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Developing Phase 11 of the giant South Pars Gas Field in the Persian Gulf by French energy giant Total S.A. is forecast to cost more than $5 billion over three years. the rapporteur of Majlis Energy Commission said.
`Upon finalizing the Phase 11 deal in the coming weeks. the French company will provide most of the funding for the gas project and transfer the necessary drilling and production expertise.` Asadollah Qarekhani was quoted as saying by ICANA on Friday.
Based on the terms of the contract. which is within the framework of Iranian Petroleum Contract (IPC). Total is to complete the Phase 11 project in three years and extract natural gas from the field for 20 years.
Total signed a preliminary agreement. worth $4.8 billion late last year. to develop the natural gas field in collaboration with China National Petroleum Corp and state-owned Petropars Co. of Iran.
`The mega project will be carried out phase by phase and Total is in charge of all operations ranging from drilling wells to building offshore platforms and refining processes.` Qarekhani said.
`As soon as gas extraction from South Pars Phase 11 begins. the output will be transferred via pipeline to onshore refineries 200 kilometers off the city of Asalouyeh (Khuzestan Province) for processing.` he said.
Asked about advantages of securing a major gas deal with a `supermajor` as well as China`s state-owned oil and gas company. Qarekhani said. `With Total and its Chinese partner in the driving seat. Iran will not have to worry about exorbitant development costs. Furthermore. domestic oil and gas industry will gain access to advanced technical know-how.`
The lawmaker underlined the gas deal as a `major achievement` at a time when the hostile policies of US President Donald Trump against Iran are aimed. among other things. at marginalizing the country in the global energy market.
Experts say Trump`s hard line on Iran has caused international majors. including Royal Dutch Shell and BP. to show limited interest in its energy market.
Total Chief Executive Patrick Pouyanne announced last week that the South Pars project is worth taking the risk at $1 billion in the first step `because it opens a huge market`.
`We will go ahead with development of a giant Iranian gas field this summer.` Pouyanne added.
Reportedly. with US sanctions still in place prohibiting trading with Iran in dollars. Total will finance the project in euros from its own resources.
South Pars is part of a giant gas reservoir that straddles the territorial waters of Iran and Qatar. where Total is also a major player in gas production as well as in oil and refining.
IPC vs. Buyback Deals
According to Qarekhani. the biggest difference between IPC and buyback is that the latter is largely focused on developing the upstream exploration and production sector while offering little long-term incentives to expand the downstream (refining and marketing) sector.
`IPC offers more attractive terms and conditions. including higher rewards for risky projects as well as 20-year terms of cooperation that can be extended.` Qarekhani said. adding that the new contracts include extended contract duration of 20-25 years. allowing for much longer cost recovery after first production.
This would allow foreign companies a greater level of certainty and incentive.
International energy officials including Pouyanne believe that the IPC is a real improvement as it offers the operator remuneration based on production rather than a percentage of the development costs.
