India's ONGC and Hinduja Group to Invest $10 Billion in Iranian Gas Field LNG Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Iran's deputy oil minister and the Managing Director of the National Iranian Oil Company (NIOC) (Tehran, Iran), Seifollah Jashnsaz, has announced that India's state-run oil exploration and production company Oil & Natural Gas Corporation Limited (BSE:500312) (ONGC) (New Delhi) and partners will invest about $10 billion in a liquefied natural gas (LNG) project and two massive gas field development projects in Iran. The consortium includes project development company Ashok Leyland Projects Services Limited (Chennai, Tamil Nadu), which is a member company of the Hinduja Group (London, England), and ONGC Videsh Limited (OVL) (New Delhi), the overseas arm of ONGC. In exchange for the investment, India will procure 6 million tons per year of LNG from Iran on a long-term basis to meet its rapidly increasing energy requirements.

The OVL-Ashok Leyland partnership will acquire a stake of 40% in the Phase 12 (SP-12) development of the enormous South Pars gas field in Iran's Persian Gulf. The development of the gas field has been divided into 28 phases and SP-12 covers the largest area, with proven reserves of about 35 trillion cubic feet of gas, accounting for about 7% of the total reserves contained in the South Pars field. The development project will cost about $7.5 billion. SP-12 is expected to produce 3 billion cubic feet per day of gas. About 120,000 barrels per day of export-oriented condensate is also expected to be produced.

Additionally, the OVL-Ashok Leyland partnership, along with import and regasification company Petronet LNG Limited (BSE:532522) (New Delhi), has signed an agreement in which the three companies will jointly purchase a stake of 20% in Iran Liquefied Natural Gas Company (Tehran), which is setting up a $4.32 billion export-oriented LNG plant at Tombak Port on the southern coast. The LNG plant will convert two-thirds of the gas procured from SP-12 into LNG that will be shipped in cryogenic vessels. Two LNG trains are part of the project, each with a capacity of 5.4 million tons per year. The project was started in 2007 and is being implemented in two phases, each adding 10.5 million tons per year of capacity. The plant is scheduled for completion by January 2011. Gas not converted to LNG will be consumed internally.

OVL discovered the large Farzad B gas field in Iran's Farsi block. As a reward, Jashnsaz has said that OVL will be permitted to develop the gas field. Iran does not permit foreign companies to own oil and gas fields in the country, hence the decision to allow OVL to develop the gas field is in complete departure from norm. OVL will now join with India's state-run oil companies Oil India Limited (BSE:533106) (OIL) (Noida, Uttar Pradesh) and Indian Oil Corporation Limited (BSE:530965) (IOC) (Mumbai) and invest $5.5 billion in developing the field. India will thus gain a secure source of LNG. If there are any delays or Iran defaults on LNG delivery, India can deduct the commercial value of this amount from the money the country pays Iran for crude oil. Iran is interested in doing business with India in the energy sector in an effort to undermine the increasing presence of Chinese businesses. Jashnsaz added that, should the Indian companies decide to own a higher stake in SP-12, their share of LNG would change proportionately.

The development of SP-12 and the Farzad-B field is expected to take about seven to eight years. The Farzad-B gas field has in-situ gas reserves of about 21.68 trillion cubic feet, of which about 12.8 trillion cubic feet is expected to be recoverable. Under the current agreements, OVL and IOC will each hold a stake of 40% in the 3,500 square kilometer Farzad-B gas field, while OIL will hold the remaining 20%.

ONGC Chairman and Managing Director R.S. Sharma said that the distribution of stakes in SP-12 between OVL and the Hinduja Group has not been finalized, but the Hinduja Group has stated that both companies will hold equal stakes. The latter has also said that it will have a 10% stake in the LNG project, while the remaining stake would be shared between ONGC/OVL and Petronet. ONGC has not confirmed this statement.

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