Threat-Turned-Opportunity

 

Oil markets have witnessed unpredictably complicated developments in recent months. Oil price cut, particularly by some OPEC member states, has shocked the world market.

The important point here is to see if the downward trend of oil prices is a short-term or long-term phenomenon. The longevity of falling prices will largely affect the economies of petrodollar-dependent countries and the future stability of the oil market.

Analysts have given different views about the oil price fluctuations. Most of them believe that supply-demand imbalance and slow economic growth rate in emerging countries is the main cause of the price falls and refer to plans by OPEC member states, particularly Saudi Arabia and Iraq, to raise their production as the reason for the continuation of the price slide.

They have concluded that the oil prices will not rise if production keeps rising. Moreover, lack of harmony between OPEC producers on how to deal with the price falls will stir rivalries between producers to grab a larger share of the market through reducing their official selling prices.

Meantime, Saudi Arabia’s politically-motivated gestures, Russia-Ukraine dispute and extra shale oil recovery in the US are also to be taken into consideration in the oil price fluctuations.

What is obvious is that the countries which heavily depend on oil revenues will suffer more losses and the price slides will harm their economies. For example, if the Brent oil prices fall to $80, OPEC members will see their revenues drop by $200 billion. That will not let them realize their budget targets and will also face challenges in settling their debts.

What is important for Iran is the stability of prices in an acceptable range. Iran is preparing for a strong return to the world markets as sanctions against Tehran are hoped to be eased. 

Oil price fluctuations do not represent a new phenomenon and they have already taken place in different periods of time. Oil-dependent countries, including Iran, have predicted approaches on how to deal with these price fluctuations.

In the short run, Iran sets its budget based on a lower price for crude oil and in the long-run, Iran and other oil-rich countries would sell petroleum products, expand downstream industries and raise non-oil revenues. This approach will finally turn this threat into an opportunity.

Iran Finalizing New Oil Contract Framework

 

Iran’s Petroleum Minister Bijan Namdar Zangeneh has said that the country’s new model of oil contracts is to be finalized soon.

“The final touches are being made to this type of contracts at Petroleum Ministry. It will then be submitted to the government for approval,” the minister said.

He added that the new model of contracts does not need to win the endorsement of the parliament. 

Iran plans to unveil the new type of its oil contracts in London in February next year in an attempt to attract foreign investors provided that the Western governments lift their sanctions against Tehran.

“In case the sanctions are annulled, a new model of oil contracts will be unveiled in London” from February 23 to February 25, Mehdi Hosseini, head of Petroleum Ministry Oil Contracts Revision Committee, said.

The three-day event in London will be attended by Rokneddin Javadi, managing-director of National Iranian Oil Company, Ali Majedi, newly-appointed ambassador to Germany, and Hosseini and Ali Kardor, director of investment at National Iranian Oil Company.

Iran is also poised to introduce a new model of oil contracts, known as Iran Petroleum Contract (IPC) to replace “buy-back” contracts which, he added, are no longer attractive to foreign companies.

Under a buyback deal, the host government agrees to pay the contractor an agreed price for all volumes of hydrocarbons the contractor produces.

But under the IPC, NIOC will set up joint ventures for crude oil and gas production with international companies which will be paid with a share of the output.

Foreign companies are expected to rush back to Iran as hopes soar for relief in sanctions imposed on the Islamic Republic over its nuclear program.

 

Iran Eyes 32mb Oil Storage

 

The managing-director of Iran Oil Terminals Company (IOTC) has said that the country plans to store 32 million barrels of crude oil.

“In order to reach 32-milion-barrel crude oil storage capacity, four other storage facilities than four one-million-barrel facilities under test need to be built,” Pirouz Mousavi said.

“That would be a record rate because it will resolve many problems and will boost our standards as an international terminal [in Kharg Island],” he said.

Mousavi said IOTC is responsible for exporting all gas condensate produced in South Pars gas field.

“Currently, three single-buoy moorings (SBM) are active in South Pars for exporting gas condensate,” he said.

Mousavi said South Korea, Japan, China, India and recently Turkey are buyers of Iran’s oil, adding that Petroleum Ministry is trying to win back its traditional customers. 

 

 Petchem Needs $70b in Investment

 

A deputy petroleum minister has said that Iran’s petrochemical industry needs 70 billion dollars in investment.

“For investment in the petrochemical sector, 70 billion dollars is needed. A small portion of this amount will be provided by China, National Development Fund of Iran and hard currency reserves,” Abbas Sheri-Moqaddam said.

