Tehran Times
Wednesday, January 31, 2007

Iran has signed a preliminary agreement with Spain's Repsol and Royal Dutch Shell to produce liquefied natural gas (LNG) from its South Pars (SP) gas field, the student news agency ISNA reported Sunday.

"This contract is the biggest project in terms of investment and the volume of gas converted to LNG," said the managing director of the National Iranian Oil Company (NIOC), Gholam-Hossein Nozari, quoted by ISNA.

But he added the final investment decision (FID), which the agency valued at $10 billion, would be made by the end of 2007, according to AFP.

"The upstream work of phases 13 and 14 (of South Pars field) will be carried out on buyback terms," Nozari said, adding the Anglo-Dutch firm Shell and Repsol would each have a 25-percent share while Iran maintained a 50 percent share in the project aimed at producing an annual 16 million tons of LNG.

An industry source close to the deal told Reuters the deal signed was an upstream service agreement. "It is part of the work to assess the feasibility of the project," the source said. "The important thing is that the final decision to develop the LNG project is a year or so away."

A source said last Tuesday such a preliminary deal would be signed in days and put the value at $4.3 billion for an LNG plant and port terminal. Nozari said the $10 billion price tag was for both upstream work and the LNG facilities.

The source said the LNG plant would cost about $2.5 billion and the port terminal and other infrastructure would cost about $1.8 billion, the source said, adding that exports -- if the project went ahead -- could start in 2011 or 2012.

Under Iran's "buy back" contracts, investment in developing a field is rewarded with a share of production for a short period before the state repurchases the field.

Iran has said it is reviewing the terms of deals to make them more attractive.

Iran has the world's second largest natural gas reserves -- about 940 trillion cubic feet, and it is negotiating terms on other LNG deals.

France's Total agreed to build Iran's first LNG terminal in February 2004 with an initial start date of 2009. Three years later, Total and Iran are still negotiating terms and the start date has been pushed back to 2011.

Meanwhile AFP on Monday reported a U.S. official claiming that Iran’s proposed multi-billion dollar agreement with oil giants Repsol of Spain and Royal Dutch Shell could trigger U.S. sanctions.

State Department spokesman Sean McCormack said the investment agreement, if confirmed, would likely trigger a U.S. investigation and possible sanctions under U.S. law.

The 1996 Iran-Libya Sanctions Act requires the U.S. president to impose sanctions on companies which invest more than $20 million in Iran's energy sector.

McCormack refused to speculate on what possible sanctions Repsol and Shell, which has operations in the United States, could face if they go through with the South Pars investment.

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