France's Total certain to exit Iran gas project as China set to take lead

Conflicting comments by Iran's state oil company an indication that the French major's exit is complete, but not official

Total chief executive Patrick Pouyanné had earlier said chances were "very slim" to secure a waiver for continued investment in Iran. AP
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French oil major Total will “abide by the US sanctions” and seek an early exit from its investment in Iran, according to a source familiar with the matter.

“When the US made the decision about the sanctions, Total [was clear] that they would abide by the sanctions,” according to the source. The US imposed the first phase of sanctions over Tehran on August 6, with the full implementation targeting Iran’s energy industry set to come into force on November 4.

The decision leaves in disarray the biggest foreign investment in the Iranian hydrocarbons industry since the country’s 2016 nuclear deal, a $4.8 billion deal signed by lead investor French oil major Total, CNPC as well as local energy contractor Petropars.

The agreement to develop phase 11 of South Pars, the world’s largest gas field, which Iran shares with Qatar, was a major win for the country’s crippled energy infrastructure. Iran sits atop the world’s second biggest reserves for gas after Russia, but is still reliant on imports from neighbouring Azerbaijan and Turkmenistan to help cope with harsh winters since its domestic infrastructure cannot satisfy rising local demand.

The intent of Total to exit Iran comes amid conflicting reports from two separate Iranian news agencies on the handover of the project to China National Petroleum Corporation (CNPC), its co-investor in the gas field. On Saturday, an official of the state-owned National Iranian Oil Company's  (NIOC) was cited by two news agencies, IRNA as well as the energy-focused Shana as offering discrepant comments on the status of Total in the project. The former quoted Mohammad Mostafavi, NIOC director for investments, as saying that CNPC had replaced Total as lead investor while Shana followed up with a story that there had been no change in the existing status quo.

The comments caused confusion about the position of Total, whose chief executive in an interview with The National in March said the French energy giant would seek a waiver from the US government to continue its operations in Iran.

Analysts familiar with Iran’s hydrocarbons industry and decision-making in the sector said the discrepancy in messages from the NIOC stemmed from the fact that Total was already in the final stages of its exit from Iran, but has to wait for official confirmation.

"Obviously, they are still unsure how to announce it. Since Total’s exit is not finalised, it doesn’t mean that they will not exit and they announced a long time ago that they cannot and will not continue in South Pars phase 11,” said Iman Nasseri, managing director, Middle East at London-based Facts Global Energy.


Read more:

Exclusive: Total to apply for waiver if US withdraws from Iran deal

Total may need to offload Iran gas stake amid looming US sanctions, analysts

Total says chances of Iran sanctions exemption 'very slim'


Total’s exit now leaves the NIOC with the choice of appointing the local Petropars or CNPC, which has previously worked in large Iranian fields along the border with Iraq, as the lead in developing gas and condensate from the South Pars platform, he observed.

China earlier this year introduced the petroyuan as an alternative to the US dollar-dominated oil industry to enable payments in its currency, a move particularly beneficial to Iran. The Asian state is unlikely to abide by the White House policy due to its ongoing trade war with Washington. However, given the surging importance of US crude, which is set to overtake Saudi production this year, China, the world’s biggest importer of oil, was feared to have had a rethink. However the recent official comments of CNPC taking the lead may have confirmed China's continued involvement in the project.

“There wasn’t a certainty whether CNPC is willing to take over or even willing to continue, as there was always concern that CNPC may also decide to exit as well because of US sanctions,” said Mr Nasseri.

“It seems like they have reached an agreement or made a decision for Total’s share as per these recent comments,” he added.