Sheri-Moqaddam, who is also managing-director of National Petrochemical Company, said the 70 billion dollars is planned to be attracted over the coming seven to ten years.

He said that Petroleum Ministry has also 36 new petrochemical projects, adding that investment in the petrochemical sector increases when the feedstock prices are logical.

Sheri-Moqaddam said Iran’s massive oil and gas reserves can feed petrochemical industries for years.

Iran produced 40 million tons of petrochemicals in the last calendar year (ended March 20), with $9 billion worth of its products being exported.

 The country, which is a major oil exporter, plans to increase its petrochemical exports to $12 billion this year.

The Islamic Republic is determined to become the biggest petrochemical producer in the Middle East.

The country has significantly expanded the range and volume of its petrochemical production over the past few years, and the NPC has become the second largest producer and exporter of petrochemicals in the Middle East after Saudi Arabia.

 

 Oil Output to Hit 4.3 mb/d Soon

 

A senior Iranian oil official has said the country plans to increase its crude oil production to 4.3 million barrels per day (bpd) soon, amid hopes for the removal of anti-Iran sanctions.

“In the near future, Iran’s oil production capacity will reach 4.3 million barrels,” Mansour Moazzami, the Iranian deputy oil minister for planning and supervision on hydrocarbon resources, said.

The official also pointed to Iran’s current refining capacity of 1.8 million bpd and noted that the figure will rise to three million in the next few years.

Meanwhile, Iran is to increase its natural gas production by 100 million cubic meters and, apart from exports to Iraq, Oman and Turkey, the country has no problem meeting its domestic needs during the cold season, Moazzami said.

In May, the National Iranian Oil Company (NIOC) said oil production capacity of the Islamic Republic would reach four million bpd by the end of the current Persian calendar year in March 2015.

Iran will be capable of extracting from its oil reservoirs for the next six decades as the country's proven oil reserves are estimated at 157 billion barrels, the NIOC says.

 

Iran Targets Mideast Top Technology Spot

 

Iran’s Petroleum Minister Bijan Namdar Zangeneh has said that Iran’s petroleum industry should make efforts to win the top spot in technology among oil-rich countries in the Middle East region.

The minister also said that enhanced recovery from oil reservoirs is a way to increase the country’s petrodollars.

Zangeneh made the remarks during the signature of a research cooperation agreement between Iran’s Petroleum Ministry and Azad University.

The minister said one-percent increase in the oil fields’ recovery rate adds 700 billion dollars to the country’s oil revenues. “In Norway, the recovery rate of oil reservoirs rose from 30 to 60 percent over 20 years. In other words, the recovery rate of oil reservoirs in this country doubled in two decades,” he said.

Zangeneh said Iranian oil reservoirs’ recovery rate varies between 7 and 40 percent.

“The objective of signing agreements and memorandums with scientific centers and universities is to identify production bottlenecks and resolving problems in the upstream sector,” he said.

The minister said Petroleum Ministry plans to make maximum use of national potentialities, particularly the universities, for the development of modern technologies in the petroleum industry. “The petroleum industry should top the oil-rich countries in the region in terms of technology.”

He said that the reservoirs whose development studies have been assigned to universities can supply around 3 mb/d of oil.

Zangeneh said Petroleum Ministry will reconsider its agreements with research centers failing to meet their obligations.

The minister said the research projects assigned to universities are estimated to cost between IRR 1 trillion and IRR 1.5 trillion.

Zangeneh noted that the projects face no financial restrictions and that the National Iranian Oil Company (NIOC) will fund them.

Tehran, Baku Agree to Study Caspian H/C Reserves  

 

Iran’s Research Institute of Petroleum Industry (RIPI) and Azerbaijan’s State Oil Company of Azerbaijan Republic (SOCAR) have agreed to conduct joint research projects on the development of reservoirs, enhanced recovery and environmental studies in the Caspian Sea.

Amir-Abbas Hossieni, deputy head of RIPI for technology and international relations, said the agreement is focused upon the Caspian Sea reservoirs.

“Of course, due to the concerns of both parties regarding the protection of the environment in this lake, environmental activities have been agreed to be done,” he said.

Hosseini said attention to the Caspian Sea is doubled because it is a land-locked lake. He added that RIPI is ready to provide the Azeri side with bioremediation technology.

He said that SOCAR’s Research Institute has 80 years of experience in offshore oil extraction with focus on the Caspian Sea.

