Shell delays decision on Iran project again

Daily Telegraph: Royal Dutch Shell has again delayed a decision on whether to press ahead with controversial investments in Iran, as Europe’s largest oil and gas company weighs up the increasing costs of the project and political opposition in the United States. The Daily Telegraph

By Russell Hotten, Industry Editor

Royal Dutch Shell has again delayed a decision on whether to press ahead with controversial investments in Iran, as Europe’s largest oil and gas company weighs up the increasing costs of the project and political opposition in the United States.

The Anglo-Dutch giant will not now decide on a $10bn (£4.9bn) project to exploit part of Iran’s vast South Pars gas field for at least a year. Shell risks seeing rivals also knocking on Teheran’s door being given first refusal on some of the many lucrative contracts instead.

Teheran has requested that companies interested in South Pars and other energy projects submit plans by June, although some analysts believe the deadline may be extended.

In January, Shell and Spain’s Repsol signed a preliminary deal with Teheran jointly to develop two phases of South Pars. At the time, Shell said it might be a year away from knowing whether to proceed, a timescale that Shell chief executive Jeroen van de Veer repeated six months later.

Now, company insiders say Shell is “still 12 months away from a decision”. Drawing up a final investment plan, when labour and equipment costs in the industry are soaring, was proving more difficult than expected, said a source.

Shell also risks upsetting Washington, where the Bush administration is putting pressure on companies not to do business with Iran because of its nuclear programme. Pushing back the decision until the end of 2008 has the advantage of it being after the US elections in November, when a new president might tone down the rhetoric against Teheran.

But analysts said it would be wrong to think that Iran’s June deadline was not a firm commitment. On December 9, Gholam Hossein Nozari, Iran’s oil minister, warned companies that they risked missing out on contracts.

“If other companies that like to invest in oil and gas hesitate, they will lose opportunities,” he said.

The comment followed the signing of a $2bn contract between Iran and Sinopec of China to develop the Yadavaran oil field. Russia’s Gazprom is understood to be holding talks with Teheran about investing in South Pars and is unlikely to be influenced by any complaints from Washington.

Iran has the world’s second largest reserves of gas and oil, but needs outside investment and technology to tamp them. South Pars is thought to be the world’s biggest gas field.

A spokesman for Shell said a final decision was still “some way away, perhaps a year”, because issues such as construction costs and the falling dollar were impacting on costing the project. He said any political considerations would be taken into account.