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China to Develop Iranian Gas Field
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It was confirmed to China Daily yesterday by a press official with the Iranian Embassy that an initial agreement on a massive 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 details on the agreement required endorsement from the ambassador.

According to Iran Daily the National Iranian Oil Company 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 holds 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 part 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 wouldn't confirm the deal yesterday only saying 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, said Lee. "They themselves can also benefit from this kind of participation by taking advantage of hefty global energy prices."

The Platts analyst explained that CNOOC's share of gas from the reported joint program 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 that observation Zhou Dadi, former director of the National Development and Reform Commission's Energy Research Institute, said 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 secured government approval.

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

(China Daily December 22, 2006)

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