“SOCAR has accelerated its nano-activities in recent years in a bid to industrialize its products and is willing to benefit from the experiences of RIPI’s nano-technology development group,” he said.

Hosseini said the agreement can facilitate exchange of data and knowledge between Iran and Azerbaijan.

IP-29-8

 

Iran Finalizes Gas Hydrate Plan

 

The plan to explore gas hydrate reserves in the Sea of Oman is in its last stage and will be finalized within a month, the head of the National Iranian Oil Company (NIOC)’s Exploration Directorate said.

Hormoz Qalavand added that the plan has been initiated with the support of the Research Institute of Petroleum Industry.

“At present, four types of reservoir rocks have been identified in the world,” he said, noting that the plan indicates the presence of Type 3 reservoir rock which is one of the best types of reservoir rocks.

The official underlined the profitability of using gas hydrates along with fossil fuels to produce energy and heat.

"After exploitation, every cubic meter of gas hydrates will produce heat equivalent to 164 cubic meters of gas," he said.

Qalavand noted that the plan aims at completing a comprehensive method to reach a qualitative examination of gas hydrate reserves in the Sea of Oman.

“Another purpose of the plan is to estimate the amount of gas hydrate reserves on a pilot scale for future decision-making,” he said.

Clathrate hydrates (or gas hydrates) are crystalline water-based solids physically resembling ice, in which small non-polar molecules (typically gases) or polar molecules with large hydrophobic moieties are trapped inside “cages” of hydrogen-bonded water molecules.

Clathrates have been found to form naturally in large quantities. Around 6.4 trillion tons of methane is trapped in methane clathrate deposits on the deep ocean floor.

 

Bioremediation in Mideast

 

The head of environment and biotechnology department of Iran’s Research Institute of Petroleum Industry (RIPI), Ebrahim Alaei, has said that microbes have been used for removing oil pollutants from soil across the country.

“RIPI’s main strategy in removing oil and petroleum products pollutants from soil is to benefit from biotechnology and it has managed to implement successful projects in different parts of the country,” he said.

Alaei said many countries are using biotechnology, adding: “RIPI has held meetings with some international companies in this regard and these companies have given a positive assessment of the biotechnology facilities of RIPI and have called for joint investment for removing oil pollutants from soil in the Middle East countries like Iraq and Iraq, and Azerbaijan.”

He said some projects are in the stage of completion, and added that bioremediation projects are under way with the cooperation of the private sector and within the framework of establishment of knowledge-based companies.

Regarding the use of bioremediation, Alaei said: “By using microbial processes and the enzyme capacities of local micro-organisms, the level of contamination in the soil is cut to below 4 percent and in the final stages, oil pollutants are fully removed by planting special and local species capable of decomposing hydrocarbons.

Noting that bioremediation does not require sophisticated technology, he said that this process is economical for the industry.

Alaei said the pollutants are first identified and then the potentialities of local micro-organisms in different regions are assessed. After that, RIPI’s bio-resources bank is used for optimizing the conditions of soil to be conducive to the growth of plants.

“After completing these stages and its success in operational and industrial sites, this method will be utilized for removing oil contaminants from soil,” he said.

NITC Returns to World Markets

Managing director of National Iranian Tanker Company (NITC) Ali-Akbar Safaei said the company can return to international markets after the European Union (EU) lifted its sanctions.

“By complying with standards, NITC can soon return to the regional and international competition market,” he said.

NITC was slapped with sanctions on October 15, 2012, according to Safaei. The charges leveled against the company included its state-run nature and transfer of its revenues into government’s treasury.

He said that Iran submitted evidence to the European Union’s General Court to defend the performance of NITC.

“Since other companies had been placed on the EU sanctions list at the same time, we used their experience and the EU General Court issued its ruling on July 3, 2014 and the NITC was cleared of charges against it,” said Safaei.

He said that the plaintiff (EU) could appeal the verdict in 70 days, but due to positive dialogue between Iran and the EU and thanks to efforts undertaken by Iran’s Foreign Ministry, the EU did not object to the ruling and the NITC was automatically delisted.

Safaei said maritime trade accounts for 93 percent of global trade and that NITC enjoys a major share at national, regional and international levels. Britain’s Treasury Department also announced that the NITC is not placed on its revised sanctions list.

 

New Markets

 

Asked if NITC has lost its international status during the past two years due to the sanctions, Safaei said: “The restrictions in force have not been ineffective, but we hope that the efforts made to that effect will help make up for the inflicted damage because NITC, given its compliance with standards and good reputation, will be able to compensate for the loss soon and play its effective role as a company with significant capacity in international maritime transportation.”

