Oil Majors Say US Restrictions Delay Iran Projects

Despite surging oil prices, companies investing in Iranian energy projects confront long delays. The US has long imposed sanctions on Iran, and as a result, it becomes more difficult to use American technology or equipment, hindering many foreign ventures in Iran. US companies once exploited legal loopholes to continue operations in Iran, but the September 11th attacks ended that strategy. The lack of US technology hurts not only Iran, but countries investing in Iran, including Spain, Austria and France. US sanctions prohibited General Electric from selling gas turbines to Iran, forcing the nation to re-design a liquid natural-gas plant. Iran anticipates that surging prices could weaken calls for sanctions. – YaleGlobal

Oil Majors Say US Restrictions Delay Iran Projects

Benoît Faucon
Thursday, June 12, 2008

LONDON -- Global oil and natural-gas companies seeking to slake the world's energy thirst by investing in Iran are increasingly finding that difficulties accessing U.S. technology because of sanctions are forcing them to delay planned investments in the country.

Despite an urgent need to replenish reserves, Anglo-Dutch oil giant Royal Dutch Shell PLC and Spanish-Argentine Repsol YPF said they wouldn't sign a $10 billion contract to enter South Pars, the Iranian side of a giant natural-gas field shared with Qatar. Instead, the two oil giants are considering entering later phases of the project.

OMV AG, of Austria, and France's Total SA also have delayed final commitments to enter Iranian ventures. All the projects involve liquefied-natural gas, or LNG, a form of super-cooled gas that can be exported by tanker.

"Due to American sanctions, we can't apply American technology or equipment," Shell Chief Executive Jeroen van der Veer said at a May 20 shareholders meeting. "We will need longer for the preparation of the project."

The impact of these delayed investments is significant. International oil supply from Iran, the second-largest exporter after Saudi Arabia in the Organization of Petroleum Exporting Countries has stagnated in recent years in a range of 2.2 million to 2.5 million barrels a day of oil.

Its natural-gas reserves, second only to Russia, are estimated at 971 trillion cubic feet, including 436 trillion cubic feet for the South Pars field. But projects to extract and export this resource have been delayed. Three phases of the South Pars development handled by StatoilHydro ASA are now scheduled to reach full production mid-2009, two years behind schedule.

As a result, Iran has yet to become a net exporter of gas. It produces more than 16 billion cubic feet of gas daily, but all of that is consumed domestically. Its slow progress is in sharp contrast with the rapid development of the Qatari gas fields, which are rolling out a string of gas-export projects.

U.S. sanctions against Iran have existed for nearly three decades because of the country's alleged support of terrorism but were hardened with the Iran and Libya Sanctions Act of 1996.

For years, some U.S. companies continued operating in Iran using a legal loophole that authorized foreign subsidiaries to maintain such business. But after the Sept. 11, 2001, attacks and tensions over the country's nuclear program, Washington has started to scrutinize U.S. companies' Iranian businesses more closely, while some pension funds also have campaigned for an end to U.S. business in Iran. As a result, units of some U.S. companies are pulling out.

The U.S. plays a major role in sectors such as oil-field services as well as oil drilling and gas turbines. Halliburton Co., which disclosed about $50 million of Iran revenue for 2003, ended all works in the Islamic Republic in April last year. The U.S. engineering giant had come under pressure from a New York firemen pension fund and received a U.S. grand-jury subpoena for its Iran business in 2004.

Without U.S. technology, Iran has had to completely redesign its flagship Iran LNG plant -- also using South Pars gas -- after General Electric Co. said it could no longer sell gas turbines because of U.S. sanctions, Iran LNG says on its Web site. The Web site doesn't specify when the issue arose, an no one responded to a request for comment.

The absence of GE technology could be particularly problematic for future projects. GE's gas turbines control half of the world's market share and are strongly represented in the LNG sector.

Iran denies sanctions are hurting foreign oil and gas investment. "Sanctions are an opportunity," said Iranian Oil Minister Gholamhossein Nozari at an April conference. "So many countries need our gas."

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