Iran tries to lure China into LNG purchase with oil sweetener

Dubai

Iran has signed a memorandum of understanding with China's Sinopec offering
the state-owned Chinese oil giant rights to develop the Yadavaran onshore
oilfield in Iran on condition it commits to purchasing liquefied natural gas
over a 30-year period. The MOU signed in Beijing Thursday by Iranian Oil
Minister Bijan Zanganeh represents a new tactic by gas-rich Iran as it tries
to penetrate the competitive LNG market rather late in the game. Aliakbar Ale
Agha, deputy general managing director of NIOC's Petroleum Engineering and
Development Co, told Platts that the MOU offered Sinopec the rights to 60% of
Yadavaran. In return, the Chinese company will have to commit to purchasing
Iranian LNG over a 30-year period up to a cumulative 250-mil mt, starting with
2-mil mt in 2009, rising to 10-mil mt by 2010 and staying at that level for
the life of the contract, he said. "It is one package. The China thing is one
package. If the LNG does not work then Yadavaran doesn't work," he said.

The oilfield, created by the merger of the Kushk and Hosseinieh fields and
believed to contain more than 15-bil bbl of oil in place, is up for tender
with several multinationals among the bidders. Ale Agha said Shell, Total,
Norway's Statoil and Norsk Hydro as well as Malaysian Petronas were among
bidders for a 51% development stake under Iran's buyback schemes. But the
Iranian oil ministry extended the bid period as it began negotiations with
India's ONGC and Sinopec with both sets of talks linking the development
contract to LNG sales. Iran is a relative newcomer to the LNG business despite
sitting on an estimated 940-Tcf in proven natural gas reserves, the world's
second largest after Russia. The biggest non-associated gas field, South Pars,
is a geological extension of Qatar's North Field.

But while the Arab emirate has pressed forward with two expanding LNG projects
and export deals with Asian, European and US customers, Iran has lagged
behind, shackled partly by economic sanctions and partly by legislation that
prohibits production sharing deals. This forced the Islamic Republic to devise
the so-called buyback scheme under which investors are remunerated from
revenues generated by the project rather than in equity shares or payment in
kind. But the buyback scheme has been riddled with controversy and claims of
corruption, while proving to be not so popular with potential investors though
it has brought in much-needed foreign investment to help develop South Pars in
several phases party to meet rising demand for gas in Iran, expand its
petrochemicals industry and boost exports by converting gas to LNG. The South
Pars development plan includes a provision for three LNG plants at the Persian
Gulf terminal of Assaluyeh.

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