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Europeans keen to join Iran on LNG

November 16, 2007

By Dino Mahtani in London, Najmeh Bozorgmehr in Tehran and Guy Dinmore in Rome

Published: November 16 2007

Iran appears to be pushing ahead with its third major liquefied natural gas project, known as Iran LNG, with the assistance of European companies. Last week, Ali Khayrandish, the managing director of Iran LNG, was reported as saying that one Chinese and four European companies had been in talks to secure liquefied natural gas supplies from the project.

Iranian officials are saying they expect the construction of the 10m tonne per year capacity plant to be completed by 2010, although most industry analysts say this is unrealistic and the plant would take a few more years to be built even if started now.

The activity comes in spite of intensifying international pressure on energy companies not to make new investments in Iran.

However, Iran has already signed a €400m ($585m, £286m) contract with an engineering consortium, made up of two Iranian companies and an Italian company, to build a treatment, or gas “sweetening”, plant for the Iran LNG project.

APS Engineering, a small, private Italian engineering company that has worked for a variety of clients including Eni, the Italian oil and gas multinational, told the Financial Times it was the Italian company in the consortium. It said it would play a “rather minor role”.

This contract was awarded just days after the design plans for the plant were submitted to Iranian officials by another consortium, made up of a German company, Linde, Hyundai of South Korea, and Snamprogetti, an Eni subsidiary. The design contract was initially agreed as far back as 2002.

Iran has the world’s second biggest gas reserves, but has failed to develop its prolific South Pars gas field as fast as it would like because of the reluctance of oil companies to invest under the cloud of tensions over Iran’s nuclear programme.

Royal Dutch Shell, Total and Repsol have stakes in Iran’s other two main LNG projects, though none is likely to make final investment decisions unless international diplomatic pressure on Iran eases.

Iran has said it will not wait beyond the deadline of June 2008 for these companies to move ahead with the projects and seems eager to call the bluff of US policymakers. In Saudi Arabia on Thursday, Gholam-Hossein Nozari, oil minister, said US sanctions against Iran would have no impact on the country’s crude oil and natural gas production plans.

Paulo Scaroni, Eni’s chief executive, told the FT this week Eni had “no intention” of pulling out of Iran. The company’s policy is not to get involved with any new projects, however.

Other companies are, however, taking a bolder stance when it comes to Iran LNG. Union Fenosa, the Spanish energy company, says its subsidiary, Socoin, was awarded a €32.5m engineering contract for Iran LNG in August.

OMV, the Austrian oil and gas company, in April signed a preliminary agreement with Tehran for a stake in Iran LNG, but this is yet to be finalised. “Our interest in the Iran LNG project lies on the table,” it said.

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