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The Future of One of the Largest Offshore Gas Projects in the World – Phase 11 of South Pars in Iran – Is Unclear After Conflicting Reports Emerged in Iran Over the Past Few Days.
As previously reported, the French oil company Total said in May that it would withdraw from the project due to the US re-imposing economic sanctions against Iran. The Islamic Republic News Agency (IRNA) reported on Saturday that the Chinese have taken over the project after Total’s withdrawal.
IRNA stated that the Chinese company CNPC “replaced Total in the project for the development of Phase 11 of the South Pars Gas Field, thus increasing its stake in the deal to up to 80%.”
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Total Not Officially
However, in an article also released on Saturday, Iran, a news site backed by the Iranian government that covers the oil and gas industry, stated that the agreement with Total is still in effect. Shana quoted Mohammad Mostavafi, director of NIOC, who said: “The members of the consortium entrusted with the development of Phase 11 of South Pars will fulfill their roles as stipulated in the provisions of the agreement and to date no modifications have been made to the provisions of the contract.”
This was also confirmed one day later when Shana quoted Shojaoddin Bazargani, Deputy Minister of Oil for Legal and Parliamentary Affairs, who said that Total had not officially withdrawn from the project yet, and that the Iranian Ministry of Oil would make an announcement if and when that occurs. “CNPC International announced that it would exceed Total’s stake in the contract if it withdraws,” Shana said.
In July 2017, Total and the National Iranian Oil Company (NIOC) signed a contract for the development and production of Phase 11 of South Pars (SP11), the largest gas field in the world. Under the agreement, the project was expected to have a production capacity of 2 billion cubic feet per day or 400,000 barrels of oil equivalent per day, including condensate, and the gas produced would supply the Iranian domestic market starting in 2021.
However, US President Donald Trump stated in May that he would cancel the previously signed nuclear agreement with Iran and that he would re-impose all economic sanctions against Iran. The first part of these sanctions, related to financing projects for banks in Iran, came into effect last week. (More here).
Following the US government announcement in May, Total, which was preparing to start awarding equipment and service contracts for the project, stated that it would withdraw amid US sanctions unless a waiver was granted.
We Will Not Risk US Dollars
“Total will not be able to continue the SP11 project and will have to unwind all related operations by November 4, 2018, unless Total is granted a specific project waiver by US authorities with support from French and European authorities. This project waiver must include protection for the Company from any secondary sanctions, according to US legislation,” Total said.
Total stated that it would not risk losing financing in US dollars from North American banks for its global operations (North American banks are involved in over 90% of Total’s financing operations), the loss of its shareholders in the US (US shareholders represent over 30% of Total’s shares) or the inability to continue its operations in the US (US assets represent over $10 billion of employed capital).
“Under these circumstances, Total will not undertake any other commitments related to the SP11 project and, in accordance with its contractual commitments to the Iranian authorities, will engage with French and US authorities to explore the possibility of a project waiver.”
Trump: Choose Between the US and Iran!
According to the Iranians, Total is still the operator of the SP11 project with a 50.1% stake alongside the Chinese state oil and gas company CNPC (30%) and Petropars (19.9%), a wholly owned subsidiary of NIOC. However, it remains to be seen if the current stake distribution will remain in force or if CNPC will take over. US President Trump signed an executive order last week that introduces the first round of sanctions against Iran. He then tweeted, warning partners that they would have to choose between Iran and the US.
“Iran sanctions have officially been launched. These are the most severe sanctions ever imposed and will increase even further in November. Anyone doing business with Iran WILL NOT be doing business with the United States,” he said. The executive order reinstates sanctions on all persons who have provided support or goods or services for Iran to acquire US banknotes, effective August 7. Sanctions related to the oil industry will go into effect in November.
Trump authorized the Treasury Department to impose sanctions on a foreign financial institution that facilitates a significant financial transaction, effective November 5, 2018, for the purchase, acquisition, sale, transportation, or marketing of oil or derivatives from Iran; or for the purchase, acquisition, sale, transportation, or marketing of petrochemical products from Iran.
China: Business as Usual with Iran
It has been reported that the US wants to bring Iranian crude oil exports to zero. However, this is unlikely to happen. Unlike Total, the Chinese have no financing issues and have dismissed US requests for everyone to suspend Iranian oil imports.
When recently asked if China would follow the US in suspending Iranian oil imports, a spokesperson for the Chinese Ministry of Foreign Affairs said: “We have already responded to similar questions many times. China and Iran, under the precondition of not violating their respective international obligations, have maintained normal exchanges and cooperation.
“This is reasonable, legitimate, legal, and above reproach. In the meantime, China always opposes unilateral sanctions and ‘long-arm jurisdiction.’ China’s legitimate rights and interests must be safeguarded. This position is firm and clear.”
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