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Tension over Iran adds to oil investor doubt

Rising tension between Iran and the West has made major energy companies more reluctant to invest in the OPEC producer’s vast gas and oilfields, although talks continue.

As the Islamic Republic fired off a second round of missile tests on Thursday, France’s Total repeated that, like some of its rivals, it will not spend money in Iran for now. “It is probably necessary that things get better, that Iran can again have better relations with its neighbors and the rest of the countries that today have a harsh stance towards it,” chief executive Christophe De Margerie told France 24 television station. The CEO said that its South Pars Phase 11 project was effectively frozen, although he said it was “out of the question” to abandon the multi-billion dollar project to super-cool natural gas to liquid for export.

Tehran countered it was prepared to develop its giant South Pars gas field without the help of Total. Together with Italy’s Eni and Royal Dutch Shell, Total has already invested billions in Iran’s oil and gas sector, defying the threat of sanctions from the United States. Washington, which bars its own firms from doing business in Iran’s energy sector, has led international criticism of the country’s nuclear program. It says Tehran is trying to develop atomic weapons and has spearheaded the drive for sanctions. Tehran says its work is for purely peaceful purposes.


SLOW PROGRESS

The rhetoric has helped to slow progress in partnerships to develop Iran’s reserves. Paolo Scaroni, CEO of Eni has said he will honor existing contracts in Iran but will not sign new ones. Norway’s StatoilHydro has adopted a similar stance. Brushing off a deadline from Tehran to commit by the middle of this year, De Margerie had already said in May that a deal on South Pars Phase 11 Iran was unlikely in the short term. In an interview with the Financial Times published on Thursday, he added: “Today we would be taking too much political risk to invest in Iran”.

In September the French government told Total not to invest in Iran.

Total produces about 15,000 barrels of oil per day in Iran, but the contract to do so does not have long to run, a spokeswoman said. Shell has said it will pull out of South Pars phase 13, but was not abandoning Iran altogether. Its venture partner Repsol said it has yet to make a final decision. “There are a lot of deposits in Iran so it would be silly to take a rash decision,” a Repsol spokesman said. Any hesitation could open the door for companies from Russia and Asia who have different political agendas but similar commercial needs. a

Iran has set tight deadlines for potential partners, but its projects are frequently delayed. Analysts said it could have an interest in keeping its gas at home rather than preparing it for international export. “Revenue is not what Iran needs now. Iran needs jobs and development of the downstream industry. So it is better to use the gas locally,” Iranian energy analyst Narsi Ghorban said. He said gas could be used to inject into oilfields to increase pressure and output, as well as for meeting local domestic and industry demand.

Although Iran has the world’s second biggest gas reserves after Russia, last winter part of the country ran short forcing it to suspend supplies to Turkey -- its only gas export market. (Reuters)