India’s hopes fade for gas field deal-Farzad-B

Tehran blames New Delhi of adopting inflexible attitude on long-delayed project.

As India and Iran engage in a blame game, the fate of the multi-billion dollar Farzad-B gas field contract that New Delhi has been pursuing with Tehran since 2009, seems sealed. Iran accuses India of inflexibility, while India charges Iran with “changing goal posts” and adopting “delay tactics” in an attempt at negotiating a more favourable deal. But both sides agree that the future of the contract is uncertain. “If they are saying that we are being inflexible, then we have to wholeheartedly refute this,” a senior official in the Petroleum Ministry told The Hindu.

 “Due to changing goal posts and delay tactics employed by Iran, we are in a situation where the deal is uncertain.” The Indian consortium — comprising ONGC Videsh, Indian Oil Corporation, and Oil India — discovered gas reserves in the field under an exploration contract signed in 2002. The field in the Persian Gulf holds about 19 trillion cubic feet of gas, according to Indian estimates. 

The contract expired in 2009. The consortium has been trying to secure the contract for development of the field since then, but was first stymied by the sanctions against Iran imposed by the U.S. between 1995 and 2016. With the lifting of those sanctions, Indian companies renewed efforts to secure the rights to the field. Initially, the deal was meant to be completed by February 2017, but has been delayed due to protracted negotiations, forcing both sides to alter their offers several times. Early last week, 

Iranian Deputy Minister of Petroleum for Trade and International Affairs in the Ministry for Petroleum Amir Hossein Zamaninia reportedly said six provisional deals worth about $30 billion had been signed with Russian oil companies during President Vladimir Putin’s visit to Tehran on November 1. It was not immediately clear whether these deals involved Farzad-B.

 Iranian officials had earlier told The Hindu that due to India’s lack of flexibility when it came to pricing, “India could lose the Farzad B project entirely”. 

Other significant contenders for the contract include Russian oil major Rosneft. “They are the ones not being reasonable in the deal,” an ONGC Vidhesh official, extremely familiar with the developments of the deal, said. “Their deal parameters keep changing. Sometimes they say India should only take the upstream capacity, and sometimes they say we should only take the downstream facilities. 

They are also being unrealistic about pricing, asking us to sell at current international rates, which are extremely low right now due to a glut.” Gas prices have been steadily falling globally as supply is outstripping demand. Gas prices at the Henry Hub in the U.S. — one of the factors used in India’s gas pricing formula — averaged $2.98 per MMBtu in October, down from $3.75 in December last year.

 Geopolitical advantage Energy analysts say that India desperately needs gas, and that Iran remains one of the best options. “The Farzad-B project is very important for us,” Deepak Mahurkar, Leader, Oil and Gas, at PwC India said. “Geopolitically, they say the future is all Iran, where earlier it was Saudi Arabia.

 Geographically, Iran is the closest to India in that region. It is the shortest pipeline distance if we do manage to get gas from there. On the energy front, we really need gas.” The Farzad-B deal is important in the overall context of India-Iran relations, as well. While India bought oil from Iran even during the years of U.S. sanctions, relations recently have seen a bit of a downturn. The impasse over the deal has affected the oil trade, with India recently reducing its crude oil purchases from Iran (down 30-40% from a year ago). Iran, in retaliation, slashed the number of days of credit offered to Indian companies from 90 to 60 days. Unofficial estimates peg Iranian oil as accounting for 15-20% of India’s total oil imports.