Noting that NITC enjoys great potentialities for maritime transportation, Safaei said: “The standards observed by NITC are unique and taking into account these standards, the important international requirement of safe transportation without environmental damage is respected.”

He said that the conditions will be easier for NITC to rejoin the world market if Iran’s nuclear talks with six world powers pick up speed.  Safaei noted that NITC started talks for a bigger international share last year when Tehran and the world powers reached an interim nuclear deal.

He said that except for Zionist Regime, NITC has no restrictions for delivering products to other countries. He added that the destinations depend on customers.

 

Overhaul

 

Safaei said NITC has always made efforts not to confine itself to the development of oil transportation. “Our strategic plan has always been oriented towards the diversification of income mix,” he said.

The official said mechanisms need to be worked out so that some objectives, which have not been reached, would be realized.

“We have held talks with Industrial Development and Renovation Organization (IDRO) for the overhaul of vessels. We hope that an agreement would be reached, given the experience, knowledge and capacities of NITC,” said Safaei.

He said 85 to 90 percent of NITC’s fleet is currently being used, adding that the entry of the company into overhaul of oil and gas vessels would open new horizons for more revenues.

 

Insurance

 

Safaei also referred to the continuation of insurance sanctions for oil tankers despite the lifting of the bans, saying the outcome of nuclear talks between Iran and the six powers – the United States, France, Britain, Russia, China and Germany – is expected to resolve the insurance problems.

“With the lifting of the sanctions, new trade activities will start and attraction of fresh investment will be revived. But it is still impossible for us to make full return to the international market, because we need all sanctions on money transfer to be lifted,” he said.

International Standards

 

Safaei said NITC has long been in contact with international institutes involved in the ranking of shipping companies. He said interaction with international bodies would facilitate the transfer of technical know-how into Iran.

Noting that NITC is a party to at least 28 international treaties ad conventions, he said: “All international standards have been observed by this company and all ships are subject to the necessary checks before entering any country. If the necessary standards are not observed the ships are confiscated. But we have not yet had any case of confiscation of our ships in other countries.”

He said the current standards fully cover NITC oil tankers, adding that this characteristic of the NITC has attracted both national and international insurance agencies.

Safaei said NITC’s tonnage growth is rising sharply. “Before imposing sanctions on Iran’s oil sector, more than 70 percent of the NITC’s capacity was in the international markets and we were providing services to major oil companies. We are still considered as a reliable company for big oil companies,” he said. “European countries are concerned about safe oil and gas delivery, but NITC is one of the companies that allay their concerns about safe delivery.”

 

Oil Developments in Western Iran

 

During a recent visit to the western provinces of Ilam and Kermanshah, Iran’s Petroleum Minister Bijan Namdar Zangeneh inaugurated Dehloran desalting plant with a capacity of processing 55,000 b/d of oil in Ilam.

During his visit, the minster also announced planned early production from Azar oil field next year and construction of NGL 3100 plant in Dehloran for 1.5 billion dollars.

Zangeneh said these development projects will bring about major developments in the province.

“Significant measures have so far been taken in western Iran and oil and gas fields have been developed. This trend is hoped to continue more rapidly and with more sensitivity,” he said.

Associated gas gathering was another issue the minster underscored. Zangeneh said gas gathering will serve the environment, while it would bring about economic and industrial growth and prosperity in these provinces.

The implementation of these projects, he said, promises a good future for industrial and technical work in Ilam province.

Dehloran desalting unit is supposed to remove up to 25 grams of salt per cubic meter of oil, reducing water content of oil and cut S2H to 15 ppm.

This facility is owned by West Oil and Gas Production Company, and is expected to receive 15,000 b/d of oil from Danan oil field and 40,000 b/d from Dehloran oil field.

 

NGL Plant

 

Zangeneh announced plans for the construction of an NGL plant in Dehloran, saying it will be fed by Dehloran gas refinery.

“This petrochemical plant would be among the biggest petrochemical units in the country. With the construction and operation of this plant, a major technical and industrial development will occur in the south of Ilam province,” said Zangeneh.

The minister added that Ilam province is set to become a major producer of petrochemicals in the country.

 

Azar Early Production

 

Zangeneh also said Azar field, located in the border city of Mehran, is hoped to start producing 30,000 to 35,000 b/d of oil in the second half of the next calendar year which starts in March 2015.

