WITH WASHINGTON AGAIN turning the financial screws on Iran, China stands to pick up a lot of the pieces that will get broken in the process.
The Iranian state news agency yesterday announced that China National Petroleum Corp. (CNPC) would take over Total’s 50.1% share of the $4.8 billion Phase 11 (of 24) development of the giant South Pars gas field, the world’s largest unitary gas reserve.
Terms, including financial ones, are unknown. Neither Total nor CNPC has made a public comment at this point. Confusingly, the Iranian oil ministry subsequently said that the terms of the contract remain formally unchanged, though that is not necessarily inconsistent with CNPC taking over.
Last year, in signing on, the French energy company became the first sizeable Western oil and gas company to invest in Iran following the lifting of sanctions on Tehran the previous year.
Now the Trump administration has pulled out of the nuclear agreement that enabled those sanctions to be lifted, fresh US sanctions have been imposed that force companies to choose between trading with Iran and trading with the United States.
For most Western companies, it is no choice at all. Total had already indicated that it would have to walk away from the South Pars project in the new circumstances.
CNPC, which has had a presence in Iran since 2004, already had a 30% stake in Phase 11. Iranian state-owned Petropars owns the rest.
The project is intended to supply gas to the domestic Iranian market from 2021 with excess to that requirement being exported, now assuredly eastwards rather than westwards. That gas could either be shipped or sent to China via the network of pipelines existant, under construction or planned across Central Asia and Pakistan.
China is already the largest market for Iran’s exports of crude oil and condensates, taking 24% of the total last year.
In addition, Chinese banks have extended $25 billion in credit lines for infrastructure investment, suggesting Chinese firms will easily be able to slip into the spaces vacated by Western multinationals and be in a position to negotiate favourable terms now they will be the only game in town for Tehran.