Drilling operations of the first well of the game-changing but highly-controversial Phase 11 of Iran’s supergiant South Pars non-associated natural gas field officially began last week.
Significant gas recovery from the enormous resource will commence in the second half of the next Iranian calendar year that begins on 21 March 2021.
The long-stalled Phase 11 development supposedly saw the withdrawal of all Chinese involvement in October 2019.
In reality, though, China is still intimately involved in its development and is looking to further scale up its activities following the inauguration of Joe Biden as U.S. President on 20 January.
The new field is expected to eventually produce 57 million cubic metres per day (mcm/d), about a tenth of Iran’s current output.
The article goes on to describe how China got around US sanctions on Iran, after taking over Total’s 50.1% stake in the project in 2018:
As the U.S. ramped up pressure on China in the Trade War, however – especially looking to increase sanctions on its most important technology companies, including Huawei – and with China already locked into the new supercharged 25-year deal with Iran, Beijing made a policy decision to take a lower public profile on project work on Iran’s high-profile oil and gas fields wherever possible.
Top of this list was Phase 11 of South Pars, so CNPC publically withdrew from the project in October 2019, having supposedly suspended further investment in it in December 2018. In reality, though, China’s activities on Phase 11 – and elsewhere in Iran and Iraq – did not cease but merely changed appearance into a less high-profile and therefore less U.S.-sanctionable form.
“It was one thing for China to quietly ignore all sanctions that the U.S. had imposed on importing Iranian oil and gas, but it was quite another thing for it to blatantly put its major state companies on the ground in Iran.
Consequently, China switched to developing Iran’s oil and gas fields – including the South Azadegan, North Yaran, and South Yaran oil fields, and the South Pars gas site – by engaging in a series of ‘contract-only’ projects, such as drilling-only, field maintenance-only, parts replacement-only, storage-only, technology-only, and so on.
“Most of these are being done through seemingly smaller firms that are less well-known than the big state players that attract little or no publicity but, as all companies in China are part of the state and are legally bound to work towards what they are told to do by the Communist Party, it doesn’t make any difference to the eventual outcome,” said the Iran source.
In an earlier article last month, OilPrice.com gave more detail:
Thus specific project-by-project ‘contract-only’ mode of working has been employed by China at scale in Iran ever since it – officially at least – China National Petroleum Corporation (CNPC) withdrew from the flagship Phase 11 development of South Pars in October last year.
“It was obvious to anyone who knows how China works in such situations, including in neighbouring Iraq, that it was not going to walk away from its investment either in Phase 11 or in Iran as a whole, especially as it was in the process of widening out the 25-year deal with the country,” said the Iran source. Indeed, quite aside from the massive geopolitical importance of Iran (and close ally Iraq) to China, the 25-year deal means that in exchange for at least US$400 billion from China, Chinese companies will be given the first option to bid on any new – or stalled or uncompleted – oil, gas, and petrochemicals projects in Iran.
China will also be able to buy any and all oil, gas, and petrochemicals products at a minimum guaranteed discount of 12 per cent to the six-month rolling mean average price of comparable benchmark products, plus another 6 to 8 per cent of that metric for risk-adjusted compensation.
Additionally, China will be able to pay in soft currencies accrued from doing business in Africa and the Former Soviet Union states and, this, given the exchange rates involved, means that China is looking at another 8 to 12 per cent discount, which means a total discount of around 32 per cent for China on all oil gas, and petrochemicals purchases.
Categories: Mining & Energy