China has signed a $3.2-billion gas deal with Iran, holding the world's second-largest natural gas reserves, for the production of 10.5 million tones of LNG annually in Iran's South Pars gas field over the next three years.

The deal was signed in Tehran between a Chinese-led consortium and Iran LNG Company, where the Chinese committed to constructing two Iran LNG project trains - No. 3 and 4 in Phase 12 - with a production capacity of 10.5 million tons of LNG per year at the giant South Pars Gas Field in southern Iran.

South Pars Gas Field in southern Iran, is reported to be the world's largest natural gas reservoir.

Four sections of the project have been implemented so far and have a total capacity of producing 20-million tones of LNG, if the next two phases become operational by 2012.
An Iranian state television quoting a senior government official said that a certain European country will also join the Chinese consortium in the next three months; a significant statement as the US has embargoed business with Iran since the 1990s, and has barred foreign companies from operating in the US if their business volume with the country exceeds $10 million a year.

Ali Khayrandish, the ILC managing director said, ''The Chinese contractors will complete implementation works of the first train in 39 months and the second train in 41 months.''

Dr Seifollah Jashnsaz, the managing director of National Iranian Oil Company (NIOC) said, ''Iran LNG is the most active project which portions 20 million tons of LNG production,'' commenting on the 80-million ton yearly production of five projects - Iran LNG, Persian LNG, Pars LNG and two joint ventures with Chinese and Malaysian firms.

Pointing to Iran's second largest global gas reserves after Russia, Jashnsaz said, ''parts of this amount will be used for domestic use, and the rest for injection to oil fields and exportations, which liquefaction is chosen for further distances.''

The announcement of the deal comes two days after the Obama administration renewed its sanctions against Iran and it would be interesting to see how the US reacts when the unnamed European partner's name is revealed.

To overcome the US ban, Iran has been aggressively making huge deals with several Chinese and other Asian firms. Iran supplies 14 per cent of China's oil needs, and recently signed an energy deal with European firms. In a $1.3-billion deal with Danish oil refining technology supplier Haldor Topsoe the Iranian companies Marjan Petrochemical and Kimiaye Pars will receive process technology for two methanol plants with an annual production capacity of 1.6 million tons each, amongst the largest in the world.

In an unrelated $260-million deal Italy's Maire Tecnimont will set up a tire factory in Iran.

Renewing the ban against Iran is not as simple as applying sanctions against Iraq, since Iran's estimated proven natural gas reserves are estimated at 26.5 trillion cubic meters, second only to Russia's proven 47 tcm that is estimated at 26 per cent of the world's total proven gas reserves.

With Russian gas supplies to Europe through the transit pipelines in Ukraine having become highly unreliable, Europe may opt to strike a deal with Iran for its future energy supplies to cut its heavy dependence on Russia; in January, Europe and the Baltic nations were bought to their knees for about 10 days during the midst of a cold winter, when Russia cut off gas supplies to Europe which is supplied through Ukrainian transit pipelines. (See: Putin cuts European gas supplies via Ukraine)

Around 20 European countries depend on gas supplies from Russia through the Ukranian transit pipelines with Hungary depending for around 80 per cent of its gas needs from Russia, Austria-51 per cent, Germany around 40 per cent, Italy-41 per cent, France-15 per cent, Serbia-92 per cent and Poland-60 per cent.

The European Nations have now slowly diverted their attention for their supplies to the 3,745-square-mile Persian Gulf South Pars-North Dome gas field containing an estimated 51 trillion cubic meters of natural gas, which could break Russia's the monopoly gas supplies to Europe.

The Mehr news agency had quoted Jashnsaz  in late February saying that Iran and France's Total would ink a $5-billion deal on the Phase 11 development of South Pars gas field by the end of March.

Total, the world's fourth-largest oil firm by market capitalisation will give Iran state-of-the-art liquefied natural gas technology, something it has looking for years but because of sanctions, these ambitions were curtailed.

If Iran is able to sign the deal with Total, then it will be able to export gas through pipelines to most parts of the world and for all probability, Total could be the unnamed European partner in the Chinese-led-consortium.

But even here, the Russians have managed to have a stranglehold on Iran's gas reserves, as Iran's estimated natural gas reserves of 26.5 trillion cubic meters, Russian state oil and gas giant, holds licenses to fields for 60 per cent of the reserves, while 21 per cent is held by other producers and the remaining 19 per cent is still to be allocated.