India loses strategic Farzad-B gas field in Iran. Here’s why it matters

  • The gas field, which was discovered by Indian oil PSUs in 2008, was a pivotal part of India’s strategic ties with Iran and its loss marks a serious loss of influence for India

  • Losing access to this field matters because India needs gas to build a ‘gas-based economy,’ more than half of which is imported, and Iran was India’s best option for importing oil & gas

New Delhi: In a ceremony held in the presence of Iranian Minister of Petroleum Bijan Zangeneh in Tehran on May 17, Iran dumped India and signed a contract worth $1.78 billion with Petropars Group for the development of Farzad-B gas field in Farsi block of the Persian Gulf. The gas field, which was discovered by India's oil PSUs in 2008, was a pivotal part of India’s strategic ties with Iran and its loss marks a serious loss of influence for India in its ties with Iran, especially after the loss of Chabahar rail project in July 2020.

How did India lose Farzad-B?

A consortium of three oil PSUs — ONGC Videsh, Indian Oil Corporation (IOC) and Oil India Limited (OIL) — had signed an exploration agreement in 2002 for the Farsi block, where the gas field was found. While OVL and IOC hold 40 percent interest each in the block, the remaining 20 percent is with Oil India. Discussions to develop the gas field between the consortium of Indian oil PSUs and the National Iranian Oil Company (NIOC) stalled around 2010 due to secondary sanctions imposed on Iran by the United States (US) and the European Union (EU). After a Joint Comprehensive Plan of Action was signed between the US and Iran in 2015, the consortium came close to an agreement to invest $5 billion to develop the gas field. 

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However, after the election of Donald Trump as President in 2016, the US pulled out of the nuclear accord in May 2018 and reinstated sanctions against Iran. This made it impossible for India to conduct technical studies on the project, which was a must for starting commercial negotiations. In the meantime, while Iran kept urging India to honour its ties with the West Asian country and defy US sanctions, India kept making efforts to convince Tehran that it is keen to participate in the development of the field when the sanctions are lifted. 

In October 2020, NIOC informed ONGC Videsh of its intention to sign the contract for the development of the Farzad-B gas field with an Iranian company, saying that it would bring in the Indian consortium at a later stage of the development process. 

Why losing Farzad-B matters?

The Farzad-B field holds 23 trillion cubic feet of in-place gas reserves, of which about 60 per cent is recoverable. It also holds gas condensates of about 5,000 barrels per billion cubic feet of gas. According to the contract signed by NIOC on May 17 with Petropars Group, a daily production of 28 million cubic meters of sour gas is expected over five years. Losing access to this field matters because India needs gas to build a ‘gas-based economy,’ more than half of which is imported. And when it comes to importing, Iran was India’s best option.

Iran is the closest to India out of all the other countries in West Asia. If gas were to be imported from the gas field, it would have been the shortest pipeline distance, which would have reduced the cost of gas for India. It would have also given India influence in countering China’s influence in the region, especially as Iran is a central player in China’s Belt and Road Initiative (BRI), also known as Maritime Silk Road Initiative (MSRI). Therefore, the loss of the Chabahar rail project and the Farzad-B gas field constitutes a double whammy for India as far as its ties with Iran are concerned.

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