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Reuters: Iran signs $10bn LNG deal with Repsol, Shell

Posted: Sunday, January 28, 2007 
Tehran

Iran said it had signed an initial deal worth $10 billion with Spain’s Repsol and Royal Dutch Shell to produce liquefied natural gas (LNG) from the South Pars gas field.

Gholamhossein Nozari, head of state-owned National Iranian Oil Company(NIOC), was quoted by Iran’s student news agency ISNA as saying the deal would be worth $10 billion and said a final investment decision was expected by the end of 2007.

An industry source close to the deal told Reuters the deal signed was an upstream service agreement.

“It is part of the work to assess the feasibility of the project,” the source said. “The important thing is that the final decision to develop the LNG project is a year or so away.”

A deal would be a blow to Washington, which in addition to barring US investment in Iran, has been stepping up pressure on non-US firms to refrain from investing in Iran amid Western accusations Iran is seeking to produce an atomic bomb.

Iran denies the charge but in December it was slapped with limited UN sanctions and it risks harsher ones if it does not heed a UN demand to halt uranium enrichment, a process that can be used to make fuel for power plans or material for bombs.

The project with Repsol and Shell would involve developing phases 13 and 14 of the South Pars gas field in the Gulf.

A source said last Tuesday such a preliminary deal would be signed in days and put the value at $4.3 billion for an LNG plant and port terminal. Nozari said the $10 billion price tag was for both upstream work and the LNG facilities.

The source said the LNG plant would cost about $2.5 billion and the port terminal and other infrastructure would cost about $1.8 billion, the source said, adding that exports — if the project went ahead — could start in 2011 or 2012.

Under the deal, Shell and Repsol would each take a 25 percent stake in the project to produce 16 million tonnes a year of LNG, super-cooled natural gas that can be transported on tankers.

“This contract is the biggest project of its kind for investment and the amount of gas to be turned into LNG (in Iran),” Nozari was quoted as saying, adding that the deal, signed on Saturday, would be based on Iran’s so-called “buy back” terms.

Under Iran’s “buy back” contracts, investment in developing a field is rewarded with a share of production for a short period before the state repurchases the field.

Iran has said it is reviewing the terms of deals to make them more attractive, after criticism from foreign investors.

Iran has the world’s second largest natural gas reserves — about 940 trillion cubic feet — but has been slow to develop them for exports.

The Islamic Republic is negotiating terms on other LNG deals but analysts say it could take at least 10 more years for Iran to become a major gas exporter.

France’s Total agreed to build Iran’s first LNG terminal in February 2004 with an initial start date of 2009. Three years later, Total and Iran are still negotiating terms and the start date has been pushed back to 2011.-Reuters

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