With Japanese firms effectively frozen out of oil development and production activities in Saudi Arabia and Kuwait, it seems that the Japanese Government has now decided to settle on Iran as its main prospective partner as far as upstream oil and gas development in the Middle East is concerned.
This much at least is made clear in an important economic and energy protocol signed in Tokyo on 1 November by Mr Takeo Hiranuma, Japan’s Minister of International Trade and Industry, and Mr Bijan Namdar-Zanganeh, Iran’s Minister of Petroleum.
The protocol (for full text see below) specifies that Iran and Japanese oil companies will commence negotiations (seemingly on a priority basis) for the appraisal and development of a “specific area” of the giant Azadegan oilfield in southwestern Iran near the border with Iraq.
In addition, the National Iranian Oil Company (NIOC) will “encourage and support” the participation of Japanese companies as minority partners in the development of other oil and gas fields such as the highly-prized Ahwaz-Bangestan and South Pars fields.
In return, the Japanese side has agreed to provide Iran with advance payments on oil purchases amounting to $1bn per annum for the next three years.
Japanese involvement in Saudi Arabia’s upstream oil sector came to an end last February when negotiations between the kingdom and the majority Japanese-owned Arabian Oil Company (AOC) for the renewal of the latter’s 40-year concession for the Saudi half-share in the Neutral Zone offshore oilfields (shared 50:50 between Saudi Arabia and Kuwait) finally collapsed and the concession terminated on its official expiry date of 27 February 2000 (MEES, 6 January).
Although AOC for the time being retains its concession for Kuwait’s half-interest in the Neutral Zone offshore, it is taken for granted that this concession also will be terminated when it expires on 4 January 2003 (if not before).
It is also noteworthy that no Japanese companies have participated in the bidding for international tenders either for Saudi Arabia’s upstream and integrated natural gas projects (Gas Initiative) and downstream oil projects, or for Kuwait’s project for the enhanced development of its northern oilfields;
nor was there any evident movement on the part of the governments concerned to encourage Japanese firms to submit proposals for these projects.
The Iran/Japan partnership follows the decision by Japan’s Ministry of International Trade and Industry (MITI) in August to adopt a long-term plan to create of a number of core companies to pursue oil and gas development in countries opening their doors to international petroleum firms.
By then Japan had already opened talks with Iran on potential opportunities for development as well as on receiving oil supplies from Iran (MEES, 21 August).
Central to the new package are the rights to negotiate for development of a sector of the giant Azadegan find, one of the world’s largest undeveloped oil discoveries.
Following the signing of the protocol by the two ministers, a MITI official told reporters that the Japanese companies that would open talks on Azadegan with NIOC would be Japan Petroleum Exploration Company Ltd. (JAPEX) and Indonesia Petroleum Ltd.
(INPEX), in which state firm Japan National Oil Corporation (JNOC) holds 65.7 percent and 50 percent respectively, with the remainder owned by private companies.
The MITI official said other firms might join JAPEX and INPEX as the negotiations develop. He added that Azadegan’s potential production of 400,000 b/d of oil represents more than 80 percent of the amount Japan currently imports from Iran, its third largest supplier.
Azadegan was discovered with the Nir Kabir-1 wildcat well spudded in March 1998 by NIOC to probe the Bangestan formation at a depth of 4,640 ms. The find was made near the Iraqi border, only 25 km from the edge of Iraq’s giant Majnoon field, although there is thought to be no structural connection.
Azadegan also lies 100 km west of Iran’s major producing field, Ahwaz, and covers an estimated area of 520 sq km, with a length of 55 km and a width of 9.5 km.
In April 1998 the well was reported to have flowed 4,000-5,000 b/d of oil from the Lower Gadvan formation on test, and in September of that year Oil Minister Zanganeh announced that the find had the potential to produce 400,000 b/d of oil and had estimated oil in place of 26bn barrels (MEES, 4 October 1999).
Later estimates pegged recoverable reserves at 5-6bn barrels. At the time of the announcement, Mr Zanganeh said that field development would begin by the end of March 2001. Initially, the discovery was intended for development by NIOC but the ministry subsequently decided that Azadegan would be offered for development by international companies on buyback terms (MEES, 22 November 1999).
The fact that the Japanese companies will be negotiating for a specific area of the Azadegan field leaves the door open for Iran to negotiate buybacks deals for Azadegan with other international companies.
Although its hands are tied by US sanctions against Iran, Conoco has maintained a dialogue with NIOC over the Azadegan discovery since early 1999. Conoco’s UK subsidiary analyzed seismic data from the Azadegan, and NIOC told the US company that it considered it to be a potential participant in the development of the field if US sanctions were lifted (MEES, 25 September).
Conoco has so far made no public statement about the Japanese deal for negotiating rights. While the Iran-Libya Sanctions Act is widely expected to be quietly dropped by Washington next August, two executive presidential orders would still prevent US companies undertaking work in Iran in the foreseeable future.
