June 9, 2008 / 8:53 AM / 10 years ago

INTERVIEW-Malaysia's Petronas delays Iran LNG project decison

KUALA LUMPUR, June 9 (Reuters) - High development costs are forcing Malaysia’s national oil firm Petronas to delay its final decision on investing in Iran’s multi-billion dollar Pars LNG project as the deadline looms, its chief said on Monday.

Iran, whose liquefied natural gas (LNG) industry has sputtered despite holding the world’s second-largest natural gas reserves, has repeatedly extended a deadline for Total (TOTF.PA), which holds 40 percent in the South Pars project, and Petronas [PETR.UL], with 10 percent, to make a final investment decision. The most recent deadline was end-June.

Mohd Hassan Marican, chief executive of Petroliam Nasional Bhd (Petronas) told Reuters that costs have jumped, as the engineering and contracting sectors face constraints, while steel prices have surged. “As a result of that, the economic and commercial model that was previously worked on does not make the project viable anymore,” he told Reuters in an interview.

Asked if Petronas would even consider pulling out of the project, Hassan said: “These take time. The discussions continue between our consortium and the host country to see how we can make this work.

“It’s very difficult to put a timeline. There are many parts of the equation that must be revisited before a final investment decision can be made, and this is not entirely dependent on us, it also involves the host government. All these things take time, we have said we are continuing with the discussions.”

French oil major Total also said last month that it could be difficult to reach an agreement to develop Phase 11 of the South Pars project in the short term, even though it reeiterated its interest in the $11.2 billion project.

While Iran is pressing Total to commit to the deal by mid-year, the French government, concerned about Iran’s nuclear programme, has urged Total not to invest.

But Royal Dutch Shell (RDSa.L) has pulled out of another $4.3 billion gas project in Iran, after coming under pressure not to participate from U.S. lawmakers who were concerned about Iran’s nuclear programme.

Shell, Spain’s Repsol (REP.MC) and the National Iranian Oil Co signed an initial deal in 2002 to develop Phase 13 of the South Pars project, to be known as Persian LNG. But Shell has said it may may join later stages of the field’s development. Hassan added the process must be fair to all parties. “We have to reach the end of the line before either one can move ahead or not move ahead. It’s a continuing process of discussions. (Reporting by Ramthan Hussain; Editing by Ben Tan)

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