Iran Signs South Pars 11 Deal with Total, CNPC (Correction)
(Corrects '4 months' to '40 months' in para 7)
Iran signed a $4.8bn agreement with French Total and Chinese CNPC on July 3 to develop South Pars gas field’s phase 11 (SP11)
The 20-year contract, extendable by another five years, is the first based on the newly-designed contract model, called the Iran Petroleum Contract.
Total is operator of project with 50.1%, while CNPC and Iran’s Petropars companies have 30% and 19.9% stakes respectively.
The first phase of the project is expected to cost $2bn and recently Total CEO Patrick Pouyanne said that the company plans to invest $1bn despite possible US sanctions risks.
According to an official document, prepared by Iran’s oil ministry and seen by NGW, the first phase includes construction of two platforms, drilling 30 wells, stretching five pipelines, a fibre cable and a mooring buoy.
The project will include two 32-inch pipelines, each of 136 km length for transiting 56mn m³/d (20.5bn m³/yr) of sour gas to onshore gas processing plants. There will also be two 4.5-in pipes of the same length to carry and recover ethylene glycol, used to dehydrate the gas, and a 36-in pipe of 4.5 km length to transit 80,000 b/d of condensate to a mooring buoy where it will be loaded on to tankers.
The first phase would become operational in 40 months.
The second phase also includes enhancing the recovery rate as well as construction of 20,000-metric ton platform (instead of 1,500-ton platforms in first phase) with huge compressors to prevent gas output decline when the pressure of South Pars decreases in 2023.
The new platform with compressors would cost $2.5bn, based on initial estimations.
Total CEO Pouyanne said: “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. We are proud and honoured to be the first international company to sign an IPC, 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.”
Since signing the heads of agreement last November, 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.
Wood Mackenzie senior research analyst for the Middle East, Homayoun Falakshahi, said: “Today is a huge day for Iran's oil and gas industry, as the country signs its first-ever international petroleum contract (IPC) [sic] – and seals its first upstream contract with foreign firms – in ten years.
“The South Pars Phase 11 deal will, Iran hopes, prompt other IOCs to re-enter the country’s upstream sector. Reopening the Iranian upstream to foreign investors could very well become one of President Hassan Rouhani's main economic achievements.”
Falakshahi added: “Phase 11 opens a new chapter in the story of the South Pars. It closes the 24-phase development plan, and sets the stage for future phases, as compressor platforms are needed for the first time.”
He added: “Hopes are high in Iran that the IPC will enhance local companies’ capabilities. As was the case with previous buyback contracts, contractors will not have any right to the gas and will be paid by the sale of condensate.”
NIGC eyeing huge LNG development
Earlier National Iranian Gas Company (NIGC) head of dispatching Ali Shakarami told NGW that the produced gas in SP11 can be liquefied in an LNG plant project with 10.5mn mt/yr capacity, for which investment of $6bn to $8bn would be required.
Falakshahi said that Total expressed interest in relaunching in the LNG project. International sanctions imposed on Iran in 2010 prompted the cancellation of three LNG projects, involving Total, Shell, Repsol, OMV and CNOOC. It is understood a number of IOCs are interested in revisiting Iranian LNG capability.
However one factor weighing against major LNG investment in Iran, apart from sanctions and technology issues, is the current global LNG market surplus, which some don't believe will ease much before the mid-2020s.
South Pars is the continuation, offshore Iran, of a geological formation known in Qatar as 'North Field' which provides the feed gas for its 14 LNG trains.