Having one of the world largest oil and gas reserves, Iran plays a decisive role in global energy security and Asian convergence. Iran is the world 1st rank in oil and gas reserves and is in the focus of attention and international interactions in global energy market for two reasons, the geopolitical position and its key role in global energy supply security.
Oil is Iran’s most important industry. Iran is the 5th largest producer of crude oil proven reserve about 158.4 bn barrels in the world, accounting for 9.3% of the world’s total reserves, also has 33.5 TCM of natural gas, which is 18% of the world’s reserves. Iran’s oil and gas production includes liquid gas, petrol, gas oil and kerosene and has GDP share of 22.5%. in the year ended March 2017.
Currently, Ministry of petroleum (MOP) is responsible for management of oil industry and directs this industry through four subsidiaries, including National Iranian Oil Company, National Iranian Gas Company, National Petrochemical Company and National Iranian Oil Refining and Distribution Company (NIORDC).
- 3,950,000 barrels of crude oil daily production
- 2,200,000 barrels of Crude oil daily export
- Contract with the TOTAL and drilling contract with Turkey and Russia in oil and gas
- Launching Phases 2 and 3 of Gulf Star refinery by the end of March 2018
- Central Asian crude oil swap
- Gasoline Euro 4 production with 26,300,000 liters per day and the chain distribution of petrol and gasoline Euro 4 in eight metropolises of Tehran, Mashhad, Karaj, Ahvaz, Isfahan, Tabriz, Arak and Shiraz in the year ended March 2017
- Iran oil and gas condensate export touched the highest level in the last 27 years in March 2017.
With 158 bn barrels of reserves, Iran holds the world’s largest oil reserves after Venezuela, Canada and Saudi Arabia. Nearly 70% of Iran’s oil reserves are located on dry lands and marine reserves are mostly located in the Persian Gulf. Iran also has proven offshore oil reserves about 500 mn barrels in the Caspian Sea. Iran largest oil fields are located in the coastal areas (dry land), Ahwaz-Asmari, Maroon and Gachsaran, all of which are located in Khuzestan province. The Abazar field in the Persian Gulf is largest offshore field with a production capacity of 175,000 barrels per day.
Common oil fields
Iran is one of the countries that has many common oil and gas fields with its neighbors. Because of vast volumes of hydrocarbons, there are several oil and gas producers. Although with common resources, but it is owned by two or more countries.
Currently, Iran has 15 reserves and 28 oil and gas fields common with neighboring countries such as Iraq, Kuwait, Saudi Arabia, Qatar, the United Arab Emirates and Oman, part of which is land-based and the major part in the sea. Iran and Iraq have common reservoir in dry land. There are five oil reserves along Iran-Iraqi common border: Naftshahr, Dehloran, Paidar-e Gharb, Azadegan and Yadavaran (formerly Hosseinieh-Koshk). The remaining 10 sea fields are shared with neighboring Persian Gulf states. Arash gas field is the only common area of Iran with Kuwait in the Persian Gulf. Oil fields Esfandiar, Foruzan, Farzad (A) and Farzad (B) are common fields with Saudi Arabia.
South Pars enormous gas field, which goes on to North field, is common to Qatar. Salman, Farzam and Nosrat reservoirs are among Iran joint repositories with the United Arab Emirates. The only common filed between Iran and Oman is Hengam gas field.
Iran produced an average of 3,761,000 bbl/d oil in the year ended March 2017 and the cost of oil investment is 6.90 USD and the operation cost is 5.70 USD per barrel.
Iran crude oil consumption in 2005 was about 1.7 mn bbl/d with increase by more than 2 mn bbl/d in 2013. Of course, crude oil consumption has declined since 2013, reaching 1,848,000 bbl/d in 2016.
Following sanctions and a slowdown in oil purchases from Iran, due to the efforts of buyer countries to replace Iran oil, Iran crude oil export fell below 2 mn bbl/d since 2012. Prior to the sanctions, Iran used to export oil to China, India, Japan, South Korea, the European Union, Turkey, South Africa and the United Arab Emirates. But after the sanctions were lifted, the conditions changed. The demand for Iranian oil has been increasing.
Iran accounted for about 4.35% of the world oil export and 10% of the Middle Eastern oil export, ranking the world 7th and the Middle East 5th largest oil export by 2016.
The refineries production plan has been 1.830,000 bbl/d since year ended in March 2016. Production capacity is 1,844,000 bbl/d, which is subject to change due to specific circumstances and plans by the National Iranian Oil Refining and Distribution Company (NIOPDC).
After the completion of projects, Iran oil refinery capacity will increase by 70 % reaching from1,850,000 bbl/d to 3,200,000 bbl/d by 2020. Several refinery complexes are under construction, the most important of which are shown in the following table:
Petroleum products export
Considering the development of South Pars phases and increasing gas production, consumption of oil products such as gasoil, kerosene and heating oil has decreased and the surplus is exported. Thus, Iran, as a gasoil importer has now turned in to exporter.
