CHINA’S LIKELY EXIT FROM IRAN TO STALL ITS GAS AMBITIONS

▶ CNPC’s purported exit from South Pars field comes in the wake of the arrest of Huawei’s CFO

Iran’s flagship South Pars 11 project, the $4.8 billion project that France’s Total quit in August, may come to a standstill as the US tightens the compliance noose around countries trading with Iran, analysts said.

China National Petroleum Corporation, which was said to have taken the lead on developing the scheme in the world’s largest gas field, is on its way out, squeezed by pressure from the US, reported Reuters. There has been no official confirmation from either CNPC or the state-owned National Iranian Oil Company.

CNPC’s purported exit comes in the wake of the arrest of Meng Wanzhou, Chinese telecoms company Huawei’s chief financial officer and the daughter of the phone maker’s founder, over allegations of sanction violations. The diplomatic dispute has made Chinese companies more wary of falling foul of US sanctions, particularly when some energy companies are directly exposed to the US financial markets.

“CNPC would face a complicated situation if it would not comply with the US sanctions [especially when the] shares of PetroChina, a listed arm of CNPC, are currently traded on the New York Stock Exchange and several US entities own these shares,” said Siamak Adibi, senior ga consultant at Facts Global Energy (FGE) based in London.

US investment bank JP Morgan and affiliated funds own around 7 per cent shares in PetroChina, which are worth a collective $1.4bn.

“Potential non-compliance penalties by the US authorities would create a disaster for PetroChina’s stock in the US financial market,” said Mr Adibi.

Total’s joint investment with CNPC and the local Petropars in 2016, following the lifting of nuclear-related sanctions against Tehran, was seen as a big win for the beleaguered Iranian energy sector. Iran has the world’s second-biggest gas reserves after Russia.

However, an ageing infrastructure combined with lack of access to the latest technology in gas processing has stunted the growth of the industry.

Another blow to CNPC would be the loss of project financing from US banks for overseas investments by Chinese energy companies, should they fail to comply with US sanctions.

“So CNPC has no choice,” Mr Adibi said.

Iran may now choose to work with the local Petropars to complete the first phase of the project, with the second – a more technically complex phase – being held off until the sanctions are lifted.

The exit of CNPC, if confirmed, will deal the final blow to Iran’s ambitions to become a major condensate exporter, which was its aim when developing the huge scheme alongside Total and Petropars. Condensate is a liquid found with gas that fetches a higher price than crude because it is easier to refine into products.

The latest wave of sanctions, which came into effect on November 5, also targets the sale of condensate unlike the Barack Obama-era embargo, which exempted the liquid. With increasing restrictions, it makes little economic and commercial sense for Iran to undertake the massive project, which requires foreign expertise.

However, Iran may decide to drop it altogether.

“There may be reasons why they may not proceed with developing it single-handedly. One is that they will not need extra gas or phases to be developed, if they cannot export associated condensate and NGLs [natural gas liquids] mainly – propane and ethane,” said Iman Nasseri, managing director at FGE.

“So if they cannot export, they do not need to develop.”