Interesting moves on the energy chessboard

By: Syed Rashid Husain

As the Trump administration continues to raise the temperature, Tehran and Doha do not appear ready to give in – at least as yet.

On the regional geopolitical chess board, interesting moves are on. Parties are taking steps to consolidate positions. Despite the US calls to isolate Tehran, sitting atop the fourth-largest oil reserves and the second-largest reserve of natural gas Iran last Monday signed a $5 billion agreement with France’s Total SA and a Chinese oil company to develop its massive offshore natural gas field. This was the first such deal with foreign companies since the 2015 nuclear deal.

As per the deal, the firms have undertaken to develop a portion of the massive South Pars offshore field that Iran shares with Qatar – embroiled in a bitter feud with its Arab neighbours. The project will have a capacity of 2 billion cubic feet of natural gas a day or 400,000 barrels of oil equivalent per day, including condensate.

“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,” Total chairman and CEO Patrick Pouyanne said in a statement. “Total will develop the project in strict compliance with applicable national and international laws.”

During the deal signing ceremony, Iranian Oil Minister Bijan Zanganeh said it would lead to “more than $5bn in foreign investments.”

With Iran hoping to produce 6 million barrels per day of crude oil and condensates in five years, up from some 3.6m today, Zanganeh held out an olive branch to the US companies, saying his country needs some $200bn of investments over the next five years to make up for time lost during sanctions. “We do not consider any obstacle for the participation of American companies,” Zanganeh reiterated. “The main obstacle is being created by the US government.”

Total has a history in Iran. The company, however, had to pull out of Iran in 2006 as the United Nations sanctions first took hold over amidst fears that Iran’s atomic programme would be used to build nuclear weapons. The company was on the verge of signing an agreement for developing the field’s phase 11 before the sanctions were imposed on Iran. Now with the deal struck last Monday, Total is back in the familiar environment, ready to carry on its work on Phase 11.

There’s nothing actually preventing Total from doing business with Tehran. But it is risky. Trump branded the 2015 Iran nuclear accord, which led to an easing of sanctions, as the “worst deal ever.”

Interestingly, the deal Total signed is for the field that Iran shares with Qatar, the country that’s been isolated because of its alleged ties to Iran. But with no indication what measures the Trump government would take to isolate Iran further, there is definitely a possibility that Total may somehow get caught in the crossfire.

Yet, the potential rewards make it worth the gamble, writes Chris Bryant, a Bloomberg Gadfly columnist. Global majors are on a look out for cheaper fields. And Iran cannot be ignored. After all Total executives are answerable to their shareholders. Unless it concedes see its existing reserves deplete by a few percentage points each year, Total needs to keep sniffing out new oil and gas resources.

And it looks like Total isn’t going to stop there. Some reports are suggesting the company has also reached a preliminary deal to invest $2bn in three petrochemical projects across Iran.

From a risk perspective, it would be better if those new supplies were somewhere less complicated, Byrant says. But oil majors are used to working in hostile political waters and other national governments are reluctant to let foreign operators get their hands on low-cost reserves. Besides Total, other oil majors have also been warming up to Iran. Austrian energy company OMV hosted representatives from Iran’s Dana Energy, late in January.

More field auctions, like the Azadegan oil project, could be expected within the coming weeks, with Europe, Russia and Asian players in the mix. Iran’s oil ministry’s news service Shana is reporting that Petronas, Shell, Total, and Inpex have submitted technical studies for Azadegan.

And in the meantime, oil majors are also lobbying Qatar to undertake an expansion of its gas production. The CEOs of oil majors, ExxonMobil, Royal Dutch Shell and France`s Total have reportedly met the emir in Qatar. Immediately afterward, Qatar announced raising the output of liquefied natural gas by 30 per cent.

All around, interesting moves and counter moves are seen on the geopolitical chess board.

Source: https://www.dawn.com