At present, gas refining capacity is about 540 MCM /d. But efforts are being made to increase gas production by the end of the 6th development plan to 900 MCM/d. Currently, Iran has a share of 2% in global gas trade such as export, import, swap, transit and power exchange. By the end of 2025, Iran share of global natural gas trade would increase by 10%. At the same time as South Pars emerged in to new phases and increasing gas production capacity, gas supply infrastructure was implemented sothat transferring and distributing to consumption bases were provided in the year ended March 2017.
According to the latest statistics, the world gas reserves are estimated to be 186.6 TCM in 2016 which Iran has 33.5 TCM, accounting for 18% share. South Pars is the largest natural gas field in Iran and the world. The growth of gas production owes to the capacity and exploration of the South Pars project in the mid-nineties. Additionally, there are at least 15 other major gas fields.
The average natural gas production in 2016 was 202.4 BCM, which experienced 6.6% increase compared to previous year.
Being among the world most widely consumers, Iran’s consumption reached 200.8 BCM in 2016.
35% of natural gas consumption belonged to domestic, commercial and industrial sectors, 44% to power plants and 21% belonged to major industries in the first seven months of the year ended March 2017.
Export & Import
Concerning huge reserves and strategic location provide a decent opportunity for Iran to export gas to Europe in the region. By 2020, around 30 BCM of European Union natural gas is predicted to be supplied by Iran. Iran exported 8,567 MCM and imported 9,246.3 MCM natural gas in 2016.
So far, Turkey has been Iran’s largest gas customer, importing about 30 MCM/d, but recently Iraq has also been added to customers. The amount of gas export to Iraq is started at 7 MCM/d, the which has an increase potential to 25 MCM/d in the future.
92% of Iran’s gas is exported to Turkey, 5% to Armenia, 2% to Nakhchivan and 1% to Azerbaijan. About 97% of Iran demand for natural gas is supplied by Turkmenistan and another 3% by the Republic of Azerbaijan.
Sanctions & post-sanctions
Sanctions had massive impact on especially, southern oil fields. Thus, the governmen reduced production by minimizing Enhanced Oil Recovery/Improved Oil Recovery (EOR/IOR) operations. Also, most of the oil produced from these fields is heavy, which is sold at lower market prices. With sanctions lifted, these regions rapidly increased output. This was mostly due to the EOR/ IOR techniques and the reinjection of water and gas into these fields.
The post-sanctions period, Iran has aggressively embarked on signing agreements with international companies to conduct studies on major oil fields. Since 2016, Iran has signed seven memorandums of understanding (MoU) with companies including Shell, Total, Schlumberger and Petronas. Interestingly, studies for the same field have been awarded to multiple companies. The Azadegan field for example has been awarded to both Shell and Petronas. The Changuleh field has also been opened to study by DNO, PTTEP and Gazprom Neft. It remains unclear whether just one or all of the MoUs signed for fields will be allowed to progress. This could be a sign that Iran is trying to drive competitions to secure and possible results, but also to hedge the bets, depending on the uncertainty of US foreign policies and sanctions.
The lifting of sanctions was as the opening path for foreign investments and international trade in crucial sectors such as oil and gas, accordingly Iran’s oil and gas industry attracted their participation. This was evident from the visit of Chinese president Xi Jinping to the country just weeks after the sanctions were lifted. Oil production has increased rapidly from 3.2 m barrels per day (BPD) in 2015 to 3.7 m BPD in 2016. The total output is expected to reach 4.2 m BPD in 2017. Similarly, export in the post-sanctions period have also witnessed a rapid rise as many countries resumed purchasing Iranian oil. Experts suggest that Iran also has the potential to supply Europe with around 35 bn cubic meters of gas each year by 2030. After sanctions lifting, gas sector activities, which were carried out continuously, led to the fact that gas production capacity which in early 2017 amounted to nearly 700 MCM/d, increased significantly with the prioritization of the joint gas field explorations, as well as new phases of South Pars. As of now gas production volume in Iran reaches more than 830 MCM/d and with the new phases will reach 1.2 BCM/d. Due to the increase in gas production that completely meets the domestic demand, plans to increase gas export are in Ministry of Petroleum agenda (MOP). Oil industry was able to achieve many successes in nuclear deals, oil and gas condensate production and export and applying using energy diplomacy in OPEC was part of achievements of oil industry in the year ended March 2017. The swap operations of oil-rich countries of Caspian Sea states were restored after seven years of suspension by discharging three Turkmen oil supplies, which will be further developed by mid-September with mooring of nine other oil tankers. Of advantages of swap is saving on oil and petroleum products transportation costs from south to the northern regions and refineries in Tabriz and Tehran and release of a part of the fuel fleet. By reviving SWAP and cooperation with Central Asia and Caucasus region, Iran strategic position will be strengthened from the north-south corridor and will derive a benefit of crude oil transit of northern neighbors to south ports.
– Oil price fluctuation risk: The main risk of downstream include oil market crises and uncertain price fluctuations.
– Political-Economic Risk: Sanction issue is one of the most important obstacles to this industry development. A – – large part of technology and equipment related to industrial development projects is provided through foreign companies, which in case of non-cooperation, there would be no problem.