“With the development of this field, the production capacity of crude oil will enhance by 65,000 b/d,” he said.

Azar field is being developed under a buy-back deal with Iranian companies and a capital investment of more than one billion dollars.

Five rigs are working in this field. Five wells have so far been drilled and more are yet to be spudded.

The oil recovered from this field is exported to Khuzestan province and the recovered gas is delivered to south Dehloran to feed petrochemical plants.

 

Petchem Exports to Iraq

 

Zangeneh hinted at petrochemical exports to Iraq from Ilam, saying: “Given Ilam’s neighborhood with Iraq, by erecting downstream industries, it would be possible to export petrochemical products from this province to Iraq.”

The minister said major activities are under way in the oil and gas production sectors in Ilam, particularly with regards to the development of fields shared with Iraq.

“Planning has been made for the development of all these fields,” he said.                   

       

KEPCO on the Way to Prosperity

 

The significance of exploration in the Caspian Sea comes further to the limelight when deepwater drilling challenges, stemming from geological hazards creating layers with critical and abnormal formation pressure, are exposed.

From 1999 to 2000, Shell, Lasmo and Veba Oil teamed up to conduct studies in the Iranian sector of the Caspian Sea. The three renowned companies established the South Caspian Study Group (SCSG) which concluded that the Iranian section was potentially rich in oil.

One of objectives pursued by SCSG was to see if one could expect the existence of oil system (including source rock, reservoir rock and cap rock) in Iran’s Caspian Sea sector. After implementing 10,000 kilometers of 2D seismic operations during 22 months, the answer was positive.

The study group also reviewed data related to 26 wells drilled in Azerbaijan and Turkmenistan and compared the connection between the formations in wells drilled in Iran and in the two countries. Other activities of SCSG included geochemical study of oil spills and examination of any similitude between these leaks and the source rocks in neighboring countries.

In the end, geological and geophysical studies laid bare 86 geological structures in the Caspian Sea with 46 of them in better conditions. Eight of them were picked as prioritized structures for exploration and production studies. To that effect, drilling operations were conducted on one of the eight prioritized blocks in February 2010. The result was the exploration of Sardar-e-Jangal hydrocarbon field deep in Caspian waters.

 

Geological Hazards; Deepwater Drilling Challenges

 

The main challenge to geologists operating in the Iranian sector of the Caspian Sea is the lack of adjacent oil well or field for correlation.

In order to identify geological structures, formations or hydrocarbon reservoirs, the similarities between the wells being spudded and the wells drilled 500 meter to 2 kilometers farther are taken into account. The nearest field with useful data is Azerbaijan’s Shah Deniz which is nearly 170 kilometers away from Sardar-e-Jangal. That increases geological risks.

 

Modeling for Caspian Meteorological Data

 

Since the sea environment is the main factor in designing marine structures, the Caspian Sea is being modeled by Iran-Astara oceanography mooring which is the only one in the Caspian waters.

This project was proposed by the Engineering and Manufacturing Directorate of Khazar Exploration and Production Company (KEPCO) last year to provide highly valuable data. Meanwhile, due to the necessity of more precise meteorological data which the Meteorology Organization cannot provide, a second oceanography mooring is also planned to be purchased.

Another project was also introduced for supervising the steering of platforms and logistic vessels, managing maintenance and reparation of KEPCO fleet, safeguarding national assets and complying with international regulations.

 

KEPCO Safety and Security System Implementation

 

In the meantime, a safety and security management project has been introduced in compliance with international standards for the KEPCO fleet.

Other activities include location of land in the Caspian shores for development project. Upon the Petroleum Ministry's request in 2004, studies were conducted on 300 ha of land in the northern city of Roudsar.

KEPCO’s Engineering and Manufacturing Directorate has completed the company’s drilling fleet by adding a relief and rescue vessel, two multi-purpose vessels, two pollution-removing vessels and a speed vessel.

Before taking the delivery of these vessels, comprehensive studies were conducted and options were examined. The vessels were purchased after the National Iranian Oil Company approved them.

 

20-Year Plan

KEPCO’s Planning and Project Control Section has drafted qualitative and quantitative objectives of the company’s 20-year plan following constructive interaction with different directorates.

The long-term plan defines objectives for KEPCO to be realized from 2012 to 2032. The plan includes perspective, missions, macro objectives, key values, long-term, mid-term and short-term strategies and goals.

 

Deepwater Operations

 

KEPCO’s Research and Technology Department adopted a project last year for using advanced technologies in deepwater operations in order to manufacture equipment and revise measures taken during the past years.