The first order bars US companies from taking part in developments in Iran – this prevented Conoco from taking on the operatorship of Iran’s Sirri A and E offshore field development, subsequently undertaken by TotalFinaElf – while the second bans US companies from buying Iranian oil.
The protocol’s reference to Japanese minority involvement in Ahwaz-Bangestan oilfield development work and the South Pars gas field development also gives Japan potential access to major projects.
The Ahwaz-Bangestan development work was recently fast-tracked by NIOC, and Shell, Eni, TotalFinaElf and Lasmo have submitted bids to work in one or all three of the fields involved, while BP is also expected to bid.
The Ahwaz project is seen as the most attractive of Iran’s remaining buyback projects and involves gas injection to boost oil recovery from the Bangestan formation of three oilfields, Ahwaz, Ab-Teymour and Mansouri (MEES, 25 September).
The remaining phases of the South Pars gasfield development – Phases 9-12 – were also recently opened to bidding by international operators, with gas from Phases 9 and 10 being intended for domestic use and gas from Phases 11 and 12 earmarked for liquefaction to allow LNG exports (MEES, 4 September).
The full text of the joint statement by the Japanese and Iranian governments is as follows:
Joint Statement On Cooperation in the Energy Sector Between Minister Of International Trade And Industry Of Japan And Minister Of Petroleum Of The Islamic Republic Of Iran:
On 1 November 2000 HE Mr Zanganeh, Minister of Petroleum of the Islamic Republic of Iran, and HE Mr Hiranuma, Minister of International trade and Industry of Japan, held a series of meetings in Tokyo.
The two ministers exchanged their views on the further cooperation between the two countries especially in the energy sector. They are of the opinion that the formal current visit of HE Mr Khatami, President of the Islamic Republic of Iran, to Japan is an important event in the existing friendly relations between the two countries and begins a new chapter of relations which will witness further rapid strengthening and deepening of such relations.
In order to promote mutual cooperation, the ministers also discussed and confirmed the following points:
1. Stabilization of the International Energy Market:
The two ministers shared the view that it is important to promote bilateral and multilateral cooperation and dialogue for stabilization of the worldwide energy market.
Continuous contact and dialogue between the Islamic Republic of Iran, as a leading oil producing country, and Japan, as the world’s second largest oil consumer, are regarded as crucial and effective for the management of the global energy market and the environmental considerations.
2. Energy Policy Consultations:
The two ministers expressed their appreciation of and support for the establishment of Energy Policy Consultation between the Islamic Republic of Iran, one of the largest oil producers, and Japan, one of the largest oil consumers.
Both ministers expressed their satisfaction on the outcome of the Energy Policy Consultation held in August this year in Tehran and shared the view that it is important to continue such consultation in order to maintain the constructive exchange of views in energy sectors between both countries.
3. Training and Others:
The Minister of International Trade and Industry of Japan expressed his intention to offer, among other matters, training courses for Iranian experts in a wide range of energy sectors, with a view to strengthening cooperative relations in the energy sector between the two countries.
4. Promotion of CNG Vehicles:
The Minister of International Trade and Industry of Japan expressed his intention to undertake a Feasibility Study for the enhancement of the use of CNG for vehicles in the Islamic Republic of Iran, in order to promote the use of natural gas for environmental purposes.
5. Promotion of Energy Conservation:
The two ministers shared the view that it is important to continue to have a wide exchange of information for promoting energy conservation in the industrial sector in the Islamic Republic of Iran.
In this respect, the two ministers expressed their willingness for the exchange of information regarding cooperation in the electricity sector in Iran between the Ministry of International Trade and Industry of Japan and the Ministry of Power of the Islamic Republic of Iran.
6. Enhancement of the Use of Natural Gas:
The two ministers held a shared view of the importance of continuing exchange of information for the development of the natural gas industry, including Liquefied Natural Gas (LNG) and Gas-To-Liquids (GTL) projects.
7. Cooperation in the Petroleum Fields’ Development:
From the standpoint of promoting even closer friendly relations between the two countries, both ministers expressed their willingness to welcome the participation of Japanese companies in oil and gas development projects in the Islamic Republic of Iran.
It was also agreed that the National Iranian Oil Company (NIOC) of the Islamic Republic of Iran and Japanese oil companies shall commence negotiations for the appraisal and development of a specific area of the Azadegan oilfield. NIOC may encourage and support Japanese oil companies’ participation as minority partners in the development of other oil and gas fields such as Ahwaz-Bangestan and South Pars as well. The two ministers welcome these efforts by the Japanese oil companies and NIOC.
8. Advance Facility:
Pursuant to the cooperation of NIOC and Japanese oil importers, the Japan Bank for International Cooperation (JBIC) and NIOC agreed on the framework of an advance facility amounting to $1bn for the year 2001 to be provided to Naftiran Intertrade Company Ltd. (NICO), and in each of the following two years an amount equivalent to $1bn. The two Ministers welcomed these efforts by JBIC and NIOC.
Bijan Namdar-Zanganeh Takeo Hiranuma
Minister of Petroleum Minister of International Trade and Industry
The Islamic Republic of Iran Japan