Investment advantages & potentials
-Under the Sixth Development Plan, Iran needs 200 bn USD to invest in upstream and downstream sector, of which 65 to 70% must be provided from foreign sources.
-Iran capacities to attract foreign investment in oil and gas field in technical and geopolitical aspects. Due to technical infrastructure, human resources, low cost exploration and exploitation and internal political environment which are acceptable to foreigners have made Iran a serious rival for other countries. Another advantage is Iran’s weakness itself that is over the years, has not been able to raise enough foreign capital, given this, the opportunities are welcomed.
Oil and gas (relative) low cost production
- High rate of return on oil, gas, petrochemical and refinery projects
- Feed provision for oil refineries (inside the country) at a price of 95% FOB Persian Gulf
- Possibility of shares 100% transfer and refineries ownership to private sector investors
- Purchase of refined products from investor by Ministry of Petroleum at the price of FOB Gulf
- Ability to export refined products and by-products by investor
- Feed discounts for investors in petrochemicals complementary and downstream industries in less developed regions based on the Ministry of Petroleum locating
- Investment security in oil and gas industry as on of requirements which National Iranian Oil Company always committed to
- National Iranian Oil Company has signed memorandum of understanding and cooperation for oil and gas fields’ development with 12 international companies, such as British-Dutch Shell, French TOTAL, Japanese Inpex and Russian Gazprom Oil
- Massive gas transfer infrastructure to abroad
- Ability to transit to Turkey and European and Persian Gulf countries
- Ability to swap gas to adjacent countries
- Major potential consumers
- Having 33 TCM proven reserves while ranking 1st in the world
- Having necessary infrastructure for gas export, swap and transit to Europe, East Asia and the Gulf states as export routes for Iranian and European gas.
Oil & gas new contracts
A new model of Iran oil industry, known as Iran Integrated Petroleum Contract (IPC) is a service contract and designed in such a way that while maintaining foreign investors can be more flexible to buyback contract models and attractive for international oil companies.
- Among this conventional model features, the following items can be mentioned:
- Prolonging exploration phase (5-7 years) and exploitation phase (20-25 years)
- Integrated transfer of operations and development
- Flexible development plan
- Determining annual work plans and budgets instead of fixed ceilings costs
- Possibility of costs recovery
- Fitness between risk and reward
- Flexibility of rewards compared to oil price changes
- Reviewing decision making structure
- Exploration continuity in neighboring countries in cases of failure in exploration
Some important new contracts in international oil and gas field are as follow:
• TOTAL Contract: Since this contract is the first contract with foreign companies under IPC framework, it is symbolic and the basis for comparison with subsequent contracts, as well as evidence of international sanctions lifting against Iran. On the other hand, in accordance with the provisions of TOTAL Agreement and Chinese National Oil Company, they can compensate their services for implementation of project in cash or gas condensate.
• Turkey and Russia signed a drilling agreement in Iranian oil and gas fields; Ghadir Investment Holding signed drilling agreement with Turkish Unit International and Russian State-owned Zarubezhneft by 7 bn USD, which will be run in three oil fields and a large gas field of Iran. The total reserves are estimated at 10 bn bbl and are expected to produce 100,000 bbl/d. The gas field has an annual production capacity of 75 BCM of gas and the natural gas extracted from these excavations is 1.5 times more than 50 BCM of gas that Turkey used to import annually and will help meet the gas needs of Turkey over the next 150 years.
• The Deal for Gas Recycling and Consumption Project of South Pars Refinery II (phases 2 and 3) was signed between the National Iranian Oil Company and a consortium consisting of the French SOFREGAZ Company and the Sazeh Samin Industries Group.
- Having sufficient infrastructure in the oil sector
- Oil and gas and petrochemical mega projects
- Low production costs due to the concentration of major oil resources in the south and land reserves
- Having massive infrastructure of gas transfer
- Swap gas to neighboring countries
- Major potential consumers
- Sufficient infrastructure for export and transit gas to Europe, East Asia and the Persian Gulf states as export routes for Iranian and European
- Numerous oil and gas fields, often with low risk and exploitation cost
- Use of old technology
- Inefficiently consumption of fuel and energy
- Projects prolongation
- Surface installations depreciation (pipelines, operation units, pumping stations and injection facilities) on land and sea oil and gas fields, after decades of uninterrupted production
- Unreasonable pricing and unbalanced supply of energy carriers and along with subsidies problem that have
endangered part of oil and gas
- Excessive energy consumption in all sectors
- Iran geopolitical position as an oil field and export origin
- Access to open water
- Security in all parts, thus no risk and cost for the investors
- The shortest route to world markets
- Oilfields proximity to export terminals
- Low cost of oil production
- Poor communication with High-tech countries
- Lack of optimal use of common reserves with other countries
- Sanctions and creating challenges for FDI
- Oil industry has favored small reservoirs, which often have low recycling rates, over the past two decades
- Lack of overseas investment to protect oil export markets
and strengthen security of demand