Iran cancels oilfield deal with China’s CNPC

Iran has terminated China National Petroleum Corp’s (CNPC) contract to develop the Azadegan oilfield

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Iran has terminated China National Petroleum Corp’s (CNPC) contract to develop the Azadegan oilfield after the Chinese energy giant ignored repeated appeals to work on it, Iranian news agency Shana said on Wednesday.

China’s biggest oil and gas company signed up to develop Iranian oil and gas fields after Japanese and European companies pulled out due to sanctions in the middle of the last decade.

State-run CNPC has expanded over the past decade to more than 30 countries around the globe to help secure supplies of the oil and gas that China needs to sustain its economic growth.

But concern over scarce global oil supplies that drew CNPC into Iran have largely vanished over the last few years, thanks to a surge in production in North America and promising new gas prospects in China itself, Australia and off East Africa.

In 2010, Beijing instructed Chinese energy companies to slow or stop work in Iran, because China wanted to strengthen ties to the U.S. energy sector and feared dealing with Tehran would jeopardize those plans.

Over years of Chinese inaction, Iranian officials have been demanding that these companies honor their deals. But CNPC’s rapid global expansion into easier operating environments has reduced the need for it to push on in Iran.

A decree officially excluding CNPC from the Azadegan project near the Iraqi border came into force on Tuesday evening, Shana said.

CNPC was unable to comment immediately on the contract termination.

Despite its huge gas reserves, Iran has been unable to extract enough to meet even its own needs, further reducing its allure for foreign investors. Rising oil production from neighboring Iraq, where CNPC is now active, takes further pressure off China to boost output from Iran.

Although Tehran’s relationship with Washington has improved over the last few months, tight sanctions that discourage any Chinese energy companies from investing in Iran remain in place.

Iranian officials also say they will soon offer foreign investors radically improved oil and gas contracts featuring much more attractive terms than those signed to date.

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