Chinese State Oil Company Ready to Replace Total in Iran's Gas Project

Reuters reported on Friday, citing a source within the Chinese state oil company, that if French company Total decides to abandon the major gas project in Iran due to new U.S. sanctions, the Chinese company is prepared to take Total's place. Total signed a $1 billion contract in July for the development of the South Pars gas field, which is the largest investment by a Western company in Iran since the lifting of international sanctions following the 2015 nuclear agreement. However, after Donald Trump refused to certify Iran's compliance with the terms of the JCPOA in October, the U.S. Congress must vote on the possibility of reinstating sanctions against Iran. It is still unclear when this vote will take place and what types of sanctions will be imposed against Iran, but companies operating in Iran may be barred from doing business in the U.S. Total's operations in the U.S. are much more extensive, and its CEO has stated that if we are not allowed to operate in Iran, we will leave that country. This agreement pertains to the development of Phase 11 of South Pars, the largest gas field in the world, and according to a senior source in Beijing familiar with the joint agreement, if Total halts its activities in this project, the Chinese state oil company will acquire 50.1% of Total's shares. Currently, 30% of the shares in this project belong to the Chinese state oil company and another 19.9% to the Iranian company Petropars. According to three sources familiar with the negotiations in recent weeks, senior officials of the Chinese state oil company have been considering the possibility of acquiring Total's shares in this project. Spokespersons for Total, the Chinese state oil company, and the National Iranian Oil Company have not yet commented on this matter. Reuters quotes a senior Total official saying, 'The company is considering ways that would allow it to exit this deal without hassle if new sanctions are imposed against Iran.' Informed sources say any changes in this regard would delay the development of the South Pars gas field, as Total has undertaken some preparatory actions to start work in recent months. If this change in ownership occurs, the stake of the Chinese state oil company would rise to 80%. The total cost of the project is estimated at about $2 billion. Total's CEO stated in October that the company might still be able to continue operations in Iran, depending on the text of any new U.S. sanctions against Iran. Meanwhile, the European Union, Russia, and China will remain committed to the nuclear agreement with Iran. He added that France might be able to guarantee some sort of exemption from U.S. sanctions for its companies operating in Iran, as it had managed to do in the late 1990s. Total sources say that if it exits the South Pars project, the company could incur tens of millions of dollars in losses, but this is not a large amount for a company valued at about $120 billion. If the South Pars gas field development project is completed, its production will be about 2 billion cubic feet, equivalent to 400,000 barrels of oil per day. Total had previously announced that extraction and transfer of this gas to Iran's domestic consumption network would begin in 2021. Iran is the third-largest oil and gas producer in OPEC, and the contract with Total was a significant step towards reviving the country's economy after the lifting of international sanctions.