By Jason Simpkins
Associate Editor
Iran's energy sector has again proved to be a point of controversy as both Royal Dutch Shell PLC (RDS.A, RDS.B) and Spain's Repsol YPF SA (REP) have withdrawn from one of Iran's largest natural gas projects after being pelted with political pressure from the United States.
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Shell and Repsol will no longer aid Iran in the development of phase 13 of the country's South Pars, the world's biggest gas field, the Financial Times reported. They did, however, leave open the possibility of working with Iran to develop phases 20 and 21, but it may be 10 years before those blocks are operational.
"Shell has agreed the principle of substitution of alternative later phases for the Persian LNG project so that [the National Iranian Oil Company] can proceed with the immediate development of phase 13," the company said in a statement.
Neither company would comment on U.S. pressure.
Last month, Iran's oil minister Gholam-Hossein Nozari gave the European oil majors, including France's Total SA (TOT), until June 19 to finalize their deals or risk losing them to Gazprom OAO (OGZPY) or Sinopec Shanghai Petrochemical Co. Ltd. (SHI).
Total has a memorandum of understanding with the state-owned NIOC to develop phase 11 of the South Pars field. However, Total Chief Executive Christophe De Margerie warned yesterday (Monday) that it would be difficult to reach an agreement in the short-term.
"In the short-term it will be difficult to find a win-win situation," Margerie told reporters in Doha. "We have told them we are interested in the long-term."
Iran produces more than 20 million tons of petrochemical products each year, and is the fourth largest oil producer in the world. The country controls about 5% of the global oil supply. It is estimated to have the world's second largest natural gas reserves after Russia.
However, the country has been ensnared by three sets of United Nations sanctions related to its ongoing nuclear program. While Iran insists its nuclear ambitions end at the civic level, the United States has spearheaded a campaign to keep the country from becoming a nuclear power in the volatile Middle East.
Bankers around the world have cut back lending to satisfy the U.S. government's demands. UBS AG (UBS), Deutsche Bank AG (DB), and HSBC Holdings PLC (HBC) have all reduced lending to Iran, and in some cases, cut it off all together.
Last year, the Organization for Economic Cooperation and Development cut Iran's country-risk rating for export credits to the second worst level. It now shares a category with Albania, Bangladesh and Mozambique.
That doesn't bode well for Iran, which lacks the experience, technology, equipment and money to develop its natural resources on its own.
Iran's own Nozari said in April that Iran would require about $500 billion in oil industry investment over the next 15 years.
However, as many Western parties back off, other foreign interests are stepping in to fill the void. Malaysia's SKS Ventures has signed a $6 billion contract with Iranian National Oil to develop the Golshan and Ferdows offshore gas fields. China's Sinopec announced a $2 billion contract to develop the Yadaravan oil field in Southern Iran. And Switzerland's Elektrizitaets-Gesellschaft Laufenburg signed a 25-year supply agreement with the Iranian regime.
Most recently, Iran, India and Pakistan put the finishing touches on an agreement that will bring Iranian gas to Pakistan and India through a $7.6 billion pipeline.
In response, the State Department's Sean McCormack warned that the United States would "counsel against" the pipeline plan.
"Given where Iran is in the international system, being under sanctions, and given its actions within the international system, is now really the time to conclude a pipline deal with the Iranian government?" he said.
However, insinuations from the United States that India should turn its back on Tehran or use its leverage to pressure Iran into abandoning its alleged nuclear ambitions have not been welcomed by Indian policymakers.
"India and Iran are ancient civilizations whose relations span centuries," India's Foreign Ministry fired back. "Neither country needs any guidance on the future conduct of bilateral relations."
Still, none of these countries have the experience, technology, or management expertise of the Western majors.
News and Related Story Links:
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Financial Times:
Shell and Repsol drop Iran gas project
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Money Morning:
India and Iran Plan Move Gas Project Forward Despite U.S. Reservations