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Tehran delivers gas ultimatum

Financial Times: Tehran delivers gas ultimatum

By Najmeh Bozorgmehr in Tehran
Published: April 17 2008 02:44 | Last updated: April 17 2008 02:44

Iran’s oil minister on Wednesday warned Royal Dutch Shell, France’s Total and Spain’s Repsol that the June deadline to sign multi-billion dollar natural gas contracts would not be extended.

“It is the last chance,” Gholam-Hossein Nozari said, reiterating he had urged officials to “finalise” the deals around mid-June on three phases of South Pars, the world’s biggest gas field.

Tehran urged the companies in October to finalise their deals by mid-2008 or lose the contracts, after they delayed investment because of soaring costs.

On the sidelines of an annual international oil, gas and petrochemicals exhibition, Mr Nozari said parliament had permitted his ministry to use 3 per cent of oil revenues, which stood at about $70bn (€44bn, £35bn) last year, for development of South Pars.

He told reporters that the phases of South Pars being discussed with Total, Shell and Repsol could be given to domestic contractors instead.

Tensions over the country’s nuclear programme and heightened US pressure on financial institutions and companies to halt business with Tehran have also undermined lucrative energy deals. Most western companies try to execute a delicate balancing act to keep their foothold in Iran while not signing big contracts that jeopardise their interests in the US.

The oil minister admitted to exhibitors that “financing is the most important and the main challenge” ahead in developing the oil sector, which he said would need $500bn of investment over the next 16 years.

Iran has recently signed multi-billion dollar gas contracts with Chinese and Malaysian companies, stressing its options in Asia and threatening westerners that the energy sector could not wait for them to make decisions on investments.

Some Iranian officials suggested Asian and other European companies could replace Total, Shell and Repsol. “We still prefer these three companies to finish their jobs, but if they keep being slow their Swiss and Austrian friends may take over,” Hossein Noghrehkar Shirazi, deputy oil minister for international affairs, told the Financial Times.

A Repsol official at the exhibition said the Spanish company was “still interested” in phases 13 and 14 of South Pars and was “making progress” in its “very productive negotiations” with Iranian authorities.

“We are expecting some progress in a very short period of time,” the official said, asking not to be named. However, he complained that financing was the most difficult part of doing business with Iran and that, as a result of sanctions, the costs of transferring money were too high.

Oil experts say such delays in contracts and financial problems as a result of sanctions have dramatically postponed development of South Pars, which was part of the reason behind a shortage of gas last winter.

Separately, Iran this week extended its one-month supply of unsubsidised petrol outside the rationing system “until later notice”. To curb over-consumption and to fend off the possibility of sanctions on petrol, Iran engineered a rationing scheme last year.

Copyright The Financial Times Limited 2008

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