India's slippery hold on Farzad-B gas field

Re-entry into Iran's upstream business to see more competition

Reeling under sanctions, Iran's hydrocarbon resources have been tied to the country for the past few years even though it hosts the world's fourth largest oil and second largest gas reserves. India might now want to jump again on to the potential opportunity available in Iran's upstream oil and gas business, but might find itself competing with a host of western oil and gas majors with far more technical and financial wherewithal.

India had Farzad-B block in the Farsi field which had estimated 12.8 trillion cubic feet of recoverable gas reserves. Oil and Natural Gas Corporation Videsh Ltd (OVL) had discovered the Farzad-B gas field in 2008 in the Persian Gulf. In 2010, it submitted a revised Master Development Plan for producing 60 per cent of the 21.68 trillion cubic feet of in-place gas reserves. Geopolitics, however, came in the way of its development with a result that the block was not only surrendered by Indian companies, but Iran put it up for fresh bidding last year. A consortium comprising Oil and Natural Gas Corporation (ONGC), India Oil Corporation (IOC) and Oil India signed an agreement with the National Iranian Oil Company (NIOC) in 2002 to develop the Farzad-2 block of the Farsi field.

After investing $90 million in the exploration phase, the consortium quit the contract, which insiders say was because of India's fear of displeasing the United States. Practically, too, India had difficulties securing the necessary technology and financing to move on with the $8 billion project due to the US sanctions. "Now, it is not easy to get the block back. It has to be well played, both by the companies and at the diplomatic level," said R S Butola, former, chairman, Indian Oil Corporation. Butola was the managing director of ONGC Videsh when India had the block with it.

With sanctions lifting, there would be many more suitors for the block. Companies like Total and ENI were present before the imposition of sanctions and would also try to re-enter Iran's upstream sector. According to Butola, unlike the crude oil purchase where India merely reduced purchase volume but did not snap ties with Iran, in the upstream sector, the country did not maintain the same level of engagement. Iran was ready to offer better terms to India then.

Not only Farzad but also the Iran-Pakistan-India pipeline saw India keeping deliberately away from enhancing ties with Iran. "Though Pakistan did go ahead with the pipeline, we did not. But now the ground level situation in Pakistan and the West Asia has deteriorated compared to 2007-08," said Butola.

Farzad was, however, not the only block to have seen stopping of investment. According to the US Energy Information Administration, Iran's oil production declined substantially, and natural gas production growth has been slower than expected, despite the country's abundant reserves. "The sanctions have prompted a number of cancellations and delays of upstream projects. The United States (US) and the European Union (EU) enacted measures at the end of 2011 and during the summer of 2012 that affected the Iranian energy sector more profoundly than any previously enacted sanctions," EIA said in its country report.

The sanctions impeded Iran's ability to sell oil, resulting in a near 1.0-million b/d drop in crude oil and condensate exports in 2012 compared with the previous year.
FARZAD-B: AT A GLANCE
ONGC Videsh (OVL) was the operator of the Farzad-B block that lies north of Qatar. It has 40% interest in the 3,500 sq km block. Indian Oil Corp (IOC) has 40% stake, while the remaining 20% is with Oil India Ltd (OIL). The gas field might hold an estimated 21.68 trillion cubic feet (tcf) of in-place reserves of which 12.8 tcf could be recovered. Getting access to the Farzad-B assets is vital for OVL to achieve the milestone of producing 20 million tonnes of oil and equivalent (mtoe) by 2018.

Timeline
2008: OVL discovers gas in Farzad-B block in Farsi field in the Persian Gulf

August 2010: OVL submits a revised Master Development Plan (MDP) for producing 60 per cent of the 21.68 tcf of in-place gas reserves

February 2012: Iran issues a one-month ultimatum to the OVL-led consortium over the development of a gas field but did not cancel the block for two years

Sept 2014: Iran puts Farzad-B gas field on a list of fields it plans to auction citing delays by OVL in its development

April 2015: A team of petroleum ministry officials visited Iran to persuade that nation's government to give the contract for development of the field to OVL