their government to drag their feat on investments in Iran, the Reuters news agency has reported.
Two Chinese companies are negotiating deals that could give them greater access to the American energy sector. Beijing does not want to jeopardize those deals. Presumably for that reason, it is telling all Chinese oil companies to mark time and not to rush into any investments in Iran.
Iran has had the door slammed in its face by European and North American energy companies and has sought to bring in Chinese firms to make up the gap, both in terms of finance and in terms of technology.
Chinese companies have signed some massive deals with Iran. But those deals have been signed as memoranda of understanding (MOUs) and few of them have yet been converted into contracts.
Reuters reported last Thursday that the Chinese government informally instructed firms to slow down after the US imposed unilateral sanctions on Iran in late June and as two of China’s top three energy companies work toward deals that would give them greater access to the US energy sector. It quoted unnamed “Beijing-based sources at the companies.”
Reuters quoted one industry official as saying, “The political pressure came directly from the government … and I believe it’s logical to draw a link with these US deals.”
As China’s presence in the US energy sector grows, so does its potential exposure to sanctions. The European firms that withdrew from Iran before the EU sanctions took effect in recent weeks did so chiefly because they have major investments and markets in the United States and did not want to see them jeopardized. Those investments and markets in the United States far exceed in size anything they could dream of in Iran.
The third largest oil and gas firm in China is the China National Offshore Oil Company (CNOOC), which announced earlier this month a $1.1 billion shale gas deal with Chesapeake Energy of the United States. The deal, pending final US government approval, was CNOOC’s first foray into the United States since its 2005 bid for Unocal was blocked by US regulators.
China’s largest energy firm, the China National Petroleum Co. (CNPC), agreed in September to explore Australian gasfields with US major Chevron Corp.
Reuters cited one unnamed analyst as speculating that the United States may have offered improved access to its energy sector for Chinese firms in exchange for Beijing’s support for the last round of sanctions imposed by the UN security council in June.
Chinese firms have taken up development roles in some of Iran’s prize energy assets, such as the South Pars gasfield and the Azadegan and Yadavaran oilfields.
But CNPC, which has signed a contract for Phase 11 of South Pars, has yet to drill its first well. It had previously expected to start drilling as early as March.
“The company has instead been focusing on paperwork, appraising the reserves and mapping out development plans, rather than putting in active work on the ground,” one industry official told Reuters.
CNOOC has made little headway on its North Pars project, after signing a $16 billion MOU in late 2006 to develop the field and build facilities to export liquefied natural gas (LNG), industry sources said.
While slowing down, sources said CNPC, which has the largest number of projects among Chinese firms in Iran, would continue to fulfill its contracts.
“Strategically China is not going to give up on Iran,” one executive with knowledge of the sector’s overseas strategy told Reuters.
An industry newspaper, Upstream, reported this month that CNPC’s engineering arm and upstream research unit have halted work on the South Azadegan oil project, despite CNPC’s declared interest to advance the deal from an MOU to a contract.
CNPC signed an MOU with the National Iranian Oil Company in early 2009 to take a 70 percent stake in the oil project.
Reuters said gas projects in Iran are more likely to face delays than oil work, as Chinese firms with American arms are moving into Australia for gas in a big way. “I am not convinced China has a huge need for Iranian gas,” said Gavin Thompson of energy consultancy Wood Mackenzie.
Furthermore, many of the patents and much of the manufacturing capability for oil and gas technologies lie with Western firms that have to stay away from Iran. China lacks the technology to complete liquefied natural gas (LNG) export facilities itself.
In between CNOOC and CNPC is China’s second largest energy firm, the Sinopec Group. Reuters said it wasn’t clear if Sinopec has slowed work on its main Iran venture, a $2-billion development plan for Yadavaran, where the firm has deployed nearly 200 people.
“I don’t think there has been major impact…. First output should come next year, as scheduled,” said an industry executive with knowledge of Sinopec’s overseas operations.