This section was also pursuing a project for exploration, development and production studies in the Caspian Sea and three littoral provinces.

Another project is also under way to deal with possible crises and oil pollution leak. A roadmap has been devised for acquiring technology for deepwater exploration operations.

 

Rhum Resumes Gas Production

 

The Rhum gas field, co-owned by British Petroleum (BP) and the National Iranian Oil Company (NIOC), resumed production after a four-year hiatus due to anti-Iran sanctions, a BP spokesman said.

Production at the North Sea gas field was halted back in 2010 under the unilateral illegal sanctions imposed on Iran by the European Union (EU) and the US over the Islamic Republic's nuclear energy program.

The BP spokesman, who spoke on condition of anonymity, said that the British government has given the green light to the oil group to resume production at the field.

Production from the field, which contributed around 4-5 percent of Britain’s total gas output before its closure, began in October.

The initial gas production from the field is expected to be 50 million cubic feet per day. Rhum’s maximum production capacity had initially been estimated at 300 million cubic feet each day.

Rhum, which was discovered at North Sea in 1977, is owned by BP and NIOC equally.

Last year, the British government said renewed production at Rhum is meant “to avoid potential environmental damage and “prevent the possible destruction of the value of the field.”

UK’s Department of Energy and Climate Change announced: “The government supports the resumption of production at Rhum, which is necessary to avoid potential environmental damage and will prevent the possible destruction of the value of the field and its important contribution to the UK’s annual gas production.”

 

Iran, Armenia to Broaden Energy Ties

 

Iran’s Petroleum Minister Bijan Namdar Zangeneh has met with Armenian Minister of Energy and Natural Resources Yervand Zakarian and discussed energy cooperation between Tehran and Yerevan.

The Armenian minister, who visited Iran late October, held talks with Zangeneh about expansion of oil cooperation.

Zakarian also met with Iran’s Energy Minister Hamid Chitchian.

On the sidelines of the meeting, Chitchian told reporters: “Iran and Armenia maintain good cooperation in different fields including the energy sector.”

 

India Pays $400m in Oil Dues to Iran

 

India paid Iran $ 400 million to clear part of its past dues for crude oil its buys from Iran and will pay another $ 500 million by the month end.

Mangalore Refinery and Petrochemicals Ltd (MRPL) paid about $183 million, Essar Oil $172 million, Indian Oil Corp (IOC) $41 million and Hindustan Petroleum Corp Ltd (HPCL) $4 million, industry sources said.

Another $500 million are due to be paid within this month, they said.

The $900 million payment will be on top of $1.65 billion the refiners had paid in June/July. Cumulatively, refiners owe about $6 billion to Iran.

The United States plus 5 other world powers had in July granted Iran access to $ 2.8 billion of its funds held in foreign banks.

This was in addition to $4.2 billion Iran had received between January and July.

Of the $2.8 billion, $900 million was to come from India, sources said.

Iran and the United States, China, France, Germany, UK and Russia had in July agreed to extend a six-month interim accord until November 24 pending a long-term deal to end their nuclear dispute.

Sources said the $900 million has to flow out before November 24.

While the first installment went out today, the date for next one is being worked out by the Reserve Bank of India (RBI), they said.

Indian refiners had paid the previous $1.65 billion in three equal installments of $550 million each - first on June 26, second on July 8 and third on July 24.

OPEC Basket Price Review

 

Surveys indicate that an average 4.7% slump in the OPEC oil basket price in September stemmed from a variety of factors including industrial production cut by China and the US, growing anxiety over shrinking economy in the world, further discovery of oil reservoirs in the US and dollar value appreciation.

According to a report compiled by Iran’s Ministry of Economy and Finance, the average price for OPEC oil reached $97.3, down 4.7% month-on-month.

In September, the oil prices climbed a bit during the first ten days of the month before tumbling down. The OPEC oil prices fell from $99 to $94.3 in one month.

During September, OPEC oil was influenced by significant economic growth in the US, Saudi Arabia’s oil exports cut and Russia’s intervention in Ukraine. Due to these events, the OPEC oil prices climbed from $99 to $100 for several days.

But industrial production less than expected in China, lower foreign direct investment and housing prices in this country, lower industrial production in the US and anxiety over slow economic growth rate in the world overshadowed demand for oil.

Fluctuations in the dollar exchange rate, more oil exploration in the US and China’s lower petroleum products’ imports affected the oil prices.

