Shell Iran plan will come under US scrutiny

The US authorities will “take a look at” a controversial agreement signed over the weekend by Royal Dutch Shell that could ultimately lead to a multi-billion dollar investment in Iran, a US State Department official said.

Shell and its partner Repsol of Spain have signed a service agreement, as reported in the Financial Times last week, with the Iranian government to continue work on developing blocks 13 and 14 of the giant South Pars gas field, in spite of mounting international pressure over the country’s nuclear programme.

US legislation permits President George W. Bush to take action against non-US companies investing in Iran’s energy sector. However, because of concerns over an extra-territorial trade dispute and the risk of further alienating allies, no foreign companies have been penalised to date under the Iran Libya Sanctions Act and the subsequent Iran Freedom Support Act.

The US, however, is tightening sanctions on Iranian institutions, and encouraging European governments to do the same.

Sean McCormack, a state department spokesman, said on Monday that US government lawyers and policymakers would take a look at the Shell deal, to see whether to take any action. “If there’s an investment greater than a certain amount, as specified in US law, then our lawyers take a look at it and the policymakers take a look at it, and see if there’s any further steps that we, as a government, take,” he said.

Mr McCormack refused to speculate on what sanctions Repsol and Shell would face if they go through with the South Pars investment.

If the project goes ahead, it would involve a plant to produce liquefied natural gas to be sold in Europe and Asia. A final decision on whether to proceed is expected in the first quarter of next year.

The agreement does not put a figure on the value of the project. Shell and its partners are still working on cost estimates. But it was suggested in Iran at the weekend that it could be worth $10bn (£5bn).

Shell and Repsol would each have 25 per cent of the project, with the National Iranian Oil Company holding 50 per cent.

Iran holds the world’s second largest gas reserves, after Russia. Phases 13 and 14 of South Pars are estimated to hold 27,700bn cu ft – enough to meet the world’s demand for more than three months.

Shell on Monday also announced the sale of one of its US refineries and 250 petrol stations for $1.63bn, bringing to almost $10bn the amount it has raised from selling downstream assets in the past four years.

It has sold the refinery, south of Los Angeles, and petrol stations in the area to Tesoro, a Texas-based company that becomes the second-biggest refiner on the US west coast as a result of the deal.