RIYADH, Saudi Arabia () -- Iranian pressure is mounting on the multibillion South Pars LNG project, being planned by French oil and gas major Total [NYSE:TOT], Malaysian oil company Petronas [KL:6033] and Iran. In the last few months, discussions regarding the project have been stalled as the projected costs of the project, estimated to be around $4.5 billion, have increased to around $12 billion.
As Total's CEO Christophe de Margerie previously stated some months ago, the project has reached an impasse. Iranian government officials have refuted the claims of the two companies that costs increases are overwhelming, resulting in a reassessment of the whole project and new discussions regarding the overall spread of financing.
However, new difficulties have emerged at the sidelines of the third in Riyadh, where Iran's Minister of Oil, Gholamhossein Nozari, stated Iran will keep to the standpoint that the increased costs should be reassessed, believing $12 billion cannot be rationally explained. Nozari ignored the claims that due to market fundamentals, such as the effects of higher steel costs, increased contractual costs with contractors and ongoing delays, the project will need a higher amount of investment.
When asked to comment what would be fair price according to Iran, Nozari said, based on Iranian research, a price around $5 billion would be feasible for an LNG project holding a production capacity of 10 million tonnes per year. He also remarked that this means Total and Petronas need to explain how they came to the $12 billion requirements. The Iranian minister added that if needed Iran will take the project in its own hands and finance it itself.
He said the project could be financed via funds available in the Oil Stabilization Fund, which is Iran's 'pension fund' for hard times. Analysts have reported that Iran has nearly emptied the fund, but these claims have likewise been refuted by Nozari. He indicated that he would indeed use the fund as necessary, contrary to the official view held by the Iranian parliament that it is a fund for the future. When asked directly, Nozari bluntly stated that he can use the funds available as he feels fit.
For international oil companies, the future in Iran seems to be dark. Upcoming resource nationalism is making an increased footage in Iranian politics, leaving less leeway for independent operators.
Companies such as Total or Shell [NYSE:RDS-B], which is currently discussing other gas projects in Iran, will be confronted by a blunt Iranian statement of "take it or leave it." Based on sanctions and security issues, it seems that Iran's oil and gas projects for the foreseeable future will be a no-go area.
