China and Iran are gearing up quickly for closer energy ties as the Middle East nation hopes China, the world's second-largest oil consumer, would soon replace Japan to become its top destination for energy exports.

"From the supply side, we have no difficulties (in making China the top energy oil importer from Iran),?Bijan Zanganeh, Iranian petroleum minister, told China Business Weekly.

"Japan is our No 1 energy importer due to historical reasons... but we would like to give preference to exports to China.?

Zanganeh made the comments during a short visit to Beijing late last month.

During his trip, a key agreement was secured to further promote bilateral energy co-operation.

According to the Memorandum of Understanding (MOU) signed by both sides on October 28, China's second-largest oil giant Sinopec Group will be awarded the rights to participate in developing one of the world's largest oilfields in Iran in exchange for buying 10 million tons of LNG (liquefied natural gas) for 25 years from Iran.

Zanganeh said that the deal is preliminary and will be finalized after commercial contracts are signed.

"We are trying to close the deal as soon as possible, but we will need at least six months,?the Iranian minister said.

He said the Yadavaran oilfield, one of the world's largest undeveloped oilfields, would have a total production capacity of around 300,000 barrels per day (bpd) and Iran would export half of this volume to China in the future based on the contracts to be signed by Sinopec and the National Iranian Oil Company.

"Three hundred thousand bpd is a huge amount of oil. That would not only be important for China, but also for the global oil market,?he said.

Zanganeh said it was still too early to disclose the value of the deal, which would be one of the world's largest in the energy sector.

According to a Reuters report, the deal, when finalized, could be as large as US$70 billion, which would cover both the development of the Yadavaran oilfield and the LNG portion of the new MOU.

Reuters also said both the LNG deliveries and the development of the Yadavaran oilfield will not begin for at least three to five years, although no timeframe has been set at the moment.

This new agreement is the second major move in terms of LNG co-operation between the two countries.

In March, State oil trader Zhuhai Zhenrong signed a preliminary deal to import more than 110 million tons of LNG from Iran over 25 years for a total of US$20 billion.

Zanganeh said energy co-operation between the two countries will be expanded into more areas besides the LNG sector.

He said he also met officials from the China National Petroleum Corp (CNPC) and agreed to expand ties with China's largest oil player.

All major Chinese oil companies, which include CNPC, Sinopec, CNOOC (China National Offshore Oil Corp), are welcome to participate in the energy exploration and development in Iran.

China's major oil firms are also expected to find business opportunities in the petrochemical sector, particularly in fertilizers.

Iran is also prepared to invest in various parts of China's oil, gas and petrochemical industries such as LBG-receiving terminals and related facilities, according to Zanganeh.

"As China's booming economy has turned the country into one of the biggest oil consumers in the world, Iran ?as OPEC's (the Organization of Petroleum Exporting Countries) No 2 crude oil supplier (after Saudi Arabia) ?can only be a natural partner for China,?he said.

Zanganeh expected the closer energy ties between China and Iran will not only benefit bilateral trade relations, but also help stabilize the global oil market.

"The current high global crude oil prices result, among other things, from political factors and military tensions in the Middle East.

"Expensive crude is also due to sanctions and imposed constraints on essential capacity expansion plans in the oil and gas production and an insufficient capacity to refine heavy and sour crude oils in the main consuming centres,?the minister added.

As the most sensible solution to this situation, he said, all countries should appreciate the reality that a comprehensive, prompt partnership from the consuming markets is required.

This partnership, he added, would provide the heavy funds needed for developing producers?crude oilfields, launching new exploration, increasing recovery factors in aging fields as well as eliminating all political obstacles in the way of oil and gas development projects.

"Only in this case would stability be restored to the international market by increasing output and required capacities in line with growing world demand,?he said.

"Undoubtedly, China and Iran would be very appropriate candidates to address this issue in all aspects. Our two countries?co-operation could serve as a model for regional and international synergy.?

China's LNG projects with Iran will be the country's third major overseas deal in the sector.

Two years ago, CNOOC signed a US$12 billion, 25-year contract to purchase LNG from Australia's Northwest Shelf project to feed a huge terminal in Guangdong Province.

The company also awarded a smaller contract to Indonesia's Tangguh project in its remote province of Pupua, spearheaded by oil major BP.

As the Chinese economy continues its rapid growth, the country is working hard to diversify its energy supply sources and search for clean energy to keep its economic wheels rolling while protecting its environment.

(Business Weekly 11/10/2004 page1)