Spiralling costs have forced Malaysia's state oil firm Petronas to defer decisions on two major projects, in Iran and Sudan, its chief said on June 09. Mohd Hassan Marican, CEO of Petroliam Nasional Bhd said Petronas will delay its final decision on investing in Iran's $11.2 billion Pars gas project, as the deadline looms.
"The economic and commercial model that was previously worked on does not make the project viable anymore," he said. Petronas has also deferred for now plans for a 100,000 barrels per day refinery to be built in Sudan, said Hassan.
The engineering and contracting sectors face constraints and skilled workers are in short supply, while steel prices have surged, hitting oil refining and liquefied natural gas (LNG) projects.
"In this high oil price environment, it's also a high cost environment - operating costs, the cost to explore, the cost to develop and the cost to produce have all gone up," he told Reuters in an interview at the Asia Oil & Gas Conference.
"The cost of human capital as well, tremendous." Asked if Petronas would consider pulling out of the Iran LNG project, he said: "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," he added. "All these things take time, we have said we are continuing with the discussions."
Iran, whose LNG industry has sputtered despite holding the world's second-largest natural gas reserves, has repeatedly extended a deadline for Total, which holds 40 percent in the South Pars project, and Petronas, with 10 percent, to make a final investment decision. Total also said last month it could be difficult to reach a deal to develop Phase 11 of the South Pars project in the short term, but reiterated its interest in the project.
While Iran is pressing Total to commit to the deal by end-June, and had even threatened to proceed without them, the French government, concerned about Iran's nuclear programme, has urged Total not to invest.
But Royal Dutch Shell has pulled out of another $4.3 billion gas project in Iran, after coming under pressure not to participate from US lawmakers due to Tehran's atomic aims.
Sudan, where Petronas is a major investor and has equity in the Nile Blend and Dar Blend oilfields, is also under US economic sanctions to press for an end to a bloody conflict in the Darfur region.
The Malaysian firm has been discussing for three years with Sudan building a refinery, The delay means it will now join a series of other proposed projects in sub-Saharan Africa that will not take off as costs have doubled. "The cost environment has gone up so much. At this moment in time, we cannot justify the viability of the programme due to higher investment costs," said Hassan, who has been CEO since 1995.
An official from Sudanese state oil firm Sudapet had said costs were now estimated at $5 billion, up from initial estimates of $1-2 billion.
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