Iran plays China card with Japan on oil deal

No progress, no contract by September?

Kyodo

The contract Japanese oil developers signed in 2004 to tap Iran’s giant Azadegan oil field could be terminated in September with no major progress in the project, and Iran may strike a new deal with energy-hungry China.

“In the contract, there are two years and six months (to implement the project),” Mehdi Bazaargan, managing director of Petroleum Engineering & Development Co., a subsidiary of the Iranian developer that signed the contract with Japan, told Kyodo News. After the deadline, “the contract will be terminated automatically.”

Petroleum Engineering & Development, an affiliate of National Iranian Oil Co., is in charge of negotiating with Japanese companies over the oil development project.

In February 2004, three companies — Japan’s government-linked oil developer Inpex Corp., National Iranian Oil and its subsidiary — signed a contract on the project.

Bazaargan ruled out the possibility of extending the implementation period of the contract, which took effect in March 2004.

“Extending the deadline is not written in the contract. We haven’t thought of it,” Bazaargan said.

The oil field in Azadegan, southwestern Iran, is one of the world’s largest, estimated to contain 26 billion barrels worth of crude reserves.

Inpex and its partners are seeking to start production at the oil field in 2007, with a plan to eventually produce more than 400,000 barrels per day, but the main stages of the project have not been carried out.

The United States is opposed to the $2 billion oil development deal. Washington is trying to mount international pressure on Iran to abandon its nuclear ambitions.

Japan currently sees no change in its stance of carrying out the project. Asked about the report Thursday in Tokyo, Chief Cabinet Secretary Shinzo Abe stressed the importance of the project from the viewpoint of securing a stable energy supply.

“We would like to move forward in line with the contract,” Abe told reporters.

Inpex says implementing the project has been delayed because the Iranian side has not finished removing land mines in areas covered by it.

Bazaargan said demining is an obligation for National Iranian Oil under the contract, and this “should be done.”

“But I don’t think the main obstacle is mine-clearing or demining,” said Bazaargan, adding that oil drilling can be started in the main area.

Asked about speculation that Tokyo is intentionally delaying the project under pressure from Washington, Bazaargan said the main issue is Inpex’s concern about the amount of investment in the project.

“Usually the Japanese government has a very positive attitude. So I cannot actually say anything about the intention of the Japanese government,” Bazaargan said.

He said Iran doesn’t have “any specific strategy” in the event that Japan withdraws from the project, while also suggesting a joint project with China when asked if it’s a possible substitute. “What is available in the market, we will use, of course,” he said.