Asia Contactors Eye Iran as It Opens for Business

by Chee Yew Cheang, APAC Editor

Hard-pressed Asian contractors, whose revenues plummeted due to cutbacks in spending in the global petroleum industry, are hoping that Iran will provide new opportunities as the Middle Eastern nation reopens for business after the recent lifting of international sanctions.

South Korean firms – among Asia’s largest and most active construction players – are training their sights on new projects in Iran as the Organization of Petroleum Exporting Countries’ third largest producer is poised to “make big investments to replace aged gas and oil facilities and major infrastructure,” Yonhap News Agency reported Jan. 19.

“Until 2000, Iran was the fourth-largest market for South Korean construction firms after Saudi Arabia, Libya and Iraq … the lifting of economic sanctions would pave the way for South Korean firms to tap deeper into the nation,” Kim Jong-kuk, manager of the Middle East division at the International Contractors Association of Korea said, as quoted by Yonhap.

After all, companies in the Northeast Asian country had clinched around $12 billion worth of construction contracts in Iran prior to 2009 when such deals fell due to the international economic sanctions imposed for Teheran’s nuclear program. The Export-Import Bank of Korea (KEXIM) projected a 7.6 percent rise in Iran’s construction market this year to $49.6 billion, up from $46.1 billion in 2015. KEXIM plans to sign an agreement with Iran’s central bank in the current quarter to provide $5.45 billion (EUR 5 billion) in financing for South Korean companies that win contracts in Iran, Reuters said Jan. 19.

Already, three major South Korean yards – Daewoo Shipbuilding & Marine Engineering Co., Ltd., Hyundai Heavy Industries, Co. Ltd. and Samsung Heavy Industries Co., Ltd. – reeling from a combined operating loss of $6.1 billion in 2015, as indicated in a separate Yonhap report Jan. 19, are eager to tap opportunities for offshore facilities in the Iranian market.

The lifting of Iran sanctions “could add more barrels to the global oil market, but demand for tanker ships and LNG [liquefied natural gas] carriers may increase, which is good for Korean shipyards,” Hong Sung-in, an analyst at the Korean Institute for Industrial Economics and Trade told Yonhap.

Contractors in Japan also expect Iran to replace its aging oil and gas production infrastructure as Teheran seeks to return hydrocarbon production to pre-sanction levels, a Japanese Ministry of Economy, Trade and Industry official told Nikkei Asian Review Jan. 20.

The Iranian aim of raising crude oil production post-sanctions may benefit firms operating in maintenance, modification and operations (MMO) and those offering oilfield services to mature shallow-water field maintenance, an industry player commented in Singapore’s Business Times (BT) Jan. 20.

Mick Meade, managing director of Singapore-based offshore broker and consultancy M3 Marine Group, expects demand to rise in Iran for small to mid-sized anchor handling tug supply vessels ranging between 5,000 and 8,000 brake horsepower and for platform supply vessels of between 3,000 and 3,500 deadweight tons.

He added that some regional yards may benefit from Iran’s reentry into the global business community as the country’s Caspian Sea needs deepwater and harsh-environment vessels and rigs. Firms such as Singapore-based Keppel Offshore & Marine Ltd.’s Caspian Shipyard Co. – based in Azerbaijan – could reap the “gains as first-mover investors” in the region.

Meanwhile, China’s President Xi Jinping became the first major world leader to visit Iran after the lifting of the sanctions Jan. 16. He was in Teheran to safeguard Beijing’s – political and economic – interests, which expanded when the sanctions were in place.

Energy-deficient Japan also reacted speedily to the changed environment by lifting trade sanctions against Teheran, Reuters reported Jan. 22, with the move enabling its insurance firms to issue policies covering trade deals involving Iran as well as permit new Japanese investments in the Middle Eastern nation.

Japanese upstream investments could potentially include the Azadegan oil field near Iraq, which is estimated to contain 5.2 billion barrels of recoverable oil, Iran’s Fars News Agency reported Jan. 21. Japan’s Inpex Corp. may possibly return to the Azadegan development, where it previously held a 10 percent stake before withdrawing from the project in 2010 due to the international sanctions on Iran.

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