Iran takes one gas field from China to push it on another

Iran has suspended a $16 billion gas field contract with China in the Gulf to push it to meet its obligations in another nearby field that is already being tapped by Qatar, the Mehr news agency reported Tuesday.

It quoted the managing director of the Pars Oil and Gas Co, Moussa Souri, as saying "the development contract for North Pars (field) with the Chinese is temporarily suspended."

Souri explained: "Right now, the priority is developing the shared oil and gas fields, especially South Pars."

He added that Iran's decision to let the Chinese develop the North Pars field "hinges on their activities in the development of South Pars' Phase 11."

The two are located in the Gulf. South Pars straddles the maritime border with Qatar, which has been extracting gas from it for the past decade.

The Pars Oil and Gas Co said last week that development of Phase 11 of the South Pars field in the Gulf was only 10 percent complete, instead of the scheduled 17 percent, because the Chinese -- who had signed a $5 billion contract in 2009 for the zone -- had not started their promised work there.

Phase 11 is important because Iran plans to use it to fill its first-ever liquefied natural gas plant being built on its Gulf coast.

Western majors that had been operating in South Pars, among them France's Total and Anglo-Dutch giant Shell, withdrew from Iran between 2007 and 2010 after international sanctions were imposed over Tehran's controversial nuclear programme.

Iran reacted by re-allocating the projects to domestic or Chinese companies.

But the Chinese groups have come in for criticism by Iranian officials in recent weeks for piling up delays in $40 billion dollars' worth of oil and gas projects signed since 2006.

Western experts estimate that, of that promised sum, China has in fact invested less than $3 billion.

South Pars is seen as a priority by Iran's leaders, who are concerned about the slow progress on the Iranian side compared to the Qatari pumping operations backed by big Western companies.

North Pars, in contrast, lies entirely within Iranian waters and is therefore not being depleted by competitors.

Beyond Tehran's displeasure with Beijing on the issue, the suspension of the North Pars contract also highlights the difficulty Iran faces in garnering the capital and technical expertise needed to exploit its oil and gas riches because of US and European sanctions, some experts say.

Last week, Iran withdrew permission for Russian group Gazprom to develop its Azar oil field on the border with Iraq.

The head of Iran's national oil company said Gazprom had received "repeated warnings" over delays in signing the $2 billion contract, and the field was now being awarded to domestic contractors.

Iran is the second-biggest oil producer in OPEC after Saudi Arabia, with an average output of 3.5 million barrels per day in 2010. It also has the world's second-biggest gas reserves after Russia.

The country estimates it needs $40 billion in investment per year to develop its oil and gas sector, half of it from private companies, either Iranian or foreign.

While most of Iran's gas production is consumed domestically, oil exports account for 80 percent of foreign exchange revenue, worth a forecast hundred billion dollars this year.