US sanctions on Iran cast a cloud over Total, CNPC gas project

The US has imposed unilateral sanctions, making life difficult for Total and CNPC regarding South Pars Gas Field

The US has imposed unilateral sanctions on Iran, making life difficult for both Total and China National Petroleum Corp (CNPC) regarding Iran's South Pars Gas Field. This was the biggest single project agreement to be signed after sanctions were lifted in mid 2015. It is led by Total of France (50.1% stake), with China National Petroleum Corp (30%) and National Iranian Oil Company (NIOC) subsidiary Petropars (19.9%). The EU stated it will continue to adhere to the Iran nuclear deal (Joint Comprehensive Plan of Action), after President Trump announced that the US is pulling out. 

The offshore gas field is in the Persian Gulf, in Iranian and Qatari waters. The Iranian part is named South Pars, the Qatari side North Dome. In tandem they are the world's largest gas field.

For Total, continuing with South Pars may hurt its US operations in the Gulf of Mexico. If Total pulls out, CNPC could acquire its stake thereby boosting its interest to 80.1%. This may further strain China's trading relationship with the US and allow CNPC to take the technical lead on the project. Total would lose the ability to capitalize on its offshore experience. While attending an oil & gas conference in Abu Dhabi on 13 May 2018, CNPC Chairman Wang Yilin said to Gulf News that CNPC has yet to make any decisions regarding Iran.

Japanese oil company Inpex said that it might pull back from plans to develop Iran's South Azadegan onshore oilfield. In October 2010 Inpex withdrew from Azadegan and sold its 10% stake back to National Iranian Oil Company (NIOC) because of US sanctions.

The Iran nuclear deal was signed in July 2015 by Iran, P5+1 (five permanent Security Council members: China, Russia, France, UK, the US plus Germany) and the EU. In November 2016 Total signed a Heads of Agreement (HoA) with NIOC to develop phase 11 of South Pars, as project operator. SP11 has a production capacity of 2 billion cubic feet per day, or 400,000 barrels of oil equivalent per day including condensate. The gas was earmarked for Iran's domestic market starting in 2021.

The deal marked a return to Iran for Total. In the early 2000s it developed phases 2 and 3 of South Pars. Under the HoA, NIOC and the project partners conducted exclusive negotiations to finalize a 20-year contract within the framework of the Iranian Petroleum Contract (IPC) as approved by Iran.

The SP11 project is being developed in two phases. The first phase, with an estimated total cost of US$2 billion, comprises 30 wells and two well head platforms connected to existing onshore treatment facilities by two subsea pipelines. Later a second investment phase--construction of offshore compression facilities--will be launched. Since November 2016 Total has conducted engineering studies for the consortium, and initiated calls for tender in order to award contracts.

NIOC managing director, Ali Kardor, said that CNPC might acquire Total's stake if Total pulls out. Total has spent some US$90 million so far to develop the field. If Total continues in Iran, it could face problems in the US. In January 2018 Total announced a big oil discovery in the Ballymore prospect, offshore in the US Gulf of Mexico. At a depth of about 2,000 metres and 120 kilometers from the Louisiana coast, the prospect covers four blocks in the Norphlet play, including Block MC 607 where the discovery was made. Total's acquisition of a 40% working interest in Ballymore was part of an exploration agreement with operator Chevron (60%) signed in September 2017 that included seven prospects covering 16 blocks in the Norphlet (Eastern Gulf of Mexico) and the Wilcox (Central Gulf of Mexico) plays.

Total has been active in exploration & production in the US since 1957. In the Gulf of Mexico, Total focuses on deep-water with working interests in two producing fields--Tahiti with 17% (operated by Chevron) and Chinook with 33.33% (operated by Petrobras). Total holds a 40% working interest in the North Platte discovery (operated by Cobalt International Energy) and 12.5% in the Anchor discovery (operated by Chevron). As part of the acquisition of Maersk Oil, Total will become a 25% partner in the Chevron operated Jack field. Total also participates in more than 160 exploration leases. Onshore, Total operates about 100,000 barrels of oil equivalent per day (shale gas) in the Barnett play and is a 25% participant in a JV operated by Chesapeake in the Utica shale play.

China is not minded to conform to unilateral US sanctions on Iran, but it has other interests to consider including its involvement in a big natural gas project in Alaska. In November 2017 President Xi and President Trump witnessed the signing in Beijing of the five-party joint development agreement to develop Alaska's natural gas reserves. The parties: Bank of China, China Petrochemical Corp (Sinopec), CIC Capital, State of Alaska and Alaska Gasline Development Corporation (AGDC).

Alaska LNG is a large integrated gas infrastructure project with three parts--a gas treatment plant at Prudhoe Bay, an 807-mile pipeline to Southcentral Alaska with offtakes for in-state use, plus a natural gas liquefaction facility in Nikiski to produce liquefied natural gas for export.

On 27 March 2018 AGDC signed up Bank of China and Goldman Sachs as global capital coordinators. On 4 May 2018 BP Alaska and Alaska Gasline Development Corp (AGDC) agreed to key terms of a Gas Sales Agreement, including price and volume.

The parties plan to finalize a long-term gas sales agreement in 2018 for AGDC to buy BP Alaska's share of 30 Tcf of gas from the Prudhoe Bay and Point Thomson units. BP operates Prudhoe Bay, the largest oil and gas field in North America, and holds a 26% stake in Prudhoe Bay plus a 32% stake in nearby Point Thomson.

"This Gas Sales Agreement is a significant factor in progressing the Alaska LNG Project," said AGDC president Keith Meyer. "We have secured the customers, we have progressed on the pipeline build with regulators and the finance community and now we have a commitment that there will be gas to sell and put through the pipeline. I look forward to continued negotiations to secure supply from other North Slope producers."

 

Date

16 May 2018

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