Spending China's dollars: $16 billion gas project in Iran

CNOOC to Develop Iranian Gas Field

By Wang Yu
China Daily, Beijing
Friday, December 22, 2006

http://www.chinadaily.com.cn/bizchina/2006-12/22/content_765293.htm

A press official with the Iranian Embassy yesterday confirmed to China Daily that an initial agreement on a gigantic natural gas project has been signed by China's top offshore oil producer and its Iranian counterpart.

"A big deal was hammered out on Wednesday between the two countries to jointly produce natural gas in Iran," the Iranian diplomat revealed on condition of anonymity.

He said more details on the agreement still needed endorsement from the ambassador.

According to Iran Daily, the National Iranian Oil Co. and China National Offshore Oil Corp (CNOOC) signed a memorandum of understanding on the development of the North Pars gas field on Wednesday.

The field contains an estimated 80 trillion cubic feet of natural gas, according to the paper.

The project involves an investment of more than US$16 billion, of which US$11 billion will be spent on the downstream segment and the rest on the upstream segment.

According to the preliminary agreement, gas from the field will be liquefied and divided equally between the two companies.

The project is expected to take eight years to bear fruit, Iran Daily reported.

CNOOC would not confirm the deal yesterday, saying only the firm has been in touch with its Iranian counterpart on such a project for a long time.

"We have been in close contact for a while. But it is premature to release the results of any negotiations at the present time," spokesman Liu Junshan told China Daily.

An industry insider told China Daily that under the terms of a planned agreement signed as early as October, the National Iranian Oil Company offered CNOOC a 25-year gas supply from the North Pars field.

Lee Meileng, chief analyst of Platts' Beijing office, said the reported deal will be a shot in the arm for both CNOOC and China as a whole from business and energy supply perspectives. Platts is the world's largest provider of energy information and market research.

"By participating in and having ownership of overseas energy projects, Chinese oil companies can better safeguard energy safety for China as a major energy consumer. They themselves can also benefit from this kind of participation by taking advantage of hefty global energy prices," said Lee.

The Platts analyst explained that CNOOC's share of gas from the reported joint programme in Iran could either meet robust demand from liquefied natural gas (LNG) terminals built by CNOOC in the coastal areas of China, or be sold on the global market.

"Either will be positive for CNOOC and China. Therefore, I see this move as good from both a business and energy supply perspective," said Lee.

Agreeing with Lee, Zhou Dadi, former director of the National Development and Reform Commission's Energy Research Institute, commented that compared with simply importing oil or gas from abroad, investing and getting involved in overseas projects was more cost-effective and a safer way of ensuring consistent energy supplies.

CNOOC, as China's largest offshore oil supplier, plans to build as many as seven LNG-importing terminals in six provinces and municipalities.

By the end of October, only two of them had obtained government approval.

"Only with a secure and consistent gas supply, can LNG terminal construction be meaningful and gain approval," said Lee.

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