Page last updated at 11:44 GMT, Thursday, 10 July 2008 12:44 UK

Easy gas riches on hold for Iran

By Orla Ryan
BBC News business reporter

Christophe de Margerie, Total chief executive
The boss of Total has raised doubts about the firm's commitment to Iran

Iran has the world's second-largest gas reserves at a time of rising prices and fears of a supply crunch.

The country's billions of dollars of gas reserves should have it laughing all the way to the bank.

But finding firms with the expertise and steely nerves needed to do business with a country whose alleged nuclear ambitions rankle the US isn't easy.

Total, the French oil company, is the latest to voice its concerns about investing in Iran.

"Today, we would be taking too much political risk to invest in Iran because people will say 'Total will do anything for money'," said Christophe de Margerie, the chief executive of the French energy group, in an interview with the Financial Times.

Total has been engaged in talks about developing Phase 11, one of 23 fields in the potentially lucrative South Pars block and has a memorandum of understanding with the National Iranian Oil Company. Iran had said it wanted Total to commit by the middle of the year.

But the French government has urged the company not to invest in Iran, which tested missiles on Wednesday that could reach Israel, and carried out further tests on Thursday.

In May, Royal Dutch Shell said it would pull out of developing another phase of the South Pars block.

Expertise

Iran has said it can find other companies to invest in South Par and it has its own cash to develop the fields.

Mahmoud Ahmadinejad
The Iranian government had hoped to access its gas reserves quickly

But while Iran, like many oil producers, may be sitting on piles of cash, the real issue, say analysts, is not the financial wherewithal but the time and knowledge needed to exploit the reserves to their full.

"One of the things they (Total) really bring to the party, is their expertise and financial firepower to develop large projects," said David Hart, analyst at Fat Prophets, an investment advisory company.

"For Iran, this is fairly serious. To develop a large field is not something you do off the back of an envelope. It takes time, effort, and know-how to pull it off," he added.

"This begins to hit them where it hurts. As long as they are able to produce oil and gas, that is OK. As soon as they are not able to develop future resources, that impedes their ability to act as they like. That brings that into sharp relief for Iran."

Starting again

Some fields within South Pars are already being developed by Iranian companies, a fact that illustrates the difficulty of getting foreign investors on board.

I am doubtful Total would back out... they are hedging their bets
Mohammed Shakeel, Economist Intelligence Unit

While other companies could develop South Par, restarting negotiations slows down a process that Iran - already witnessing Qatar profit from the sale of gas from its share of the South Pars fields - would like to see move quite fast.

"Iran is pretty eager to start exploring immediately," said Mohammed Shakeel, Iran analyst at the Economist Intelligence Unit. "If they stumble now, it is like going back to the drawing board."

Investors from energy-hungry China or Russia, such as Gazprom, may be able to develop South Par, but not necessarily as well as Total.

"It is question of who can do it better. It is not that this couldn't be developed, it is who would do it fastest and most optimally," said Mr Hart.

"For that, it is not just the oil companies like Total, but oil service companies, who provide infrastructure and that kind of support, to help speed up the development."

Hedging their bets

But when reading between the lines of the comments from Total it is not necessarily clear that the firm is planning to shut the door on South Par, just wary of proceeding in the current climate.

Mr de Margerie says that "today" there might be too much risk, a caveat that indicates it still believes there could be a future for Total in South Par.

"Total has been in negotiation with Iran for a number of years," said Mr Shakeel.

"I am doubtful Total would back out. It realises Iran's potential is huge... the situation is precarious, they are hedging their bets."



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