Other factors which contributed to a modest hike in the oil prices included remarks by OPEC secretary general for a possible 500,000 b/d-cut in the OPEC production during its November meeting and lower production from an oil field in Libya.

China, which is the largest oil consumer in the world, experienced progress in its stock market and the world oil price falls resulted in further exports and lower imports by this Asian country.

 

NIGC Ready for Winter Gas Supply

 

National Iranian Gas Company (NIGC) is fully ready to supply gas across the country in winter, NIGC managing director said.

“The required infrastructure has been provided for the supply of fuel in winter,” Hamid-Reza Araqi said.

Araqi, who is also deputy petroleum minister for gas affairs, said Iran Gas Trunkline-10 (IGAT-10) and two pressure booster stations are to become operational before winter.

“The infrastructure for processing, transmission and distribution of gas in winter this year has been fully provided by NIGC,” he said.

Araqi said two other strategic pressure booster stations are also expected to become operational in central Iran.

He said Iran has seen its gas consumption rise this year due to the expansion of distribution network, gas supply to cities and villages and more consumption by business and industries.

Araqi said upstream gas production has also increased thanks to the development of the giant South Pars gas field.

He added that gas delivery to power plants in the first half of the current calendar year (started on March 21) was up 7.7 bcm year-on-year.

Araqi said more gas supply to the power plants and industries will save money and reduce pollution.

 

Bypass Oil Market Dealers

 

The director for international affairs of National Iranian Oil Company (NIOC) has called on the buyers of Iran’s oil to directly refer to this company in a bid to get around dealers in the market.

“We are still seeing the presence of dealers in the market,” Mohsen Qamsari said, adding that the dealers cause problems for oil buyers.

“The dealers charge the customers huge sums just for communicating them with the oil sale department. But the buyers can contact us directly without having to pay big sums,” he said.

Qamsari said oil buyers will be provided with the required guidelines regarding the purchase of petroleum.

He noted that some dealers keep customers waiting for a long time, while the latter will not have to wait if they contact the NIOC directly.

 

NIDC Spuds 97 Wells in 7 Months

 

National Iranian Drilling Company (NIDC) has spudded 97 wells during the first seven-month of the current calendar year which started on March 21, a deputy head of NIDC said.

Mehran Makvandi said the wells involved 193,887 meters of onshore and 29,303 meters of offshore drilling.

He said the wells included 65 for the National Iranian South Oil Company (NISOC), 8 for Iran's Central Oil Fields Company (ICOFC), 7 for Iranian Offshore Oil Company (IOOC), one for Petroleum Engineering and Development Company (PEDEC) and two for the National Iranian Oil Company’s Exploration Directorate.

According to Makvandi, the wells included 21 development wells, 20 work over wells, three appraisal wells and one exploration well.

NIDC is currently operating 74 offshore and onshore drilling rigs across the country.

The company is drilling wells in the supergiant South Pars gas field, North Azadegan and South Azadegan oil fields, Yaran and Azar oil fields under turnkey projects.

 

Siraf Refining Park; a Chance for Foreign, Domestic Investors

 

Siraf Refining Park is an important project aimed to create motivation for the private sector to invest in the petroleum sector. This project, which is seriously being followed up on by Petroleum Ministry, eyes construction of eight gas condensate refineries at Pars Special Economic Energy Zone with a capacity of 480,000 barrels. These refineries will be designed so as to be able to supply products to Iranian and foreign customers with minimum investment. The profits gained from this amount of investment will pave the way for the development of refineries and acquisition of more valuable products.

In order to get further familiar with Siraf project, Iran Petroleum has conducted an interview with Shahaboddin Metaji, director for incorporate planning at National Iranian Oil Refining and Distribution Company (NIORDC). The full text of the interview is as follows:

 

Q:  Would you please tell us about the construction and ownership of these eight refineries within the framework of Siraf Refining Park?

A: There have been certain criteria for selecting companies to invest in this project. These criteria include the capabilities of managers and staff of candidate companies, the background of activities of these companies in marketing, investment and trading product, as well as their economic and technical capabilities with regards to refining and industrial activities. The companies were then scored based on assessments. This project has many advantages for investment, the most important of which is 5-percent discount in the feedstock for these eight refineries. National Iranian Oil Company (NIOC) guarantees 90% of feedstock supply to the refineries for 12 years. Moreover, other companies investing in this project can enjoy common facilities and therefore reduce production and maintenance costs.

 

Q: Are there any foreign companies or investors involved in this project?

