PARIS Apr 05, 2007 (Dow Jones Newswires)
Rocketing costs on a planned $10 billion liquefied natural gas project in southern Iran are a serious threat to it going ahead, the chief executive of project partner Total SA (TOT) said Thursday, echoing a chorus of concern from energy producers over the viability of their expansion plans.
Christophe de Margerie told reporters Thursday that costs at the project, which aims to extract gas from Iran's massive South Pars field in the Persian Gulf, "are so high that they are close to damaging the project."
Margerie has previously estimated the cost of the project, in which Total holds 30%, at almost $10 billion.
Malaysia's state run Petroliam Nasional Berhad, or Petronas, has a 20% stake while the National Iranian Gas Export Co. holds the remaining 50%.
"We have to renegotiate all our agreements" with suppliers, de Margerie said, adding costs "have more than doubled" in recent years and that this is a "strong concern."
One concern is the low number of local oil services companies in Iran and therefore reduced competition, he added.
Once the cost issue is resolved, he said, the company will then evaluate the geopolitical environment before making a final investment decision.
An Iranian lawmaker, speaking from Tehran, told Dow Jones Newswires that he was unaware that Total is concerned about the costs or may reconsider its position on the project.
"If they are thinking of pulling out I don't think it's because the costs are high," he said, suggesting the political environment may be playing a role.
The South Pars gas field holds about 1 billion barrels of oil equivalent of proven reserves and won't start producing before 2011, Total executives have previously said.
At an investment conference in Vienna in early February, Iranian oil officials said they hoped that a deal would be signed with Total by late March.
Qatar's Oil Minister Abdullah bin Hamad Al Attiyah said Thursday that he had met in recent weeks with the chairmen of oil and gas contractors to detail his deepening worries about project costs that are delaying projects globally.
"We're being forced to halt projects in hydrocarbons and petrochemicals. It's a big concern," he said.
Al Attiyah told delegates; "Cost is a big concern" and is "one of the issues we should be concerned about before it snowballs."
In his meeting with contractors, Al Attiyah flagged up the example of a proposed new 615,000 barrel-a-day refinery in Kuwait, Al Zour.
Kuwait expected it to cost around $6 billion but contractor consortia came in with prices in excess of $15 billion.
He added that "shallow water (rig) rates today are $200,000 a day against $50,000 just a couple of years ago."
Copyright (c) 2007 Dow Jones & Company, Inc.
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