Oil giant Sinopec is in talks over a landmark multi-billion dollar deal with Iranian firms to import liquefied natural gas (LNG) from the Middle Eastern nation, in return for the right to exploit some of the country's richest oilfields.

The move, by China's second-largest oil firm, which would be one of the biggest LNG purchase transactions in the world, was revealed by Iranian Vice-President Mohammad Sattarifar in an interview with China Daily.

Negotiations on the deal, which would give a major lift to trade between the two countries, come after Zhuhai Zhengrong - one of China's four State-owned oil traders - signed a Memorandum of Understanding last month to import 110 million tons of LNG from Iran over 25 years.

Sinopec is in talks with the National Iranian Gas Export Company (NIGEC) and the National Iranian Oil Company (NIOC) to annually import at least 5 million tons of LNG from Iran, Sattarifar told China Daily.

In exchange, Sinopec will be allowed access to a major Iranian oilfield.

Senior Sinopec executives will visit Iran next month to continue the talks, Sattarifar added.

"All Chinese companies are welcome to market Iranian LNG," said Sattarifar.

"Both China and Iran see each other as long-term partners. Iran takes China as an energy market while China can take Iran as a long-term energy supplier," he said.

"We hope to strengthen our co-operation in exploring and developing oil and natural gas fields and oil refinery too," he added.

Sources at Iran's Beijing embassy said Iranian Vice-Oil Minister Hadi Nejadhosainaian visited the Chinese capital last month to push through the LNG import and oilfield development deals.

"Hopefully, Sinopec's deal may be concluded within this year," said  sources.

Iran is now the second largest oil exporter to China after Saudi Arabia, but it is the largest oil supplier to Sinopec.

Sattarifar visited Beijing last week to attend the 12th meeting of the China-Iran Commission for Economic, Trade, Scientific and Technological Co-operation.

Both of the countries committed themselves at the meeting to promoting co-operation on oil and gas exploration and production, transport, electricity, communications, nonferrous metals and project construction.

Iran has the world's second-largest gas reserves after Russia, but it trades very little of this on international markets. Teheran is seeking to develop its natural gas industry by exporting more LNG to emerging markets such as China, South Korea and India.

And China is working to develop it embryonic LNG sector, in an attempt to raise natural gas consumption from the current 3 percent in the energy mix to 8 percent by 2010.

Beijing is importing LNG from Australia and Indonesia to feed its LNG receiving projects in Guangdong, Fujian and Zhejiang provinces.

More LNG receiving terminals, where imported LNG will be transformed back to natural gas and supplied to local gas users, are expected to be built along the coast in the future.

More importantly, China also plans to secure foreign oil and gas reserves through LNG imports to fuel its galloping economic growth.

CNOOC Ltd, the third-largest domestic oil producer, has successfully acquired stakes in the Northwest Shelf joint venture and Gorgon in Australia as well as in Indonesia's Tangguh field after the parent China National Offshore Oil Corp agreed to LNG purchase contracts from these fields.

Embassy sources said Iran is seeking international bid for the exploration and production in its three major oilfields - northern and southern Azadegan and Kushkhosseineh. Each tender should commit to purchase at least 5 million tons of LNG annually. Sinopec and Zhuhai Zhengrong may join the bidding.

The Azadegan oilfield, bordering Iraq, is now thought to be one of the world's largest oilfields.

A Japanese consortium signed a US$2 billion agreement in February to get a 75 percent stake in southern Azadegan, with the National Iranian Oil Company (NIOC) holding the remaining 25 percent.

Sources said NIOC may offer part of its 25 percent stake in the Azadegan oilfield to Chinese companies to encourage China to buy Iranian LNG. The Northern Azadegan and Kushkhosseineh oilfields are currently undeveloped.

Some southern Asian countries are also hoping to clinch similar deals with Iran.

Analysts said that if the oil and gas deals are successful, they will help Chinese companies catch up with Japan and European companies such as French Total and Royal/Dutch Shell, becoming the largest investors in Iran's oil and gas industry.

Chinese oil companies scored few successes in Iran until last December when Sinopec succeeded in drilling a high-yield oil-gas well during venture prospecting in the country's Kashan oilfield.

Sattarifar said the oil and gas business will both play an important role in doubling bilateral trade between the two countries to US$10 billion within two or three years from last year's total of US$5.6 billion.

"Although China is a late-comer in the development of Iranian oil, we are ready to support Chinese companies wishing to invest in Iran," said Sattarifar. "We welcome any Chinese company which is willing to co-operate with Iran.

"China can get a long-term energy supply from Iran," he said.

Sattarifar stressed that Sino-Iranian co-operation offers great potential, and the leaders of the two countries have reached a consensus to tap this. He said China's investment in Iran will not only help meet Iran's market demand, but also demand from the whole of Central Asia.

Sattarifar also said the United State's unilateral economic sanction on Iran would not dampen business ties between Iran and China.

(China Daily April 12, 2004)