France’s Total Bets Big on Iran’s Gas Fields
“Today, for Total, is a historic day, the day we come back to Iran,”
Total CEO Patrick Pouyanne said at the signing ceremony in Tehran on
France wasted no time in rebuilding its economic ties with Iran since
international sanctions were lifted as
part of Tehran’s
nuclear deal with world powers.
In early 2016 — just after the sanctions began to roll back — France made
deals with Iran to sell Airbus commercial jets, return carmaker Peugeot and
have energy giant Total buy Iranian crude oil.
Another big bet by France was made (July 3rd) as Total signed a
multibillion-dollar deal to help develop part of the massive South Pars gas
field, one of the world’s most extensive energy reserves. The pact with the
National Iranian Oil Co. marks the first major Western investment in Iran
since the nuclear deal was reached in 2015.
An even bigger message sent by the deal is that France and the United States
are blazing different paths when it comes to Iran’s vast oil and gas fields.
French leaders and business envoys spent months hammering out the Total
deal. In Washington, President Donald Trump has not missed any opportunity
to take potshots at the nuclear deal as part of his attacks on all things
It has left US oil companies waiting on the sidelines for clues on whether
they could one day get official clearance to make a foray into the Iranian
market. A push in Congress for new sanctions on Iran — in response to
Tehran’s ballistic missile tests — suggests that it could be a long time
before US oil companies can look in Iran’s direction.
Total will invest an initial $1 billion (880 million euros) in the South
Pars offshore gas field as part of a consortium with Chinese and Iranian
The 20-year project, which will eventually see the firms inject $4.9
billion, is by far the biggest vote of confidence in the Islamic Republic
since sanctions were lifted under the 2015 nuclear deal.
“Today, for Total, is a historic day, the day we come back to Iran,” Total
CEO Patrick Pouyanne said at the signing ceremony in Tehran on July 3.
“We are proud and honored to be the first international company to sign an
IPC (Iran petroleum contract), which offers an attractive commercial
framework, and to therefore contribute to the development of relations
between Europe and Iran. Total will develop the project in strict compliance
with applicable national and international laws,” he said.
“We aren’t a political organization, but I hope this agreement will
encourage other companies to come to Iran because economic development is
also a way of building peace,” he told AFP.
“We are here to build bridges, not walls,” he added.
The deal, worth $4.8 billion, was signed in Tehran by the National Iranian
Oil Company Managing Director Ali Kardor, Total Chief Executive Officer
Pouyanne and executives of China National Petroleum Corporation and
Petropars, the French company’s partners in the South Pars project.
According to Kardor, with oil at $50 a barrel, Iran can make $84 billion
from the gas deal by the end of the term of the contract. Natural gas prices
are closely associated with the price of crude oil.
The project in South Pars, a field shared between Iran and Qatar, is the
first under a new Iranian petroleum contract which offers better terms to
foreign investors but has faced intense criticism from hardliners who said
it was too generous.
The first phase of the South Pars gas field development is estimated to cost
about 2 billion dollars, Total said in a statement. It consists of 30 wells
and two wellhead platforms connected to existing onshore treatment
facilities by two subsea pipelines. A second phase, which involves the
construction of offshore compression facilities, will be launched at a later
IRI Oil Minister Bijan Namadar Zangeneh said the deal was a direct result of
moderate President Hassan Rouhani’s resounding re-election victory in May
and strong public support for rebuilding ties with the West.
“The people said firmly that our oil policies should continue,” he said. “We
shall never forget Total being the forerunner.”
Zangeneh said Iran’s oil industry needs some $200 billion in investment over
the next five years, and European firms have been hungrily eyeing
opportunities in a country with the world’s second-largest gas reserves and
fourth-largest oil reserves. But they have been cautious about investing due
to continuing US sanctions.
Total has appointed a compliance officer with the sole task of ensuring it
does not fall foul of US measures against Iran.
The White House is also in the midst of a 90-day review on whether to
abandon the nuclear deal entirely, which President Trump threatened to do
during his election campaign.
