On July 3 Iran formally signed a contract with China National Petroleum Corp (CNPC) and French oil company Total for the development and production of phase 11 of South Pars (SPII), which is the world’s largest natural gas field.
The twenty-year contract is the first Iranian Petroleum Contract and is based on the technical, contractual and commercial terms as per the Heads of Agreement signed on November 8 2016. Total is the operator of the SP11 project with a 50.1% interest alongside the Chinese state-owned oil and gas company CNPC (30%), and Petropars (19.9%), a wholly owned subsidiary of the National Iranian Oil Company.
The project will have a production capacity of 2 billion cubic feet per day (or 400,000 barrels of oil equivalent per day including condensate). The gas produced will supply the Iranian domestic market starting in 2021.
This is the first investment in the country by a European oil major since Western sanctions on Iran were eased following the nuclear agreement. It is also the first to be done under Iran’s new energy investment contract, which the government hopes will be attractive to international companies.
President Donald Trump has been ramping up the anti-Iran rhetoric in recent months and has described the nuclear agreement signed under his predecessor Barack Obama as the worst deal ever.
There are calls to reintroduce sanctions, but the powerful combination of France and China signing up to develop South Pars makes it unlikely that the US will have its way if it does call for sanctions to be re-imposed.
SP11 will be developed in two phases. The first phase, with an estimated cost of around US$2 billion, will consist of 30 wells and two wellhead platforms connected to existing onshore treatment facilities by two subsea pipelines. At a later stage, once required by reservoir conditions, a second phase will be launched involving the construction of offshore compression facilities, a first on the South Pars field.
Since the November 2016 Heads of Agreement signature, Total has been conducting engineering studies on behalf of the consortium and initiated calls for tender in order to award the contracts required to develop the project by the end of the year.
Total was already working on South Pars until sanctions were introduced in 2009, so was always seen as front-runner to sign up for the relaunched project.
“This is a major agreement for Total, which officially marks our return to Iran to open a new page in the history of our partnership with the country,” Patrick Pouyanné, chairman & CEO of Total said at the signing ceremony in Tehran.
“We are proud and honoured to be the first international company to sign an Iran Petroleum Contract, which offers an attractive commercial framework, following the 2015 international nuclear accord and to therefore contribute to the development of relations between Europe and Iran. Total will develop the project in strict compliance with applicable national and international laws. This project is in line with the Group’s strategy to expand its presence in the Middle East and grow its gas portfolio by adding low-cost, long-plateau assets.”
Iran holds the world’s largest natural gas reserves. The government has also been talking to oil majors such as Royal Dutch Shell and Lukoil to invest in its oil and gas fields.
Photo: Alireza824/Wikipedia
