PRC/IRAN: REPORTED SOUTH PARS LNG DEAL NOT

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 000679

SENSITIVE
SIPDIS

STATE FOR EAP/CM, NEA/IR, EEB/ESC, INR/EAP, INR/NEA

E.O. 12958: DECL: 03/16/2034
TAGS: ECON EPET EINV ENRG PREL PARM PTER MNUC POL
IR, CH
SUBJECT: PRC/IRAN: REPORTED SOUTH PARS LNG DEAL NOT
OFFICIALLY CONFIRMED

REF: A. 07 BEIJING 7445

B. 08 BEIJING 1073

C. 08 BEIJING 1432

D. 08 BEIJING 4097

E. 08 BEIJING 4526

F. 08 BEIJING 4569

Classified By: Economic Minister Counselor Robert S. Luke for reasons 1
.4 b/d

Summary
--------------

1. (C) Citing Iranian media, international and Chinese media
outlets are reporting that a consortium of three unnamed
Chinese oil and gas companies have signed a USD 3.2 billion
deal with Iran to produce 10.5 million tons of liquefied
natural gas (LNG) per year in Iran's South Pars gas field.
Details about the reported deal remain unclear, however, as
officials from China's National Energy Administration and the
three major state-owned oil and gas companies would not offer
comment, with several stating that they had no knowledge of
the reports. End summary.

Iran announces major LNG deal with Chinese consortium
-------------- --------------

2. (SBU) Iran's state-run media reported March 14 that Iran
and China had signed a USD 3.2 billion deal to produce 10.5
million tons of liquefied natural gas (LNG) per year in the
South Pars gas field. According to Iranian reports cited
widely by the international press, a consortium of three
unnamed Chinese companies would finance and implement the
project, which would reportedly include "building gas
liquefying lines in phase 12 and another block of South
Pars." The project would be carried out in two stages, each
of which would be completed in three years. Iranian sources
also claimed that an unnamed European firm would join the
project within three months. Chinese language press coverage
of the deal repeated statements from the Iranian press. One
Chinese report (Global Times) added that the "purely
commercial activities have been portrayed by the Western
media with a political color."

Chinese government, oil companies silent on the deal
-------------- --------------

3. (C) EconOff contacted officials at China's National Energy
Administration (NEA),China National Petroleum Corporation
(CNPC),China Petrochemical Corporation (Sinopec),and China
National Offshore Oil Company (CNOOC) on March 16 to discuss
the media reports. Officials at NEA's International
Cooperation Division and Oil and Gas Division told EconOff
that they had not heard about the reports and could not
comment on them. EconOff provided copies of press articles
about the deal to NEA Oil and Gas Division official Wang
Jing, who stated that she would seek official guidance and
offer a response at a later time. Ministry of Foreign Affairs
officials were not available for comment.


4. (C) Aware of the press reports on the deal, CNOOC External
Affairs official Lu Xiaofeng asserted that "he did not think
CNOOC was involved in South Pars," though he noted that CNOOC
was still in discussions with Iran regarding a project in
North Pars (ref F). Sinopec Foreign Affairs Bureau official
Fan Liping told EconOff he could not comment on the deal, as
he had "not seen the reports." CNPC International
Cooperation Department representative Wang Zhineng also
stated that he had not seen the reports, but offered to
respond after receiving official guidance from headquarters.
(Note: In early February, CNPC officials offered to take
questions from EconOff regarding CNPC's activities in Iran's
North Azadegan oil fields, but they have not yet provided a
response. End Note.)

Consortium membership still unclear
--------------

5. (C) Arthur Yan (strictly protect) of Cambridge Energy
Research Associates' (CERA) Beijing office told EconOff he
remains skeptical about the Iranian media reports and unsure

BEIJING 00000679 002 OF 002


which three Chinese companies would be involved in the
consortium. Yan, who also serves as an advisor to Chinese
oil companies, reported that the announcement came as a
surprise to him, as Chinese discussions with Iran on LNG
deals had been moving ahead very slowly.


6. (C) Beijing-based Dow Jones reporter David Winning
(strictly protect) also stated that the three consortium
member companies remained unclear. Winning noted that CNPC's
engagement with Iran in South Pars dates back to 2005, when
it agreed to partner with Total to ship South Pars LNG to
China's Tangshan Port. "Total dragged its feet," however, and
the deal never went forward, he explained. Winning
speculated that Sinopec could also have an interest in the
consortium, as it has two LNG terminals to supply in China.
He pointed out, however, that Papua New Guinea and Australia
would likely be more attractive LNG suppliers than Iran due
to their proximity to China. In Winning's view, CNOOC was
the least likely major Chinese oil company to be involved in
a South Pars consortium, as it is already in discussions with
Iran regarding a North Pars project and to his knowledge,
CNOOC had not been considering involvement in South Pars.
Regarding China's intentions in Iran, Winning believes China
intends to "keep the iron in the fire," but will not move
forward quickly with projects in Iran. "If Chinese companies
had intended to make rapid progress in Iran, they could have
done so years ago," he argued.

Comment
--------------

7. (C) Whether for political reasons or to put pressure on
Chinese companies to finalize hydrocarbons deals in Iran, it
has become a routine practice for the Iranian media to
announce energy agreements between Iranian and Chinese
state-owned companies well before the details of such
agreements have been finalized. Chinese companies are
typically reluctant to comment on the Iranian media
statements, perhaps in order to avoid drawing additional
attention to the deals. The lack of details surrounding the
latest round of announcements could indicate that this deal
is still at a very early stage. Post will continue to follow
up and seek confirmation and details regarding the
announcement. End Comment.
PICCUTA