China-Iran oil talks slowed by terms, not politics

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BEIJING, Nov 13 (Reuters) China's drive to invest in Iran's biggest undeveloped oilfield in return for gas supplies is being stymied by tough commercial negotiations, not the threat of more sanctions, Chinese oil officials said on Tuesday.

The negotiations, now entering their fourth year after a preliminary agreement in November 2004, are undeterred by political tensions and the possibility that Western powers will seek tighter economic restrictions on Tehran, they said.

''The negotiations with Iranians are primarily commercially focused. Politics are not the key,'' an industry executive involved in high-level negotiations with Iran told Reuters.

''It's difficult to see Iranians caving in on the key commercial terms in the face of rising outside political pressure. It's the characteristics we've observed in them -- not ready to give in.'' Japan lost most of its stake in Iran's giant Azadegan oilfield in late 2006 after nearly three years of fraught talks.

Last month Iran urged France's Total and Royal Dutch Shell to finalise their deals on the giant South Pars gas project by mid-2008 or face no deal, after the two international oil firms delayed the investment on soaring cost.

China's top three energy firms -- Sinopec, PetroChina and CNOOC -- are queueing to secure multibillion-dollar liquefied natural gas (LNG) supply deals from Iran. The Middle East country holds the world's second-largest natural gas reserves, but has been unable to convert them to LNG amid difficult and prolonged negotiations.

LAGGING 10 PERCENT Sinopec Group, parent of Sinopec Corp, also sealed a preliminary pact with National Iranian Oil Co (NIOC) to develop the Yadavaran field, which potentially holds 3 billion barrels of oil, three years ago, but has been unable to start work.

''We've agreed on 90 percent of the terms, but neither of us are ready to give in yet for the remaining 10 percent, which is key for investment returns,'' said the senior official.

With any LNG deliveries at least a few years away, officials say they remain unconcerned about the prospect of further sanctions, even as the political pressures against such deal-making grow.

On Monday, British Prime Minister Gordon Brown said he would push for tougher sanctions at the United Nations and in the European Union to curb energy and financial investment in Iran unless Tehran addressed nuclear concerns.

Japan, fearful of supply disruptions, has begun cutting back purchases of Iranian oil.

China, which can veto further U.N. sanctions, gets about 12 percent of its total crude imports from Iran and wants more.

Foreign Minister Yang Jiechi started a tour to the Iranian capital on Tuesday for talks on the nuclear dispute.

Iran says its nuclear activities are for peaceful power-generation, but Washington and EU powers say Tehran wants the ability to make nuclear weapons.

Chinese state oil firms appeared to be carrying on business as usual with the world's fourth-largest oil exporter.

Next week, top Asian refiner Sinopec Corp will begin talks in Tehran with state-owned NIOC to renew crude supply for 2008.

And state-run Zhuhai Zhenrong Corp, the world's largest single buyer of Iranian oil and one of the earliest to heed Tehran's call to pay in euro instead of U.S. dollars, has agreed to keep imports steady for next year, traders have told Reuters.

REUTERS BJR RN1643

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