India, fresh off a visit by US President Barack Obama, is being put in a dilemma by the Iranian government which says it has until the end of December to put up or shut up about its proposed investments in Iran's rich South Pars gas field.

A senior official at the petroleum ministry told Asia Sentinel that it is a "tough ask for New Delhi to balance India's energy needs with America's discomfort about any country doing business with Iran."

Although contracts have been signed, the money that has flowed so far has not been enough to invite US sanctions. However, this will need to change if the South Pars project is to move forward. India, with its burgeoning economy growing at a 7 percent average clip since 1997, has 17 percent of the world's population and less than 1 percent of the world's known oil and natural gas resources, faces a serious energy challenge without massive imports.

Indian firms are wary of being hit by American sanctions due to trade with Iran. The US remains unhappy about Tehran's independent nuclear energy program and its suspected dual use implications.

Given America's economic and diplomatic clout, New Delhi has kept away from signing any agreement on the Iran-Pakistan-India (IPI) pipeline so as not to annoy Washington. However, Tehran has made it clear that it wants a decision on South Pars fast.

In his address to the Indian Parliament, Obama called on New Delhi to back America's policies on Myanmar and Iran. India will look to seek an exemption for its investments in Iran.

Iran Deadline

In Delhi for a conference earlier this month, G R Manouchehri, the chief of the Iranian government-owned oil company, said a year-end deadline has been set for India's flagship explorer Oil & Natural Gas Corp and its partners to decide. Manouchehri made it clear that there have been "delays" by ONGC which were not due to just "technical" reasons, underlining America's shadow on the Indian decision-making processes.

Last year, ONGC Videsh Ltd, the foreign arm of ONGC, and the Hinduja Group, signed agreements to take 40 percent of the US$7.5 billion, Phase 12 of the gigantic gas field. Hinduja, ONGC and Petronet, the Indian LNG company, are slated to receive up to 6 million metric tons of Iranian LNG in return.

"The technical due diligence has been completed by ONGC. Financial and project model have been gone through. We have given ONGC a three-month deadline to respond (on participating in SP Phase 12 field). One month has already passed... We are hopeful that they will join the project ... We are waiting for ONGC decision," Manouchehri said.

New Delhi To Go "Extra Mile"

A senior official of the petroleum ministry who declined to be named said that New Delhi is willing to go the "extra mile" to iron out problems with America.

There were extensive Indo-US official discussions in the lead up to the visit of Obama to India. The exchanges will continue.

"India may sweeten deals in defense, nuclear energy and financial services to leverage its Iran position," said the official who added that New Delhi is in a "strong position" to bargain with America.

That is because Obama is under pressure to deliver "business deals that generate jobs in America, given the recent domestic reverses in the midterm elections."

New Delhi will also emphasize that it heeded Washington's discomfort with Tehran over a US$7.5 billion-gas pipeline deal under which Iran will supply natural gas from 2014. Pakistan has signed on, India has not.

US sanctions provide for action against anybody including foreign firms that invest in excess of US$20 million in Iran's energy sector in any 12-month period.

Legislation enacted in July enlarges the scope of infringements under the Iran Sanctions Act associated with any hydrocarbon related activity. Reliance Industries Limited (RIL) has already whittled down its energy relations with Iran due to US warnings.

South Pars Important

Gas from the Pars field is crucial for both Iran and India. The former will look to meet domestic consumption requirements and earn export revenues from the gas produced.

Tehran has been looking at energy deficient Asian investors to build its vast hydrocarbon resources as the Western firms stay away for fear of being caught in geo-political problems. Iran needs investment of over US$25 billion a year to develop its oil and gas sectors, which have slowed due to sanctions. Iran boasts the world's second largest natural gas reserves after Russia.

The South Pars phase-12 project has a capacity of 3 billion cubic feet (bcf) of gas, of which 2 bcf has been reserved for LNG or 10 million tons a year of LNG for 25 years.

The field, meanwhile, is one of the few overseas energy sources in which India has managed to win a stake over the omnipresent Chinese firms. Last month, Prime Minister Manmohan Singh said that the Indian government "is encouraging national oil companies to pursue equity oil and gas opportunities overseas."

Presently, India imports the bulk of its gas in the form of LNG from Qatar and Algeria. India's domestic output is not sufficient to meet growing demands of the power, household and auto sectors, despite new gas found in the eastern KG basin.

Investment In Farsi

India's response to SP-12 will also determine Indian state-run oil firms plan to invest nearly US$8 billion in the gas rich Farsi Block. Iran will soon sign a US$5 billion contract with a foreign company to develop its offshore Farzad-B gas field, the Oil Ministry's website SHANA said recently.

ONGC and oil marketing firm Indian Oil Corp (IOC) are equal partners (with 40 percent interest each) to jointly develop the Farzad-B area of Farsi block. Oil India (OIL) is the third partner with a 20 percent stake.

The consortium had won the project in 2002 for exploration under the umbrella of ONGC Videsh. The three entities need to invest about US$5.5 billion in producing natural gas from Farzad-B. Another US$2.5 billion is needed to set up a liquefaction plant to transfer LNG to India.

In September 2008 the Iranian government approved commerciality of the Farsi block, with recoverable gas reserves of more than 12.8 trillion cubic feet, about a quarter more than India's largest gas producing field KG-D6, operated by RIL.

Siddharth Srivastava is a New Delhi-based journalist. He can be reached at sidsri@yahoo.com