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Gulf Times (Qatar): Japan loses ‘its control’ of Iranian oil gem Azadegan

EXTRACT: Long-standing US sanctions threaten action against foreign companies that invest heavily in Iran’s energy sector, but firms such as Royal Dutch Shell and Italy’s ENI have run major projects there without incurring Washington’s wrath. The sanctions were extended by Congress last weekend.

THE ARTICLE

Published: Saturday, 7 October, 2006, 09:44 AM Doha Time 
 
Azadegan was Iran’s biggest oil find in 30 years when announced in 1999, with oil-in-place of 26bn barrels and recoverable resources then estimated at about 6bn barrels
TOKYO: Japan’s Inpex Holdings Inc has lost the right to lead the $2bn-plus development of Iran’s Azadegan oilfield, but will retain a token share in the Opec member’s biggest find in three decades.

In a blow to Japan’s hopes for enhanced energy security, Inpex director Katsujiro Kida told reporters yesterday its stake in the project had been cut to 10% from the 75% share agreed in February 2004 after last-minute talks this week.

But operational responsibility for Azadegan, believed to hold more than enough crude to meet Japan’s total import needs for three years, is being transferred to Iran, which has said it may give the field over to Russian, Chinese or Iranian firms.

Iran may give China and Russia access to Azadegan in return for support at the UN, which might consider sanctions over its nuclear programme.

“Inpex lost an opportunity to be the operator of a major project,” said Hidetoshi Shioda, senior energy analyst at Mizuho Securities Co in Tokyo. “This is a blow for the company.”

While a setback for the Japanese government, which owns the biggest share of its top energy explorer, the news may be a political victory for the US, which has strongly opposed it and stepped up pressure this year as Tehran pursued nuclear work.

Inpex said Iran’s delay in clearing land mines from the area as well as spiralling investment costs caused the cut, but Iran has threatened for months to strip Japan of the rights if it did not move more quickly to begin drilling.

“Our company has other projects and our business is expanding rapidly,” Kida said. “It is a matter of balancing financial resources.”

He said the area was now 95% clear of land mines laid during the 1980-1988 Iran-Iraq War, not enough to begin work. Inpex itself has spent about ¥10bn ($85mn).

Losing Azadegan may endanger Japan’s efforts to lift the share its companies produce overseas to the equivalent of 40% of the country’s oil imports by 2030 from 15%. At its peak the field is expected to pump about 260,000 bpd, equal to just over 5% of its imports.

But it is also a blow for Iran, the world’s fourth-biggest producer, which has struggled to secure investment to help offset the 10% or more decline in its older oilfields.

It was unclear what impact the news would have on European major Total’s efforts to secure a small stake of about 15% in Azadegan from Inpex. A spokeswoman for Total declined immediate comment.

Inpex’s Kida said he did not know whether Iran would immediately give partial stake in Azadegan to other countries or companies.

Azadegan was to have been the jewel in Japan’s overseas oil holdings, making up for its loss in 2000 of operating rights to the Saudi-Kuwait neutral zone and helping it keep up with China and India’s aggressive state-owned companies, now scouring the globe for energy resources to feed their fast-growing economies.

But talks on the project – estimated to cost about $2bn when agreed two and a half years ago – stalled, with Inpex citing operational issues but analysts suspecting a political dimension that may have grown more pronounced this year.

Kida said Inpex had wanted to retain some share in Azadegan to leave open the door to further investments in the world’s second-biggest holder of oil and gas reserves, and denied any government pressure to pull out. “Our company did not get any political instructions from the trade ministry,” he said.

Resource-poor Japan has been in a difficult spot after Iran’s nuclear aims surfaced, stuck between the need to meet its energy requirements and its desire to keep in line with Washington, its closest security ally.

Some refiners such as Nippon Oil Corp have cut back purchases of Iranian crude due to geopolitical risks. In total crude imports from Iran have slumped 20% versus last year.

The US, backed by Britain, has lately suggested it is time to consider a sanctions resolution against Tehran, although Russia and China have typically resisted.

Long-standing US sanctions threaten action against foreign companies that invest heavily in Iran’s energy sector, but firms such as Royal Dutch Shell and Italy’s ENI have run major projects there without incurring Washington’s wrath. The sanctions were extended by Congress last weekend.

Azadegan was Iran’s biggest oil find in 30 years when announced in 1999, with oil-in-place of 26bn barrels and recoverable resources then estimated at about 6bn barrels.
Iran may develop Azadegan in partnership with Russia or China failing an agreement with Japan, Kyodo News said on August 27, citing Mehdi Bazargan, managing director of Iran’s state oil company.

“China and Russia are freer to act against what the US says, while it’s hard for Japan,” said Tomomichi Akuta, an energy researcher at UFJ Institute Ltd. “From Iran’s point of view, countries such as China have more credibility when it comes to implementing oil projects under the current circumstances. – Agencies
 

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