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Total Criticised

APS Review Gas Market Trends

20th April 2009

Deputy Petroleum Minister and NIOC Managing Director Seifollah Jashnsaz on March 11, 2009 told reporters Tehran was not satisfied with the performance of Total in the country's projects. He said: "Total has postponed putting into operation the national project, Phase-11 ofthe South Pars gas field [development] and its downstream [LNG] section". He added: "Despite its good performance in Phases 2 and 3 of South Pars, Total, under direct US pressure, had not made any progress in [the integrated] Phase-11 [E&P/LNG export venture".

Jashnsaz said: "In their negotiations with the NIOC officials, theTotal executives announced that, due to the ongoing [US and UNSC] sanctions imposed on Iran, the [French] company could not have any active presence in the project". He added: "the company has asked Iran toselect another partner so that its share would be transferred to thenew partner. Total has a 50% share in both the downstream and upstream sections of Phase-11, and according to co-ordination made with Total's officials, another partner will join Phase-11".

The downstream element of this JV, called Pars LNG Co., calls for a two-train LNG plant to be built onshore at Tombak on the Hormuzgan coast with a capacity of 10m t/y. NIGEC is the 50% partner in this. Technip has the front-end engineering and design (FEED) contract for the plant. The engineering, procurement and contraction (EPC) contractor is Saipem of Italy. The project management consultant (PMC) is a unit of Stone & Webster of the US. The project is due to be completed by the second quarter of 2014. The cost of this JV's upstream and downstream elements has been put at $10 bn.

However, like three other LNG export JVs, Pars LNG still has not been able to secure a US liquefaction technology for the plant, on which buyers of the liquefied methane usually insist. International banks financing LNG export and import deals usually insist on the US liquefaction technology provided by Air Products (APPI). All of Qatar's new LNG export trains are based on the latest APPI process (see the background of Iran's four LNG ventures in gmt16IranGasExprtApr16-07).

Yves-Louis Darricarrere, head of Total's E&P, had earlier said: "Total is still in negotiations with Iran on a major gas deal, but talks are moving very slowly". In September 2008, Total CEO Christophe deMargerie denied that the French major had withdrawn from Iran, saying his company wanted to remain involved in Iran's energy projects.

The state-owned China National Petroleum Corp (CNPC) has been in talks with NIGEC and Total since the autumn of 2008 to take 25% in Pars LNG and Phase-11. This will be out of Total's stake. Other potential partners include Petronas. NIGEC board member Nasratollah Seifi on Oct. 9, 2008, was quoted as saying Total may see its share reduced to25%, adding: "They (Total) are not going out of the project - they are just decreasing their proportion".

Jashnsaz earlier this month said NIOC had given a new deadline of May 20 to the Shell-Repsol JV to decide on its involvement in Phases 13-14 of the South Pars development and related LNG export venture. This came after Shell said it was unlikely to commit to the gas project because of concerns over the US and UNSC sanctions on companies dealing with Iran.

Malaysia's SKS In E&P/LNG Deal: NIOC and SKS Development of Malaysia on Dec. 1, 2008, announced a final buy-back contract under which the latter was to develop the Golshan and Ferdows gas fields and produce 10m t/y of LNG for export. SKS will also produce 120,000 b/d of condensate and some volume of crude oil from the fields.

SKS, whose parent company in early 2007 signed a $16 bn deal with NIOC for this venture, in March 2007 offered NIOC a minority stake ina $2.2 bn refinery to be built in Kedah state with a capacity of 200,000 b/d (see omt16IranExprtApr16-07). SKS is linked to Malaysian tycoon Sayyed Mokhtar al-Bukhary.

This deal potentially allows Washington to penalise SKS under the Iran Sanctions Act, though the US has not taken measures against big European and Chinese firms doing business there. It was reported in April 2007 that Daelim Industrial Co. of South Korea was building an LNG tank farm at Tombak. It was then said the $3 bn EPC contract was to be carried out with Ghorb Nooh - an affiliate of Khatam ol-Anbia (Ghob), an engineering and construction arm of the Islamic Revolutionary Guard Corps (IRGC). The IRGC and its various units are under UNSC sanctions and it is not yet clear how the UN will affect this and other projects.

Work is continuing on the Iran LNG project, a further 10.8m t/y JV, which is 49% owned by NIGEC, with two NIOC pension funds sharing the remaining 51%. WorleyParsons of Australia is doing the FEED work, while some EPC work is in the preliminary stages. In December 2007, China's other state-owned group Sinopec signed a deal to develop the Yadavaran oilfield, with a provision for the firm to buy LNG as well ashave a stake in one of the LNG ventures.

Hojatollah Ghanimi-Fard, NIOC vice-president of investment affairs, was in March 2009 quoted as saying Tehran had switched its focus for attracting up to $20 bn in LNG projects to funds from India and China. He acknowledged that NIOC was unlikely to secure GCC funds. He said China and India were to become main buyers of Iranian LNG.

NIOC and the state-owned China National Offshore Oil Corp (CNOOC) in November 2008 finalised a development plan for Iran's North Pars gas field which the latter will develop and produce LNG under a $16 bnproject. CNOOC has bid to take all the LNG to the Chinese market. But, like the other projects, the LNG venture is not certain.

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