It’ll be interesting to see how this geopolitical conundrum plays out…

Yuji Okada and Megumi Yamanaka, International Herald Tribune, September 12, 2006

TOKYO The government of Japan said Tuesday that it would enter talks with Iran to resolve a dispute over delays at the $2.5 billion Azadegan oil drilling project operated by the Japanese state-run firm, Inpex Holdings.

“Iran plays an important role on issues in Japan’s energy policy and the national interests,” the Japanese trade minister, Toshihiro Nikai, told reporters in Tokyo. The government and Inpex “will work closely and deal with the matter carefully,” he said.

The chairman of Inpex, Kunihiko Matsuo, said in June that the Tokyo- based company had not started drilling the field because Iran has not completed the removal of land mines laid during the Iran-Iraq War, lasting from 1980 to 1988. The field could be awarded to Russia or China if Inpex fails to start work by Sept. 15, Kyodo News said last month, citing an official at an Iranian state-run company.

Japan, which imports 99 percent of its oil, has come under pressure from the United States to abandon Azadegan amid efforts to halt Iran’s nuclear program.

The production target for the field is 260,000 barrels of oil a day, or 5 percent of Japan’s current consumption, by 2012. Inpex owns 75 percent of Azadegan.

Total, one of the biggest European oil producers, could buy a stake in the field from Inpex, a Total spokesman, Paul Floren, said in an interview from Paris this month. Total has a strategic agreement with Inpex, which includes taking a stake in the Azadegan field, Floren said.

The deadline to start work on the field is Sept. 22, Kyodo News said in May, citing an Islamic Republic press agency report that quoted Mehdi Bazaargan, managing director of Iran’s Petroleum Engineering & Development. Mine removal is not the chief obstacle, and development work can begin in the main area, Kyodo quoted Bazaargan as saying in May.

“A decision cannot be made by one side only,” Nikai said, referring to Azadegan. “We will watch closely to be able to respond flexibly.”

The agreement between Inpex, National Iranian Oil and its subsidiary Petroleum Engineering rules out the option of extending the implementation period beyond two and a half years, Bazaargan said. Last month, Kyodo also quoted him as saying that the deadline was Sept. 15.

Iran is struggling to compensate for the depletion of its older oil fields through new discoveries. The country needs to add as much as 400,000 barrels of new daily oil output each year to keep production even, the state oil company said last year. Officials from Iran and China said Monday that the countries had agreed to develop reserves in the Islamic republic’s southwest.

China Petrochemical has agreed to provide engineering services at the Yadavaran oil field, and the two sides will sign an accord “soon,” Zhang Yaocang, the company vice chairman, said Tuesday without disclosing further details.

The Yadavaran “master development plan has been prepared and the discussion is ongoing,” the Iranian oil minister, Kazem Vaziri-Hamaneh, told reporters in Vienna, confirming that the Chinese company would be a partner.