Energy giant Shell has pulled out of a $10 billion deal for a liquid natural gas (LNG) project at Iran’s South Pars field. Spain’s energy company Repsol has also withdrawn from the deal, which had been signed a little over a year ago.
LNG is the new frontier of energy development for Iran in particular–Iran hopes to address its chronic gasoline shortages by running its car industry on liquid gas and aims to switch from being a net gas importer to profitable exporter. There were three LNG projects in the South Pars field: the one that Shell and Repsol just canceled, one run by France’s TotalFinaElf and Malaysia’s Petronas, and one by Indian giant Reliance and BP. But pressure is on all companies to leave Iran without the necessary technology needed to develop its LNG capabilities–no small task, given the complexity of the installations needed.
This is an important and necessary blow to Iran’s energy plans. According to news reports, this can be attributed mainly to U.S. pressure. But the uncertainties of the political horizon are no doubt another factor for companies to withhold investments. Ultimately, the reason why companies should not invest in Iran–quite aside from the ethical issue of giving succor to a regime like Tehran’s–is that it is not in their own economic interest. Hopefully, Shell’s turnaround–after the recent difficulties caused by the Swiss gas deal with Iran–will set a new precedent for European energy companies.