European energy giants in battle for Iran oil

After lengthy negotiations this week, agreement was reached with Iran regarding its nuclear program. The energy sector of Iran is a huge prize for European energy giants queued pending transaction Tehran’s nuclear program, which will open one of the biggest markets of oil and natural gas in the world. Meetings with Iranian politicians in May and June as the Italian companies Eni, French Total and Anglo-Dutch Shell stressed that the industry is ready to return back to the country if sanctions are lifted.

Considering the business history of the European energy companies in Iran before sanctions, analysts believe that they have a head start over its competitors, especially Russia and China. In recent months there are more Western businessmen who fly to Iran and clearly there is growing political support for it in European capitals.

Brussels also monitor Iran as part of a long-term strategy to strengthen the energy security of the European Union (EU), especially in Southeast Europe. Commissioner for Energy and Climate Change of the European Commission (EC) Miguel Arias Invite Iran offers new prospects for alternative gas supplies in a time when the union is trying to diversify its supplies from Russia. Brussels, however, should not be too excited. Linking Iran to the pipeline projects of the EU, such as South Stream, which is to transport gas from the Caspian Sea via Turkey and Greece to Italy now is just a dream, says a source. The investment needed to upgrade decrepit gas infrastructure of Iran are enormous and the regulatory framework is a challenge.

Production of oil and natural gas have declined after the imposition of sanctions, which impede modernization and import of new technologies. Most oil fields were discovered in the 50s and 60s and their condition is still the same. Iran is the second largest natural gas reserves and the fourth oil reserves in the world. Production reached its peak in the 70s, before the Islamic revolution, and has steadily decreased since 2010, after European and US companies went as a result of sanctions. Companies refrained from openly lobby during the complex negotiations between Iran and the E3 + 3 countries – UK, France, Germany, USA, China and Russia. But they sent to their governments a clear signal that they are ready and want to go back to Iran.

If sanctions are repealed, the big players of the past such as Shell, Total, BP, or even in a very good position for taking on large projects, according to the economists.

After the deal, European companies will face a number of obstacles, especially for banks and energy. It will take at least two years to have the security they need to make large investments required in the energy sector, comment experts. Among the risks for companies is a provision that could allow the re-imposition of sanctions if Iran resumed its nuclear ambitions. This adds a degree of uncertainty.

It remains to be seen what kind of conditions of contracts will present Iranian government later this year. This will help companies to decide whether it makes sense to invest in the oil and gas sector of the country. Tehran is expected to present the terms of the conference in London in September. For now unpopular and strict repurchase agreements in which foreign companies are compensated by oil and gas without receiving equity stop the enthusiasm of companies in Iran. According to industry sources, if Iran changes its contractual framework, then the companies will now knock on the door of Iran.