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India seeks to clinch deal for Iranian offshore gas development

http://www.chemnet.com   Mar 21,2017 Platts
India is working to finalize a $3 billion deal with Iran on the 18.75 Tcf Farzad B gas field development in the Persian Gulf by September 2017, sources at the oil ministry said Thursday.

The confirmation from India came after Iranian oil ministry news service on Monday quoted the managing director of Pars Oil and Gas, Mohammed Fam, as saying the company had put Farzad B's development high on its agenda.

Pars is a unit of state-owned National Iranian Oil Co. responsible for developing Iran's biggest offshore gas field, South Pars, as well as the North Pars gas field, but it is not the company with which India has primarily been negotiating.

That company is Iranian Offshore Oil Co., a sister company to Pars to which ONGC Videsh (OVL), the overseas arm of India's state-run Oil and Natural Gas Corp., has submitted a new master plan for Farzad B and which operates in Iranian waters except for those covering South and North Pars.

The new plan excludes liquefaction facilities, the Indian ministry sources said.

It is some $7 billion cheaper than the original proposal that included LNG production facilities, and is expected to be finalized over the next six months once both the parties, OVL and IOOC, agree on a gas price and a rate of return for the Indian entity's investment in the Iranian gas field, they added.

A definitive agreement is likely to be ready by the first half of the new Iranian fiscal year from April, the sources said.

NIOC GAS PRODUCER EYES PROJECT

It was not clear from the Shana statement how or whether Pars' and IOOC's involvement in Farzad B's development would be coordinated. The statement said only that Pars was in talks with an Indian company over the field's development. It made no mention of OVL or IOOC.

However, despite its limited geographic mandate up till now, Pars could be a better fit for the Farzad B project than IOOC, due to its long involvement with the massive South Pars field.

That would give Pars more experience in gas and condensate production than IOOC, which is primarily an oil producer, and especially with the intricacies of handling the sulfur-laden sour gas typically present in Persian Gulf deposits.

OVL, as operator of the Farsi offshore exploration block, has drilled an exploration well on the block. The resulting discovery, Farzad B, is located in the middle of the Persian Gulf between the Iranian port of Bushehr and Dammam, on Saudi Arabia's Gulf coast.

A consortium of OVL, Oil India Ltd. and Indian Oil Corp. discovered the field in 2008. OVL and IOC each hold a 40% interest in a license to develop the block, and OIL 20%.

Fam said Monday that Farzad B's development had been prioritized because it was a "joint field" straddling an international border.

About 80% of the field lies in Iranian territorial waters with the rest in Saudi waters, where it is known as the Hasbah field. Iran is concerned that if Saudi Aramco gets a head start on developing its side of the joint field, most of the gas may go to Saudi Arabia.

KEEPING UP WITH ARAMCO

Aramco has already drilled wells in Hasbah and started gas production. In July 2016, India's Larsen & Toubro confirmed that Aramco had awarded it and Emas Chiyoda Subsea a $1.6 billion contract for the second phase of Hasbah's development.

Saudi Arabia's energy ministry and state-owned Aramco have set domestic gas development as a priority as the country, which boasts the Arabian Peninsula's largest economy, consumes all the gas it can produce with demand still growing.

Iran, with significantly larger gas reserves than Saudi Arabia, also consumes roughly as much gas as it produces but has long sought to develop major gas exports. It is also keen to ramp up condensate output, used domestically as petrochemicals feedstock and to blend with crude for export.

India has been in talks with Iran over Farzad B since April, when its oil minister, Dharmendra Pradhan, met his Iranian counterpart Bijan Zanganeh to carry forward negotiations after Western sanctions on the Islamic republic were lifted.

In October, India sent a top oil ministry official to hold follow-up discussions on the future engagement of OVL in the Iranian gas field with Hossein Zamaninia, Iran's deputy minister of petroleum.

Last month NIOC's managing director and Iranian deputy oil minister Ali Kardor said the technical model presented by the Indians was almost finalized, "but we have yet to reach agreement on the financial framework because we are at odds over the gas price."

He added that Farzad B would be developed under an engineering, procurement, construction and financing contract, to be awarded in a competitive international tender process, if the talks with India did not produce an agreement.

In addition to Farzad B, Pars is also considering development of several other offshore Iranian gas fields including North Pars, Golshan and Ferdowsi, Fam said.
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