Gas discovery in Iran’s Farsi offshore block too significant to be given up

ONGC may be out of the US blacklist of companies that do business in Iran but is still no closer to achieving its American shale gas dream.

To tap opportunities in the West, ONGC will still have to take a call on whether it is willing to let go of its huge gas discovery in Iran’s Farsi offshore block, now named Binaloud.

Although the US Government Accountability Office, in its report released in January, removed ONGC Videsh Ltd, the overseas investment arm of ONGC, from the list of companies engaged in certain activities involved in Iran’s energy sector, there is a catch.

Sources in the know of the development told Business Line that it (the US exemption) has to be read carefully. “It is conditional. A choice has to be made. On the one hand it will open US opportunities for the company, but on the other it will restrict (companies) from doing business in Iran,” one source explained.

This relief came after the US was convinced that the firm did not have any commercial activities in Iran.

Important project

Though the Indian firm has been maintaining that doing business with Iran is a strategic decision that the Government has to take, those involved with the Farsi project believe that the size of the find is too big to let go. This is particularly important when India needs gas and the domestic production is way short of demand.

OVL is keen to develop the Farzad-B gas find in the Iranian block. Gas has been discovered by OVL and its Indian partners. The gas field is estimated to hold in-place reserves of up to 21.68 trillion cubic feet (Tcf) of which 12.8 Tcf of gas and 212 million barrels of condensate may be recoverable.

It is not easy for any exploration company to let go of a find of this size.

Meanwhile, Iran, seeing India’s indecisiveness, has been making its own demands, including the terms of a new contract for Farsi, if India wants a stake in the find. Till now, OVL has not been able to make an entry into the US shale gas business because of interests in sanction-hit countries like Iran.

The US shale has changed the world of gas availability and like other competitors OVL, too, wants a part of that action. Shale now accounts for over a third of the US gas production and is seen as a good source for Asian consumers, according to reports.

The sanctions specify restrictions on import/export of crude oil, petroleum and petrochemical products into or out of Iran.

Limits on investments

It also puts a limit on the investments to be made for providing goods or services to support Iran’s development of petroleum resources. The ONGC group, however, continues crude sourcing through Mangalore Refinery & Petrochemicals Ltd.

(This article was published on April 13, 2014)
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