Three Indian companies are actively considering Iran’s revised offer of production sharing contracts (PSCs) in the energy sector, including one for developing the prolific Farzad B gasfield.
The companies are ONGC Videsh Limited, Oil India Limited and Indian Oil Corporation.
This is the first time since the 1979 Islamic Revolution that Iran has offered these companies PSCs in an attempt to reverse the decline in crude oil purchases by India. The offer is seen as a big step towards further cementing bilateral ties and marks a departure from Iran’s earlier practice of offering Indian companies 15 per cent fixed returns under a buy-back arrangement with the national oil company of Iran.
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However, diplomatic sources said New Delhi would have to weigh the consequences if it chose to accept the offer, because of the sanctions the U.S. and the European Union imposed on Iran, primarily targeting its oil industry so as to force Tehran to halt its nuclear programme. In 2011, Indian companies opened talks with Iran for developing the gasfield. But a subsequent meeting did not materialise because India was apprehensive of the impact of the sanctions on its companies.
During his visit to India in May, Iranian Oil Minister Rostam Qasemi offered the Indian firms PSCs to pep up investment in the upstream sector. In fact, Iran offered to ship gas to India in liquefied form through Oman. Interestingly, Iran does not have the technology to liquefy gas, so it agreed to do the process in Oman.
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Because of the sanctions, Iran’s crude oil supplies to India have dwindled in the past few years. During 2012-13, India’s import dipped by over 26.5 per cent to 13.3 million tonnes, as against 18.1 million tonnes the year before. Also in 2012-13, Iranian supplies accounted for 7.2 per cent of India’s oil imports, down from 10.5 per cent in the previous year.
Talks since 2009
Since 2009, the Indian firms have been into talks with Iran for developing the Farzad B gasfield in the Farsi block of the Persian Gulf. According to initial estimates, it possesses 21.68 trillion cubic feet (tcf) of gas, with recoverable reserves of 12.8 tcf.
Production target in the first phase would be 1.1 billion cubic feet per day. In the second phase, this figure would go up to 1.65 billion cubic feet per day and to 2.2 billion cubic feet per day in the third. The investment for exploration is put at $5.5 billion, with an extra $8 billion-$9 billion for developing the field and building a liquefied natural gas (LNG) terminal, and for transport. This gas could go directly to India as LNG. The PSCs offer the Indian companies a guaranteed share of production.