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Iran Signs Major Gas Deal With China; Is Europe Next?

June 11, 2009 by  


Pro-Israel sanctions cost Europe dearly

By Bruce Pannier, www.rferl.org

Iran has found its long-sought-after partner to help develop part of the world’s largest natural-gas field, even as the possibility of linking it to a future pipeline to Europe seemed to rise.

China came out the big winner on June 3 when representatives from the China National Petroleum Corporation (CNPC) and the National Iranian Oil Company (NIOC) met in the Chinese capital and signed a $4.7 billion contract for developing Phase 11 of the South Pars gas field.

South Pars, shared between Iran and Qatar, has estimated gas reserves of some 14 trillion cubic meters, enough to supply Europe’s gas needs for about a quarter of a century.

The CNPC’s gain is the French energy company Total’s loss. In 2004, Total signed a memorandum of understanding with NIOC to develop Phase 11, one of 24 sections that make up the Iranian part of South Pars, and among those with the highest potential.

However, according to Iranian officials, the French company delayed signing the final agreements for too long, despite warnings from Tehran that time was running out. Total said just a few months ago it would not be ready to sign such a contract for some time yet.

Total, in an official statement released on June 3, said it still wants to be part of the deal, but that does not appear to be an option. However, the Iranian government is offering the French company an opportunity to participate in the development of other sections of South Pars and in the production of liquefied natural gas.

NIOC managing director Seifollah Jashnsaz, who was in Beijing for the signing, told reporters he hoped daily production at the site would reach some 50 million cubic meters (some 18 billion cubic meters annually).

The deal is a boon for China because the country’s continued economic growth hinges on access to energy resources. Iran profits not only from the Chinese investment but also from a high-profile agreement that demonstrates Tehran can attract partners to major projects, despite international sanctions.

Meanwhile, in comments that highlight Iran’s potential as an energy exporter, U.S. special energy envoy Richard Morningstar on June 4 left the door open for Iran to participate in the Nabucco pipeline project if relations between Washington and Tehran were normalized.

Nabucco is set to extend from Austria to Turkey’s eastern borders.

However, Morningstar explained clearly that including Iran in the project — an EU-led initiative that Brussels hopes can pipe Caspian and/or Middle East gas from the South Caucasus, across Turkey, and into Europe — without first resolving the issue of Iran’s nuclear-development program could “have a negative effect.”
This comes at a time when the new U.S. administration is calling for renewed dialogue with Iran.

Morningstar was speaking in Turkey, which plays a key role in the Nabucco project. Technically, the project description on Nabucco’s website describes the pipeline as “starting at the Georgian/Turkish and/or Iranian/Turkish border.”

While Nabucco’s route is fairly certain, its sources of gas are not. Nabucco plans to bring some 31 billion cubic meters (bcm) of gas annually and hopes to include gas from the Caspian Basin and Middle East in the pipeline.

But so far, Azerbaijan and Egypt seem to be the only committed suppliers — providing only enough gas for the first phase of the project (8 bcm annually).

None of the Central Asian states have made any specific pledges to supply gas for Nabucco. Iraq appears to be interested but that gas is in Iraq’s Kurdish region and the regional government there and central government in Baghdad are not in agreement on all the details of gas sales.

Iran, with the second-largest gas reserves in the world, could fill Nabucco by itself. Nabucco’s website indicates the pipeline’s shareholders envision a day such as the one Morningstar spoke of, when better relations between Iran and the United States remove the obstacles to Iran’s participation in energy-resource development and exports.

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