TOTAL & CNPC: IRANIAN DEAL
FT wrote, France's Total and China National Petroleum Corp are set to sign the first major agreement with Iran for the development of its gasfields since the loosening of international sanctions in January.
Iran's oil ministry said on Monday it expected to finalise the preliminary deal, involving development of a new phase of the giant South Pars gasfield, on Tuesday. This would represent a breakthrough in Tehran's efforts to attract renewed investment in its outdated energy infrastructure and unlock some of the world's biggest oil and gas reserves.
For Total, the deal would open the way for its return to Iran six years after the French oil major exited the country amid international tensions over Tehran's efforts to make a nuclear bomb. It would also highlight Total's hunt for new sources of growth in spite of persistent weakness in the oil market.
Total declined to comment on the expected agreement with Tehran but, in an interview with the Financial Times, Patrick Pouyanné, chief executive, highlighted Iran among the places he was interested in investing.
He said new oil and gas projects were urgently needed to stave off supply shortages after the sharp downturn in industry capital expenditure since oil prices started falling in mid-2014.
"The number of new projects being sanctioned is by far not sufficient to fight against declines [in reserves]," he added. "In commodities you must invest when the prices are low and the costs are low."
Mr Pouyanné said there was "huge potential" in Iran, which has the world's second-largest gas reserves and fourth-largest oil reserves, according to the US Energy Information Administration.
He later said the South Pars deal, worth about $2bn, could be signed in days.
Iran wants $200bn of investment in its energy industry over the next five years in order to raise production. Until now the country has been struggling to persuade overseas energy companies to commit amid wrangling over the contract terms offered by Tehran.
Under the deal expected to be signed with state-controlled National Iranian Oil Company on Tuesday, Total will form a consortium with CNPC and Petropars of Iran to develop a new phase of South Pars.
Total had long been seen as one of the companies most likely to seek renewed access to Iran after nuclear-related sanctions were eased because it helped develop South Pars together with Statoil of Norway in the late 1990s and early 2000s.
South Pars holds 51tn cubic metres of gas, according to the International Energy Agency, the global energy advisory body, and this resource rich area of the Gulf has transformed neighbouring Qatar into the world's largest exporter of liquefied natural gas.
But because of sanctions, Iran has been unable to exploit South Pars to its full potential.
Mr Pouyanné told the FT that reduced industry exploration in the past two years would lead to a global deficit of 5m barrels of oil per day by 2020, which would only be partly made up for by increased US shale production.
The IEA said in September that oil companies have cut investment in new production by 24 per cent this year, following a 25 per cent reduction in 2015.
According to Wood Mackenzie, the consultancy, 20m barrels a day of new production needs to be developed by 2025 to meet rising global demand.
Mr Pouyanné's comments about the risk of supply shortages ahead echo a warning last month by Saudi Aramco chief executive Amin Nasser.
However, not all industry executives agree. Rex Tillerson, ExxonMobil chief executive, predicted last month that US shale resources would keep the market well supplied and maintain a lid on prices.
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