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Cablegate: Isa (Formerly Ilsa): Dutch and Shell On

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OO RUEHAG RUEHBC RUEHDE RUEHDIR RUEHKUK RUEHROV
DE RUEHTC #0935/01 1361346
ZNY CCCCC ZZH
O 161346Z MAY 07
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9186
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCNIRA/IRAN COLLECTIVE PRIORITY
RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0086
RUEHBK/AMEMBASSY BANGKOK PRIORITY 2731
RUEHBJ/AMEMBASSY BEIJING PRIORITY 1996
RUEHSW/AMEMBASSY BERN PRIORITY 4080
RUEHBR/AMEMBASSY BRASILIA PRIORITY 0427
RUEHBY/AMEMBASSY CANBERRA PRIORITY 2653
RUEHIL/AMEMBASSY ISLAMABAD PRIORITY 1007
RUEHKL/AMEMBASSY KUALA LUMPUR PRIORITY 0159
RUEHMO/AMEMBASSY MOSCOW PRIORITY 1719
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 0581
RUEHNY/AMEMBASSY OSLO PRIORITY 4967
RUEHOT/AMEMBASSY OTTAWA PRIORITY 5143
RUEHKO/AMEMBASSY TOKYO PRIORITY 1758
RUEHBAD/AMCONSUL PERTH PRIORITY 0003
RUEHRI/AMCONSUL RIO DE JANEIRO PRIORITY 0003

C O N F I D E N T I A L SECTION 01 OF 02 THE HAGUE 000935

SIPDIS

SIPDIS

STATE FOR EUR DAS BRYZA, EUR/UBI (RREITER)
STATE ALSO FOR EB/ESC (JEIGHMIE), NEA/IR (HWOOSTER)

E.O. 12958: DECL: 05/14/2017
TAGS: ETTC PREL ENRG EPET NL IR
SUBJECT: ISA (FORMERLY ILSA): DUTCH AND SHELL ON
INVESTMENTS IN IRAN

REF: STATE 47688

Classified By: Economic Section Chief Karen Enstrom,
reasons 1.4 (b and d).

1. (C) SUMMARY. A Shell official confirmed the company
does not expect to make any final investment decisions before
mid-2008 or early 2009 on the Persian LNG and Yadavaran gas
and oil investment projects in Iran. Dutch Foreign Ministry
officials noted surprise with the Iranian announcement of a
faster timetable for a deal with the Chinese oil firm Sinopec
on Yadavaran. These officials reiterated that Shell
regularly briefs them on its activities in Iran. END SUMMARY.

2. (C) Econoff discussed on April 17 reftel points
regarding USG concerns and opposition to oil and gas
investments in Iran with Dutch Ministry of Foreign Affairs
(MFA) officials Daphne Bergsma, Acting Head of the Gulf
States Division in the North Africa and Middle East
Department, and Loek ten Hagen, Senior Policy Officer and
Desk Officer for Iran in the same department. On May 3,
Econoffs also raised reftel points with John Crocker, Head of
Royal Dutch Shell's International Government Relations and
Senior Advisor for North Africa, Middle East, Central Asia,
Ukraine, and Russia, and Lynn Azar, Shell's Regional Advisor
for the Middle East and North Africa.

---------------------------------------
MFA Surprised By Iranian Announcement
---------------------------------------

3. (C) Bergsma said recent press statements from Iranian
Oil Minister Vaziri Hamaneh on an impending final investment
deal with Chinese oil firm Sinopec on developing the
Yadavaran field had taken the GONL by surprise. Recent
information from officials from Shell, which has an interest
in developing Yadavaran with Sinopec, had indicated a final
decision would not occur until 2008 or later, she added.
Officially, she said, the GONL did not interfere in Shell's
decision-making process. Nonetheless, Shell officials had
assured the MFA that the company would consider all factors
-- including political -- prior to any final investment
decision. Ten Hagen confirmed the MFA was in regular contact
with Crocker on Shells' Iran activities.

---------------------
Shell's Iran Strategy
---------------------

4. (C) With expected declines in European gas and oil
production, decreased reliability of Russian supplies, few
viable alternatives, increasing reliance on natural gas, and
long development cycles for energy projects (up to ten
years), Crocker said Shell had concluded that stable future
energy prices were dependent on outside investment in Iran
and the pursuit of big projects. While Shell had no plans
at present to increase its involvement beyond the Persian LNG
(South Pars), Yadavaran, and other projects aimed at helping
Gulf countries overcome supply challenges, Crocker said the
company still needed to think strategically now in
preparation for any future investments. He said a May 1998
decision by the USG to waive Iran-Libya Sanction Act (ILSA)
sanctions for France's Total, Russia's Gazprom, and
Malaysia's Petronas had led Shell to believe future Iran
energy projects would also receive similar waivers.

5. (C) Crocker reiterated that Shell was fully aware of USG
concerns about investments in Iran's oil and gas sector and
the potential harm caused by public announcements at this
sensitive time. He emphasized the importance of delivering
similar messages to the Chinese regarding Sinopec. He said

THE HAGUE 00000935 002 OF 002


Shell was also following closely all pending Congressional
legislation that might tighten Iran Sanction Act (ISA)
implementation.

6. (C) Crocker stressed that Shell regularly briefs
relevant governments and the EU, including Commission
President Jose Barroso. According to Crocker, Barroso and
other EU governments were less concerned about Shell's
exploratory activities in Iran. There was a need to balance
political concerns with the freedom of business to operate,
he added.
--------------------------------------------- -
Persian LNG: No Final Decision Before Mid-2008
--------------------------------------------- -

7. (C) Under the initial September 2004 framework agreement
between Shell and Iran, a final Persian LNG investment
decision was expected by 2006, Crocker explained. He said
Shell now anticipated that a final decision was not likely
before mid-2008, although the Iranians still hoped for a
decision by the end of 2007. Some elements of the agreement
continued to move forward, Crocker acknowledged, as the
parties tried to develop a shared timeline.

8. (C) Any final Shell investment decision would be based
on such economic factors as the projected market, customers,
financial aspects, and potential risks, Crocker said. Given
changes in these factors since 2004, he indicated that the
chances of concluding an investment decision based on the
2004 framework agreement were slim. Moreover, the 2004
agreement was negotiated at lower energy price levels, which
Crocker suggested even Iran would have problems accepting at
this stage. A renegotiation of the framework agreement would
add another six months to any projected timetable, he added.

----------------------------------------
Yadavaran: Final Decision In Early 2009?
----------------------------------------

9. (C) Crocker said it was hard to predict whether Shell
would succeed in securing favorable terms from Iran for
investing in Yadavaran. Shell had not yet agreed on a
Yadavaran strategy, he added. If Shell did move forward on
the project, he indicated that a framework agreement might be
possible in late 2007, followed by a final investment
decision in early 2009. He said he had noticed more urgency
recently on the part of Iran in determining whether to pursue
development of Yadavaran alone. Iran was also considering an
option for 100 percent foreign ownership during development
with a full transition back to the Iranian state following
implementation, he noted.

10. (C) Crocker argued that Iran would develop Yadavaran
with or without foreign involvement in order to maintain
current oil production levels. With a six-year
implementation and investment pay-back cycle, however, he
said Iran would only begin to receive revenues from the
project starting in 2015. Current investments thus would
serve the Iranian people and the world of tomorrow, and not
the Iran of today, he stressed. Western expertise could
also serve to increase the extraction rate for Yadavaran by
40 or 50 percent over ten years, rather than only 20 percent
if Iran pursued Yadavaran alone, he added.
ARNALL

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