Iran in Talks with China's CNPC over Stake in LNG Project

TEHRAN (Dow Jones Newswires), October 9, 2008

China National Petroleum Corp. is in talks with Iran to take a 25% stake in a major liquified natural gas project in the Islamic republic at the expense of France's Total S.A., a senior Iranian energy official said.

Under the plan, CNPC would take a 25% stake in the Pars LNG project, while Total may see its share reduced to 25% from 40%, Nasratollah Seifi, a member of the board of directors at the National Iranian Gas Export Co., or NIGEC, told Dow Jones Newswires in an interview Wednesday.

"At this moment, Total has 40% in the project, but it may be decreased to 25%. They are not going out of the project - they are just decreasing their proportion," Seifi, previously the head of NIGEC, said.

NIGEC, a subsidiary of state-run National Iranian Oil Co., or NIOC, is responsible for the marketing and sale of Iran's natural gas.

Iran had originally planned to implement the Pars LNG project with NIOC taking a 50% stake in it and Total and Malaysia's Petronas holding 40% and 10% respectively.

If CNPC secures a 25% stake, Petronas would see its stake lowered to 8%, Seifi said, adding that NIOC is currently negotiating whether to reduce its share to 42%.

Total's press office in Paris told Dow Jones Newswires in an emailed statement that it "would not make any comment on (the) South Pars rumor."

The Islamic republic, holder of the world's second-largest gas reserves, plans to build the Pars LNG plant under phase 11 of its giant South Pars offshore gas field development in the Persian Gulf.

Severe Delays

Iran's plans to export some of its vast natural gas reserves in the form of LNG, like other hydrocarbon schemes, have been facing severe delays in recent years due to U.S. sanctions imposed on the country over its controversial nuclear energy program.

Sanctions have made it difficult for the Islamic republic to attract foreign investment and funding, and secure a wide range of key technologies, including LNG technology, which enables the cooling down of gas so it becomes liquid and can be transported in special vessels over long distances.

Most of these technologies are owned by companies from Europe and North America.

Unlike its small Persian Gulf neighbor Qatar, which has been rapidly developing its share of the South Pars field and has gone on to become the world's largest LNG exporter, Iran has not yet launched a single LNG project.

Total and Royal Dutch Shell PLC, which had been in talks with Iran about LNG projects, said earlier this year that they won't enter any new energy deals because of the country's heightened political risk.


Despite the difficulties, Iran remains committed to implement its LNG plans. NIOC has secured liquefaction technology from France-based Axens for the LNG scheme, under an agreement signed before tighter sanctions were imposed on the country, Seifi said.

"That was an agreement we did already about five years ago," he said.

Seifi said a delegation of Iranian oil officials who traveled to China this week for talks on energy cooperation are now negotiating the increase of CNPC's share in the project.

Another six months will be needed to finalize negotiations and the project will then take at least five years to come on stream, he added.

"We began negotiations three weeks ago," he said. "If we add five months from today, it means April 2009. I think in five to six months it is possible."

Iran is also finalizing a contract with Italy's Snamprogetti and South Korea's Hyundai to carry out engineering, procurement and construction of the project, Seifi said.

The consortium "promised to fulfill the job in 62 months," he said, adding that the project could come on stream in 2014.

With funding from international banks out of reach due to sanctions, Iran will use government funds to finance its share of the project, while the international partners will raise their own funding, according to Seifi. "Everybody will pay their own equity."

The Iranian parliament decided earlier this year to allocate 3% of its oil income towards the development of the South Pars field.

"The parliament agreed this year they would pay more budget for development," he said.

If the final investment decision is positive, the Pars LNG project will require between 20-25% of the total development budget for next year to be approved by the end of the Iranian year in March 2009.

"This means we need to make the final investment decision in the next 6 months. This is the milestone," Seifi said. 

Copyright (c) 2008 Dow Jones & Company, Inc.

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