of the long-term co-operation we have with the firms, we prefer to solve this matter by negotiation.

“We understand they are under pressure from the US, and because of that, we are trying to find some solutions.”

Torkan estimates that at least $20bn will be required to fund the projects, given the increase in construction and materials costs across the region since the deals were first struck.

“It will be more than $20bn together to develop these because investment for LNG has increased a lot over the past three to four years,” he says.

“At the beginning with Total, it was decided to have a LNG capacity of 10 million tonnes [a year] at a cost of $3bn. Now the cost of the plant will be $10bn.”

Torkan, who was responsible for developing the South Pars gas field in his previous position as head of Pars Oil & Gas Company (POGC), says development of South Pars reserves remains a priority.

Of the 24 different phases that are planned at the South Pars field, production has started at five, and POGC will begin production from phases six to 10 by November.

Torkan says phases six to eight, which are being developed by Norway’s StatoilHydro, will now produce about 3.3 billion cubic feet a day (cf/d) of gas, compared with the initial forecast of 2.6 billion cf/d, following a request to increase capacity by Japan’s Toyo Engineering Corporation, which is helping to develop the field.

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