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    CNPC’s Iran Deal Could Be Cancelled: Minister

Summary

Iran's oil minister has commented on a recent report that CNPC may suspend financing of a vital gas project.

by: Dalga Khatinoglu

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CNPC’s Iran Deal Could Be Cancelled: Minister

Just two weeks after Iranian oil minister Bijan Zanganeh announced that China's CNPC had replaced Total in the $5bn South Pars phase 11 development project (SP11) he said December 12, on live Iranian TV, that the deal could now be cancelled if CNPC refuses to finance the project.

Earlier that day Reuters reported, citing Chinese sources, that CNPC had suspended financing of the project as result of US pressure, in an attempt to reduce Sino-US trade tensions.

Zanganeh said that Iran will act according to the terms of the agreement if CNPC does not go ahead with financing the project. CNPC already held a 30% share in the SP11 project as part of its 2017 agreement, but now holds 80.1%. The remaining 19.9% stake belongs to PetroPars, a subsidiary of Iranian state producer NIOC.

CNPC is expected to invest $4bn in the project, of which two fifths is to be paid before 2020 to enable the production of 56mn m3/d (20.4bn m3/yr) gas and 80,000 b/d condensate, the rest of its expenditure will be used to maintain production levels as the field peaks in 2023.

Iran is to decide its course of action with CNPC within four months. If it cancels, the Chinese firm, as is the case with Total, will need to wait until the project starts up before being reimbursed. Shareholders have spent around €90mn, of which half was invested by Total, 30% by CNPC and the rest by PetroPars.

The second phase of the development of SP11 requires a 20,000-metric ton platform with two or three compressors to be in place by 2022, the year before the expected pressure drop; however, neither Iran nor CNPC are believed to have any previous experience in this specific area and expected costs are in excess of $2.5bn.

In 2017 Iran increased its sales gas production by 10.5% to 224bn m3 with almost all the growth coming from South Pars, which accounts for 70% of total output. (Iran’s gross gas production in 2017, which includes reinjected and flared gas, increased by 25bn m³ year-on-year to 285bn m3). This year, however, production rose only slightly, as it was September before Iran installed a platform in the South Pars phase 14 (5.1bn m3/yr capacity); with none of the other phases being completed during 2018.

According to NGW calculations Qatar, which owns two-thirds of the reserves in the giant field (on the Qatari side it is called North Dome), has produced cumulatively 2.7 trillion m3, or twice what Iran has produced. Qatar continues to produce more than Iran from the joint field and plans to increase that further in order to step up its LNG exports from the current level of 77mn mt/yr to 110mn mt/yr by around the mid-2020s.