Iran vows to press on after Total pull-out

Listen to this article

00:00
00:00

Iran on Thursday played down the loss of Total of France, which this week became the final large western energy company to pull back from investing in the country’s huge South Pars gas field.

Gholamhossein Nozari, energy minister, said: “This is our message: we will proceed with development with or without them.”

He was speaking less than 24 hours after Total said international political tensions over Tehran’s nuclear programme made it too risky to make fresh investments.

Akbar Torkan, deputy oil minister for planning, said Iran could shift some longer-term liquefied natural gas (LNG) projects in South Pars – the world’s biggest gas field – to ones that instead export gas through pipelines. This is a popular option within Iran’s oil and gas industry.

He said: “We can construct the pipeline in our land with our investments to reach the border, while Europeans, like Austria and Switzerland, can do the same from their lands to reach Iran’s borders without facing investment obstacles.”

But analysts said Iran faced significant hurdles. They doubted it would be able to proceed with LNG – an expensive, complex and highly technical undertaking – especially as much of the know-how is restricted to a few big companies and some of the most important propriety technology is American and thus barred by US sanctions.

This meant Iran was unlikely to be able to significantly raise gas exports until late in the next decade at the soonest, they said.

Total’s project was key to the Iranians, who hoped to learn enough from it to eventually embark alone on LNG. That was one reason Washington had been so intent on stopping the project, though the likelihood of it going ahead was always a long shot.

The decision by Total creates a problem for the wider world and not just Iran. The demise of Tehran’s LNG projects represent a loss of about 80bcm a year of potential gas supply, roughly equivalent to Germany’s needs, said analysts. That creates a huge hole in potential supply at a time when demand from Asia and the Middle East threatens to outpace the substantial capacity being built world wide.

Samuel Ciszuk, Middle East energy analyst at Global Insight, argued that national energy groups, such as Russia’s Gazprom, and companies from China would fail to fill the vacuum left by Total. “It is almost impossible. Without the technology and experience they don’t have the resources to do it,” he said.

The western energy companies know this and are quick to stress they are not pulling out of Iran or ending negotiations over projects far in the future.

Indeed, Total, Royal Dutch Shell, Eni and StatoilHydro among others already have a presence in Iran and intend to honour their contracts despite US pressure.

But all of them have also said they have, for now, put new investments on hold. In private, executives say their decisions were prompted by the combination of the adverse political climate and the sub-par financial terms offered by the Iranians.

That leaves Iran with two large export possibilities and both face significant hurdles: the Iran-Pakistan-India gas pipeline and a possible link to Europe’s Nabucco pipeline. The first is bogged down by security concerns along the route, a pricing dispute between India and Pakistan, and pressure from the US, while the second is far from a done deal because European politicians have yet to agree to snub Washington by accepting Iranian gas in the Nabucco pipe, despite the substantial benefit it would offer in terms
of reducing the region’s dependence on Russia.

Christophe de Margerie, chief executive of Total, has been one of the few international oil company executives willing to address the issue of reduced supply as a consequence of Iran’s isolation.

He said the international standoff made for an “extremely delicate political environment”. He also said politicians who launched military campaigns in Iraq and enacted economic sanctions against Iran needed to be aware that such actions seriously constrained international oil and gas supplies and drove up prices.

Mr Ciszuk agreed with Mr de Margerie that politicians calling on the Opec cartel of oil-producing nations – of which Iraq and Iran are members – to boost production were also making decisions that rendered that almost impossible.

Robin West, chairman of PFC Energy, the consulting firm, said: “Over time, supplying gas markets may become as big a challenge as supplying oil markets. Removing Iran from export markets will accelerate this problem.”

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.