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In Farzad-B, ONGC Videsh is trying to keep both Iran and US happy. But can it?

As ONGC Videsh drags its feet on the matter, Tehran has indicated it could come out with a licensing round for the development of the field by an Iranian contractor

PSU Watch Bureau

New Delhi: ONGC Videsh, the overseas arm of Oil and Natural gas Corporation (ONGC), seems unlikely to go ahead with its investment in Iran's Farzad-B gas block because of the US sanctions against the country. The gas reserve was discovered by a consortium of ONGC Videsh Ltd, Oil India Ltd (OIL) and Indian Oil Corp (IOC) in the Farsi block in 2008. While OVL and IOC hold 40 percent interest each in the block, the remaining 20 percent is with Oil India.

Tehran hints it could start to look for alternatives

As ONGC Videsh drags its feet on the matter, Tehran has indicated it could come out with a licensing round for the development of the field by an Iranian contractor if the Indian state-owned enterprise fails to enter into an agreement soon. Iran, which is increasingly finding itself isolated after the US sanctions took effect, is trying to enlist support from its historical allies.

OVL unlikely to go ahead with the development of Farzad-B

According to sources in the public sector undertaking (PSU), the ONGC subsidiary is waiting for a formal communication from Iran. However, they also suggested that with the US sanctions on Iran, OVL is unlikely to proceed with the development of the gas field. However, India is going to be making efforts to convince Tehran that it is keen to participate in the development of the field when the sanctions are lifted. Experts are of the opinion that India would rely on the long-standing energy ties between the two countries to buy out time from Iran.

The backdrop

According to sources, OVL was planning on signing a contract with Iran in September last year. However, the US sanctions derailed the process as European and Australian consultancy firms withdrew from their contracts and the State Bank of India also raised concerns. Farzad-B's gas reserve is expected to be at 21.6 trillion cubic feet. The setting up of two pipelines and the money spent on the development plan has been a major bone of contention between India and Iran. The consortium of the three PSUs has spent a total of $900 million on the Farzad-B field to study the block following a 2002 preliminary pact with the Iranian authorities. However, a formal contract has not been signed yet.

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