The uncertainty has been enough to deter global firms such as BP from
dipping their toes in Iranian waters, while Shell and Russia’s Gazprom have
signed only preliminary deals to date.
“We are proud and honored to be the
company to sign an IPC (Iran petroleum contract), which offers an
attractive commercial framework, and to therefore contribute to the
development of relations between Europe and Iran.
Even without the threat of sanctions, investing in the Iranian economy is
not for the faint-hearted.
Iran’s large population of middle-class consumers presents an irresistible
opportunity for many businesses in Europe and beyond.
Any attempt to scupper the nuclear deal will likely face major push-back
from its other signatories: Britain, France, Germany, China and Russia.
Iran’s Foreign Minister Mohammad Javad Zarif was warmly received by EU
leaders last month and tweeted that they were committed to the nuclear deal
“despite reckless US hostility”.
At the signing ceremony, Pouyanne said: “Total has a long history in Iran,”
pointing to its development of phases two and three of South Pars in the
It will take a 50.1 percent stake in the new phase 11 project, while China
National Petroleum Corporation (CNPC) will own 30 percent and Iran’s
Petropars 19.9 percent.
The aim is to start pumping into Iran’s domestic grid in 2021, eventually
reaching 56.6 million cubic meters (2 billion cubic feet) of gas per day.
Iranian officials said the products would be worth a total of $54 billion at
Total had signed up to develop phase 11 back in 2009 but was forced to
abandon its Iranian projects in 2012 when France joined European Union
partners and imposed sanctions, including an oil embargo.
Total’s agreement is one of the first to be signed under the IPC, a new
contractual framework for the Iranian upstream oil and gas sector, which was
ratified in September, and followed by the government’s announcement to hold
the first round of tenders under the framework.
The IPC framework creates a more attractive environment for foreign
investors, and the deal with Total makes it clear that the new contracts are
functioning as they should.
With the older contracts, the companies would come and just develop the
field and leave,” he says. “Today, these contracts are 20-year in nature and
the international operator has a share in that field. Another obligation is
that everyone will cooperate, and the Iranian side has to be a part of this
Total has been testing a number of European banks – without naming them – in
order to establish ease of transactions in the last couple of months. As
CNPC is involved in the deal, Chinese banks are also more than likely to be
Total will begin producing gas for the Iranian market in 2021, at which
point the project is expected to have a capacity of 2 billion cubic feet per
day, the equivalent of about 400,000 barrels of oil.
Who Else Is Ready to Invest in Iran?
Already, India, one of Iran’s most steadfast trading partners, announced
that a consortium of domestic businesses would offer up to $11 billion to
develop another of Iran’s natural gas fields, Farzad-B field, and create the
infrastructure to export the fuel, Bloomberg reported, citing Narendra Kumar
Verma, managing director of the overseas investment unit of India’s largest
explorer, Oil & Natural Gas Corp.
Iran is the second-largest supplier of crude oil to India, and, as a result,
India is one of the largest foreign investors in Iran’s oil and gas
industry. However, fraught diplomatic relations between Iran and other
states have made it a difficult relationship to uphold.
Under US sanctions, which were reinforced in June, India has been unable to
trade with Iran using the dollar – the world’s premier reserve currency –
and had to defer payments or revert to payments in rupees and, more
Europe Will Not Be Bullied by US
According to analysts, the deal marks a new era in Iran’s upstream sector.
They believe the political significance is even higher than the economic, as
the deal demonstrates that Europe is serious about Iran and will not be
bullied by the US.
The deal could break the “taboo of investing in Iran” that exists among
major companies today. This also goes for the many Western banks which thus
far have stayed away from Iranian business altogether, for fear of falling
foul of the US sanctions that remain in place.
Observers expect other international companies to follow Total and abandon
the fears of investing in Iran. As the volume of these investments get
bigger and bigger, it will be very difficult for banks to ignore such deals.
It will compel them to gradually open up their relationships with Iran.