A press official with the Iranian Embassy yesterday confirmed to China Daily that an initial agreement related to the development of a gigantic natural gas project has been signed by China's top offshore oil producer and its Iranian counterpart.

 

"A big deal was hammered out on Wednesday between the two countries to jointly produce natural gas in Iran," the Iranian diplomat revealed on condition of anonymity, although he added that more details on the agreement were pending endorsement from the ambassador.

 

According to Iran Daily, the National Iranian Oil Company and China National Offshore Oil Corp (CNOOC) signed a memorandum of understanding on the development of the North Pars gas field on Wednesday.

 

The field contains an estimated 80 trillion cubic feet of natural gas, according to the paper.

 

Requiring an investment of over US$16 billion, the project will see US$11 billion will be spent on the downstream segment and the rest on the upstream segment.

 

According to the preliminary agreement, the gas will be liquefied and divided equally between the two companies.

 

The project is expected to take eight years to bear fruit, Iran Daily reported.

 

CNOOC would not confirm the deal yesterday, only saying that ongoing talks with its Iranian counterpart on such a project had been going for a long time.

 

"We have been in close contact for a while. But it is premature to release the results of any negotiations at the present time," spokesman Liu Junshan told China Daily.

 

An industry insider told China Daily that under the terms of a planned agreement signed as early as October, the National Iranian Oil Company offered CNOOC a 25-year gas supply from the North Pars field.

 

Lee Meileng, chief analyst of Platts' Beijing office, said the reported deal would be a shot in the arm for both CNOOC and China as a whole from business and energy supply perspectives. Platts is the world's largest provider of energy information and market research.

 

"By participating in and having ownership of overseas energy projects, Chinese oil companies can better safeguard energy safety for China as a major energy consumer. They themselves can also benefit from this kind of participation by taking advantage of hefty global energy prices," said Lee.

 

The Platts analyst revealed that CNOOC's share of gas from the reported joint program in Iran could either supply robust demands from CNOOC’s liquefied natural gas (LNG) terminals in the coastal areas of China, or be sold on the global market.

 

"Either will be positive for CNOOC and China. Therefore, I see this move as good from both a business and energy supply perspective," said Lee.

 

Agreeing with Lee, Zhou Dadi, former director of the National Development and Reform Commission's Energy Research Institute, commented that compared with simply importing oil or gas from abroad, investment and active involvement in overseas projects was more cost-effective and provided a safer way of ensuring consistent energy supplies.

 

CNOOC, as China's largest offshore oil supplier, plans to build up to seven LNG-importing terminals in six provinces and municipalities. By the end of October, only two of them have obtained government approval.

 

"Only with a secure and consistent gas supply, can LNG terminal construction be meaningful and gain approval," said Lee.

 

(China Daily December 22, 2006)