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Financial Times: Japan loses out on massive Iranian oilfield amid fears of US sanctions

By Gareth Smyth in Tehran

Published: October 7 2006 03:00 | Last updated: October 7 2006 03:00

Japan’s Inpex announced yesterday it had lost the leading role in developing Iran’s huge Azadegan oilfield, with its share of the $2bn (€1.6bn, £1.1bn) project slashed from 75 to 10 per cent.

Talks had failed to overcome fears on both sides that an agreement first signed in 2004 would fall foul of international sanctions against Tehran being touted by the US, a close ally of Tokyo, over Iran’s nuclear programme.

Katsujiro Kida, director of Inpex, told reporters in Tokyo he did not know whether Iran would transfer operational responsibility for the field – which has reported reserves of 26bn barrels and a potential daily output of 400,000 barrels – to another country or undertake it domestically.

It was also unclear whether Total, the French oil company, would go ahead with efforts announced last month to gain a small stake in the field.

Japanese officials, especially in the trade ministry, had seen Azadegan as a potentially secure oil supply after the loss in 2000 of the Khafji field in the Saudi-Kuwait neutral zone. Iran already supplies around 14 per cent of Japan’s crude oil and is its third-largest supplier after Saudi Arabia and the United Arab Emirates.

A long-running debate within the Japanese government has divided those who argue oil is a simple commodity from those who say it is a strategic resource. The latter fear that if Japan moves out of Iran, China could move in. But analysts in Japan also expressed doubts Inpex could raise the necessary funds should sanctions be imposed against Iran by the United Nations or by a US-led coalition.

At the same time, criticisms of the Japanese for allegedly dragging their feet over the development grew in Tehran in recent weeks, with politicians suggesting the project could be switch-ed either to the Chinese or undertaken by Iranian companies. Kamal Daneshyar, head of the parliament’s energy commission, had called for the agreement to be scrapped and demanded damages from Inpex.

While Tehran extended a mid-September deadline for Inpex to agree to expedite the project, allowing a final round of talks between the two sides, the government of Mahmoud Ahmadi-Nejad has shown a desire to favour domestic operators.

In June, subsidiaries of Iran’s Revolutionary Guards scooped both a $1.3bn contract for a gas pipeline linking the South Pars field, in the Persian Gulf, to eastern Iran, and the main contract for exploring phases 15 and 16 of South Pars, which had originally been awarded to a consortium including Norway’s Aker Kvaerner.

US sanctions have long kept American majors out of the Iranian market, which has the world’s second largest reserves of both oil and gas, but a number of international companies have an interest.

Royal Dutch Shell, the Anglo-Dutch energy group, is developing the Soroosh and Nowrooz oilfields and last year signed on to help develop South Pars. Among other active foreign companies are Norway’s Statoil, Austria’s OMV, Spain’s Repsol, Brazil’s Petrobras, Italy’s Eni and the two Chinese national oil companies CNPC and Sinopec.

Copyright The Financial Times Limited 2006

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