India Set to lose Farzad B offshore Gas field in Iran

India has been buying oil from Iran since the Cold Wartime. India's ONGC Videsh Limited (OVL) in 2008 discovered gas in Farzad B offshore field. 

Farzad B Gas Field Map

It is touted as the world's biggest natural gas field in Iran touted to have more than 500 BCM gas resources. In 2009, India established a consortium of Indian Oil Corporation and Oil India Limited. This consortium since 2009 has been trying to secure the rights to develop the Farzad B offshore field. 

As India is eagerly waiting for the contract, Iran has asserted that India will not be given any preferential treatment for the field. India, which has become upset over Iran's arguments pertaining to the development rights related to the Farzad B field, has cut down its oil imports from Iran in 2017. 

India is upset that Iran wishes to auction the Farzad B field even when India has asserted in 2017 that it is willing to put in 6 billion dollars for gas field development and 5 billion dollars for establishing an LNG export terminal. India asserts that it expects preferential treatment in the Farzad B field as Indian firms in 2008 had discovered gas in the field. 

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India Set to lose Farzad B offshore Gas field in Iran

Sanctions on Iran

Iran has rejected the arguments for preferential treatment in India. This is due to the fact that Iranian sanctions have been removed by the US. Iran has almost ended its global isolation and is integrating with the world. This gives Iran a flexible muscle to seek the highest bidder for the gas field. Russian Gazprom and Chinese National Petroleum Corporation have emerged as new potential players. 

Iran has been visibly upset with India that allied with the US during the sanction period and reduced oil imports from Iran. India has committed 11 billion dollars for the development of the Farzad B field. As per the Indian policy, today only Indian carriers can import oil from foreign countries. 

India is going to amend the policy to allow a foreign shipping container firm to import oil. India, at the energy security level, is making a shift to gas resources and in the process is planning to hire very large container carriers (VLCC) from Japan to import gas from Australia, Russia, Iran, and Mozambique.

Iran is an irreplaceable supply partner for gas. India has also initiated a diplomatic with Iran to discuss the possibility of an Iran-Oman-India pipeline in the future.

Farzad B Issue

OVL in 2008 discovered gas in Farzad B offshore field. Farzad B is the biggest gas discovery in Iran. To secure rights over Farzad B, IOC and OIL consortium is established. The issue here is that:

  1. India seeks preferential treatment in the development rights of Farzad B as it explored as per the exploration agreement of 2012. Iran is not keen to give India any. preference.
  2. Iran is not happy with India supporting the US during sanctions against Iran. and gas found
  3.  After the 2015 Lausanne framework, India offered 6 billion dollars for developing the gas field and 5 billion dollars for the LNG export terminal. 
  4. Post sanction removal, Chinese National Petroleum Corporation, and Russian Rosneft Gazprom have offered interest in Farzad B.
  5. India has cut oil imports from Iran since 2017 due to not getting preferential access but no effect happened on Iran.
  6. India and Iran are at loggerheads on Farzad B. Iran says that India should sell gas from Farzad B it discovered at current international rates which India feels is low as global demand is not high

As there is enough supply in the market. India asserts that gas exploration at Farzad B is touch as gas is impure and extracted gas has to be cleaned, which increases the cost and selling this gas after incurring additional cost at current international prices will lead to a loss to India. The Consortium of India feels that it may affect the returns to investors of the Consortium this way. 

Energy expert Deepak Mahurkar says that India needs Iranian gas as Iran is geographically close to India and India is running short of gas resources. Iran had asserted that India explored gas, process it, and set up an LNG terminal to sell and export it. India committed 11 billion dollars of investment for it. Iran has now asserted that India's Consortium can explore the gas and deliver it to an offshore field at a landfall point in the gulf island. India need not process the gas of impurities like sulfur or do marketing as both will be done by Iran. 

This has reduced the overall cost for India as India will not establish an LNG terminal, thereby saving 5 million dollars and also money in processing impurities. India just needs to establish a development facility for exploring the gas that will not cost 6 billion dollars as planned earlier, but around 4 billion dollars. The rate of return Iran is offering for delivery conditions could be just around 5-6 percent.

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