Iran sets new terms for gas field award

Seeks thrice the price that ONGC Videsh is willing to pay for Farzad-B block

Gas flares from an oil production platform, as an Iranian flag is seen in the foreground, at the Soroush oil fields in the Persian Gulf, some 1,250 km (776 miles) south of the capital Tehran in this July 25, 2005 file photo. The United States exempted Japan and 10 EU nations from financial sanctions because they have significantly cut purchases of Iranian crude oil, but left Iran's top customers China and India exposed to the possibility of such steps. The decision announced on March 20, 2012 is a victory for the 11 countries, whose banks have been given a six-month reprieve from the threat of being cut off from the U.S. financial system under new sanctions designed to pressure Iran over its nuclear program. REUTERS/Raheb Homavandi/Files (IRAN - Tags: ENERGY POLITICS)

In fresh conditions, Iran wants India to pay more than triple the gas price for award of the coveted Farzad-B natural gas block to ONGC Videsh (OVL).

Iran wants India to buy all of the natural gas to be produced from the Persian Gulf block at a price equivalent to the rate Qatar charges for selling liquefied natural gas (LNG) to India under a long-term deal.

Qatar, as per a revised formula agreed upon in December 2015, sells 7.5 million tonnes a year of LNG to Petronet LNG Ltd. — India’s biggest gas importer — at a price of $7-plus per million British thermal unit.

The rate being sought by Iran is triple of $2.3 per mmBtu rate OVL is willing to pay for the gas during [times of] low global oil prices. If global rates rise, OVL is willing to pay $4.3 per mmBtu, sources privy to the development said. When oil prices move up, rates of LNG from Qatar would also rise.

Sources said that since the lifting of western sanctions, Iran is playing hardball over award of the field which was discovered by OVL — the overseas arm of state-owned Oil and Natural Gas Corporation (ONGC).

OVL has recently submitted a $5.5 billion master development plan for bringing the gas in Farzad-B to production.

Iran allows all the cost sunk in by an operator to be recovered from sale of oil or gas. For this reason, it wants OVL to reduce the cost of development as well as pay a higher gas price.

The two nations were initially targeting concluding a deal on Farzad-B field development by November 2016 but later mutually agreed to push the timeline to February 2017.

Now, the deal is being targeted to be wrapped up by September after the two sides agree on a price and a rate of return for OVL’s investments.

$80 million cost

Farzad-B was discovered by OVL in the Farsi block about 10 years ago. The project has so far cost the OVL-led consortium, which includes Oil India Ltd. and Indian Oil Corp., over $80 million.

Iran was initially unhappy with the $10 billion plan submitted by OVL for development of the 12.5 trillion cubic feet reserves in Farzad-B field and an accompanying plant to liquefy the gas for transportation in ships.

It felt the $5 billion cost OVL and its partners have put up for developing the field was on the higher side and wanted it to be reduced. OVL will earn a fixed rate of return and get to recover all the investment it has made in the field development.