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India faces Farsi ultimatum
By Siddharth Srivastava
After keeping its distance from the Iran-Pakistan-India (IPI)
pipeline project, New Delhi is now under increasing pressure from
Tehran to commit fully to the development of the Farzad-B gas venture.
Fears that Iran’s nuclear ambitions contain a weapons programme, as
well as concerns over US sanctions, prompted India to avoid the US$7.5
billion IPI scheme. After missing out on this potentially very fruitful
project, India is once again in the hot seat over Iran’s energy
This time, the fate of a US$5.5 billion investment by a consortium
of Indian firms in Farzad-B, which lies in the Farsi block offshore
Iran, hangs in the balance.
Tehran, faced with new sanctions from the US and the European Union,
has threatened to cancel the award of the block owing to delays by
partners ONGC Videsh Ltd (OVL), Indian Oil Corp (IOC) and Oil India Ltd
(OIL) in signing the Farzad-B field development contract.
“Iran has given a one-month ultimatum to India on developing the
Farzad-B gas field,” the semi-official Fars news agency quoted an
unnamed Iranian oil official earlier this month. Speaking to AsianOil, official sources in
India’s Foreign Ministry have said the Iranian government has sent many
messages to New Delhi, but, they added, this was not “unusual, as the
two countries’ hydrocarbon relationship runs deep.”
“We are preparing appropriate responses [on Farsi] and action is
being initiated via more dialogue with the entities concerned to
prepare the way forward. We are also in discussions with US officials
to seek a waiver for Indian firms,” one official said.
In August-September 2010, OVL, the overseas arm of India’s state oil
company Oil and Natural Gas Corporation (ONGC), submitted a revised
Master Development Plan (MDP) for the gas field it had discovered.
However, OVL has so far refrained from signing a contract owing to
concerns that US sanctions could be imposed on the company, given that
such sanctions can be implemented on any firm that invests more than
US$20 million in Iran’s energy sector in any 12-month period.
Farzad-B was declared commercial in 2008 after several wells were
drilled in the Farsi block awarded to OVL in 2002. OVL, the project’s
main operator, owns a 40% stake in the 3,500-square km block, state
refiner Indian Oil Corp (IOC) also has 40% stake, while Oil India Ltd
(OIL) holds the remaining 20%.
The consortium also intends to produce liquefied natural gas (LNG)
and ship it to India where the supply and demand gap has widened
considerably. Another US$2.5 billion would be needed to set up the
liquefaction plant for this, however.
Reserve estimates for Farzad-B are good, with more than 21.5
trillion cubic feet (608.9 billion cubic metres) of gas in place, of
which 12.8 tcf (362.5 bcm) are recoverable, much more than India’s
largest gas producing field KG-D6, operated by Reliance Industries Ltd
(RIL), a company that has considerably reduced its business with Iran
over fears of sanctions.
ONGC, meanwhile, is under increasing pressure to deliver sufficient
oil and gas supplies to meet rising domestic demand.
Hamstrung by mature assets, ONGC’s chairman and managing director,
Sudhir Vasudeva, recently said the company planned to invest US$33
billion during the five years from April 2012. About US$7.5 billion
will be deployed to develop ONGC’s gas assets in the Krishna Godavari
Answering questions from AsianOil
about ONGC’s overseas plans,
Vasudeva said company officials were in “constant touch with
counterparts in Iran, including our investments and prospects.”
On the topic of sanctions, Vasudeva said: “There are political
aspects involved, which are being worked upon and all options explored.
We will go by whatever the government decides.”
The ONGC chairman, however, has already admitted that a jump in
ONGC’s output can only come about from newly discovered fields.
After missing out on IPI, India will be loath to miss out on Farsi.
Official sources in the foreign ministry have told AsianOil that New Delhi will most
likely seek to buy more time on the issue before making taking a
“India is keen to keep its access to Iran’s immense oil and gas
resources intact. However, it does not want to annoy Washington as
well,” one official explained.
Sources added that India would offer defence and nuclear power
business opportunities to US firms in the hope of securing an exemption
from Washington on Iran, which the White House can grant if it so
chooses. New Delhi is also expected to point out that it has followed
the US’ lead on Tehran in the past, unlike Pakistan, which is
implementing a truncated IPI project for much needed gas supplies.
Despite Indian Finance Minister Pranab Mukherjee recently saying
India would keep its hydrocarbon relations with Iran intact, the matter
is just not that simple.
New Delhi has been working through payment issues over Iranian oil
imports, which account for 12% of the Asian state’s oil demand. The
situation is forcing Indian refiners to seek crude elsewhere.
Earlier this month, Mangalore Refinery and Petrochemicals (MRPL),
India’s biggest importer of Iranian crude oil, bought its first cargo
of oil from Libya to diversify oil supply.
Meanwhile, privately owned major RIL has substantially curtailed
petrol exports to Iran to avoid problems in fuel sales to the US.
India will seek to buy itself more time on the issue as it struggles
to find a middle ground between political polar opposites the US and
Iran. How much latitude either will give India, however, remains very
much to be seen.