TOTAL’s Gas Deal Scuttled By U.S. Withdrawal From Iran Nuclear Accords

A general view shows a unit of South Pars Gas field in Asalouyeh Seaport in northern of Persian Gulf.

Billions of dollars in business deals between Iran and European companies inked after the 2015 nuclear agreement lifted sanctions on the Islamic Republic are now in jeopardy after U.S. President Donald Trump announced the U.S. withdrawal from the nuclear agreement May 8.

The U.S. Treasury Department has said it will reinstate restrictions on companies doing business with Iran in the oil and banking sectors after 90 and 180-day grace periods respectively.

European companies, including France’s oil and gas giant Total, now face sanctions from the U.S. if they follow through with deals made with Iran.

Total was set to invest $5 billion to develop phase 11 of Iran’s South Pars gas field.

French oil giant Total Chief Executive Officer, Patrick Pouyanne (L) shakes hands with Iranian President Hassan Rohani, in Paris, January 28, 2016

National Iranian Oil Company CEO Ali Kardor has said that if Total withdraws from the deal, the other partner, China National Petroleum Corporation (CNPC) could take a 50.1 percent stake in the project, with the rest covered by investment from Iranian company PetroPars. Kardor also said Total could recoup the $90 million it has already invested in the project from its partners.

It is still not clear, however, that CNPC would be prepared to keep any stake in the project after U.S. sanctions are reinstated and risk jeopardizing its U.S. interests.

Details of contract

The South Pars gas field development project would have seen an initial $2 billion investment to develop the upstream sector and build pipelines to transit 56 million cubic meters of natural gas and 80,000 barrels of condensate per day to onshore facilities by 2021.

A separate investment of $3 billion was also agreed to maintain current production levels by constructing a 20,000-ton platform to hold three giant compressors by 2022, one year before the reservoir’s own natural pressure is expected to drop, reducing production by up to 40 percent without the compressors.

Even if CNPC and PetroPars take Total’s stake in the project, neither have any experience or technical know-how in constructing such huge platforms for the giant compressors.

The upgrades were expected to result in $80 billion in profits over the 20-year life of the contract, with Total projected to earn $6 billion in revenue on its $2.5 billion initial investment.