Iran signs up Gazprom for developing ONGC discovered Farzad B gasfield

The Dollar Business Bureau

In an apparent rebuff to the Indian government for cutting down oil imports from its country, Iran has decided to sign a pact with Russia’s Gazprom for developing the ONGC discovered Farzad B gas field.

The Farzad B Iranian natural gas field was discovered by ONGC in 2012. Commencing production in 2013, the total in-place reserves of the gas field are around, 21.7 trillion cubic feet of which around 60% is recoverable while production is slated to be around 1.1 billion cubic feet/day.

Since Iran kept delaying in awarding the rights to develop to ONGC, India decided to cut down the oil imports by a fifth or 190,000 barrels per day from 240,000 bpd, in 2017-18. In return, Iran responded by reducing the credit period to 60 days to Indian refineries, Indian Oil Corp and Mangalore Refinery and Petrochemicals Ltd for the oil already bought. In addition, it also raised the ship freight rates and signed a pact with the Russian gas company Gazprom for developing Farzad B.

Speaking to the media in Vienna, the Iranian oil minister Bijan Namdar Zanganeh confirmed the initial agreement that Iran inked with Gazprom.

The stalemate arose when ONGC Videsh Ltd (OVL), the foreign arm of ONGC was not happy with the development terms specified by Iran as they were not economical and also insisted that Iran should make the selling price of gas comparable to the global market rates. Iran wasn’t happy with the $5.5 bn investment plan drawn up by OVL since the terms stipulated in the initial contract say that Iran has to reimburse all the money invested by India together with a fixed rate of return. Iran wants the investment to be lowered and make India commit to buying the gas at the price fixed by it.

Iran is India’s third largest oil supplier and a friendly ally. The mutual friendly relationship that the countries enjoyed translated into a liberal credit period and nominal ocean freight charges for oil to be shipped to India. However, with the latest developments, National Iranian Oil Co (NIOC) has also decided to cut the discount it offers to Indian buyers on freight from 80% to about 60%.

The latest development on the deadlock is that the two-nations are targeting to conclude a deal on the Farzad B field development by September 2017 after an agreement on the price and rate of return for OVL’s investments is reached.

The project has cost the OVL-led consortium, which includes Oil India Ltd and Indian Oil Corp (IOC), over $80 million. The Indian government is also keen to claim the gas from Farzad B for the country's vast energy needs.