Oil majors to exit Iran’s LNG project

Reports have emerged that Shell and Repsol-YPF are devising exit strategies from Iran's $10 billion Persian LNG scheme at the offshore South Pars field. The decision has been put down to the poor Iranian political climate, with the two majors hoping to leave without damaging ties with the country's beleaguered energy industry.

The news is particularly troubling for the nation after deciding to put the Queshm LNG project on ice, where they are decoupling development of the South Gashu field. Smaller companies such as Australia's Liquefied Natural Gas are also pulling development plans, as projects around the country continue to stall.

Iran currently suffers from poor political relations with the US and EU over its nuclear ambitions, and continued US and UN sanctions have forced up the cost of LNG project development. Global Insight's Middle East energy analyst Samuel Ciszuc described the strategy of international firms working in Iran as: "Procrastination and stalling - whereby the companies have continued to study and plan for the projects without committing any sizeable ventures."

However, despite the difficult operating environment the majors are reluctant to withdraw from the potentially lucrative market in light of the scale of the project, and Iran's vast natural gas reserves. The US Energy Information Administration estimates Iran's natural gas reserves exceed 974 trillion cubic feet, the second largest proved reserve in the world, after Russia.

Shell and Repsol could each lose out on 25% stakes if they exit operations, although finding a replacement will be hard for Iran. "Iran desperately lacks the required technology and know-how which, as yet, only the oil majors tend to have," Ciszuc said.