What Iran Can Hope to Gain From Total’s $4.8 Billion Investment

In order to develop its giant South Pars gas field, the largest natural gas field in the world, Iran has signed a $4.8 billion deal with a consortium led by French oil company Total.

The deal marks a major milestone for a country whose standing as an international trade partner has hung in the balance ever since it was slapped with sanctions in 2006, and it is the Islamic republic’s first with a European oil company in more than a decade.

Alongside Iran’s Petropars (19.9 percent), and state-owned China National Petroleum Corporation, which holds 30 percent, Total has taken a 50.1 percent interest in the South Pars project. From 2021, the project is will begin producing gas for the Iranian market.

Iran will be hoping that the deal marks a new era of investor confidence and a particular boon for its dwindling oil production, even though it has been a slow burn and took more than 18 months after EU sanctions against the Middle Eastern nation were lifted.

“Total’s decision to sign the South Pars 11 contract is a cautiously positive sign for foreign investment in Iran’s upstream,” said Richard Mallinson, geopolitical analyst at Energy Aspects.

Citing Narendra Kumar Verma, managing director of the overseas investment unit of India’s largest explorer, Oil & Natural Gas Corp, the media reported that with the aim to develop another of Iran’s natural gas fields, Farzad-B field, and create the infrastructure to export the fuel, India, one of Iran’s most steadfast trading partners, on Monday announced that a consortium of domestic businesses would offer up to $11 billion.

India is one of the largest foreign investors in Iran’s oil and gas industry because Iran is the second-largest supplier of crude oil to India. However, the relationship has been difficult to hold due to fraught diplomatic relations between Iran and other states.

India has had to defer payments or revert to payments in rupees and, more recently, euros as it has been unable to trade with Iran using the dollar – the world’s premier reserve currency, under U.S. sanctions, which were reinforced last month.

According to the U.S. Energy Information Administration, the fourth-largest oil reserves and the second-largest natural gas reserves in the world lie within Iran. This amounts to 13 percent of OPEC’s oil reserves and 10 percent of the world’s reserves.

Before sanctions were imposed, Total was previously one of the biggest investors in Iran. The group has been awaiting clarity on the Trump administration’s stance on sanctions though the deal had been laid out last year.

The administration of U.S. President Donald Trump has imposed new sanctions in response to the country’s missile program even though during campaigning, he pledged to “dismantle” the 2015 nuclear agreement, which aimed to reduce sanctions but is yet to follow it up.

Citing continued risks, only an initial $1 billion investment has been committed by Total.

The investment will be purely domestically focused even though Iran’s antiquated energy sector would be helped to be revived as it had borne the brunt of years of underinvestment into the country. While the wider international markets have been struggling to balance output since a supply glut saw prices plummet in early 2015, the investment is likely to have less of an impact on it.

The path ahead to recovering Iran’s energy sector looks far from smooth even though companies including Royal Dutch Shell and Italy’s Eni have signed provisional agreements with Iran, according to the FT.

“Other developments are not so positive,” said Mallinson, citing Azadegan, another Iranian oil field project which has suffered continued delays amid uncertainties over Iran’s trading future.

“The tender for the Azadegan oil field was supposed to be imminent but was then pushed back by three or four months to give foreign companies more time for analysis. This suggests that the major firms that Tehran really wants to attract are largely not ready to commit to Iran deals.

“Currently Iran’s oil production has flat-lined and each new delay to the return of foreign investors pushes back the timeline for further growth in output,” Mallinson added.

(Adapted from CNBC)


Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability, Uncategorized

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