A: There are no restrictions for investors to team up with foreign partners. Two companies have so far introduced their bid for grouping up with foreign entities and other companies can take foreign partners after vetting. We believe that we should benefit from the capabilities of Iranian experts in technical knowhow. But we need to apply the latest scientific achievements in the world. This project is designed by Iranian companies and state-of-the-art achievements should be also used so that Iranian and foreign companies would exchange technical savvy. Based on forecasts, 70% of equipment and parts for this project would be supplied inside Iran.

 

Q:  The most important issue in the Siraf refining project is feedstock supply. Since gas condensate is the main feedstock and Persian Gulf Star Refinery may be launched at the same time as the refining project, have any preparations been made for feedstock supply?

A: Given the fact that each refining phase of South Pars produces nearly 40,000 b/d of gas condensate, the gas condensate production capacity in South Pars would be around 1 mb/d during the first ten years of the construction of these eight refineries, from 2018 to 2028. Furthermore, Parsian, Fajr Jam and Farrashband also produce gas condensate. The Persian Gulf Star Refinery is fed by 360,000 b/d, while Borzouyeh Petrochemical Plant needs 120,000 b/d of feedstock. Once all phases of South Pars have been launched, there will no longer be any problems with feeding the eight refineries.

 

Q:  Would you please speak about the products of these refineries and their production capacity?

A: Liquefied gas, light and heavy naphtha, jet fuel and gas oil are all produced by these refineries. The production of LPG will be 3,000 b/d, light naphtha 16,000 b/d, heavy naphtha 18,500 b/d, jet fuel 3,700 b/d and gas oil 18,700 b/d. Companies investing in this project can sell their products at home and abroad at international prices and there will be no obstacles for the sale of these products.

 

Q: When will Siraf refining project come on-stream?

A: To start this project, basic designing has to be done and be provided to investment companies. Technical proposals have already been received from consulting engineer companies. Basic design often lasts eight months and the consulting engineer company should prepare the FEED for the project so that the time needed for detailed design and sales would be cut. This project is expected to become operational in late 2017 or early 2018.

 

Q: What do you think of the role of mini-refineries in the country’s economic prosperity? What are the advantages of construction of such refineries for the country?

A: First of all, I should note that these eight refineries are not considered as mini-refineries and the products of each refinery are equal to the production of an 80,000-barrel refinery. These refineries are medium-sized ones. The Iranian government has so far invested more than $3 billion in the construction of refineries and the private sector is not capable of funding big refineries. Therefore, it has to invest in building refineries which need less investment and could cost between $200 million and $300 million, which the private sector can afford. We have to build refineries which would not cost much while supplying products at home and abroad. Investors will allocate $300 million for each refinery, $260 million of which will be spent on the construction of the refinery and $40 million on joint facilities.

A problem in Iran is that investors prefer to invest in non-production sectors. An advantage of this project is that investments will be attracted back from non-production affairs to be shifted to industrial development activities.

A large number of specialists, experts and manpower are recruited in such projects. We predict 10,000 people to be employed in this project. The products of these refineries will also provide raw materials for other industries and that will eliminate the need for using crude oil as feedstock.

To sum up, I can say that a chain of products could be produced by building mini-refineries.

 

Q: What are the NIORDC policies for implementing Petroleum Ministry’s enhanced recovery plans in these refineries?

A: These eight refineries will not be separate from other sections of Iran’s petroleum industry and their activities will be monitored. In other words, the private nature of these refineries does not mean that they would not be supervised. Regulations will be set for them. These refining companies are authorized to sell their products and they will face no pressure for their supply or choice of market. But if the country needs the products of these refineries, it would be easier to sell these products at international price.

Studies show that the US, Canada and Japan – where refineries are built by their private sectors - apply strict safety and environment regulations ,and private companies are required to comply with specific standards. In Iran, the same regulations set for private refineries will apply to these refineries, too. The companies should sell 35% of their stocks on the stock market one year after they start operation.           

 

Siraf Refining Park; a Chance for Foreign, Domestic Investors

 

Siraf Refining Park is an important project aimed to create motivation for the private sector to invest in the petroleum sector. This project, which is seriously being followed up on by Petroleum Ministry, eyes construction of eight gas condensate refineries at Pars Special Economic Energy Zone with a capacity of 480,000 barrels. These refineries will be designed so as to be able to supply products to Iranian and foreign customers with minimum investment. The profits gained from this amount of investment will pave the way for the development of refineries and acquisition of more valuable products.

In order to get further familiar with Siraf project, Iran Petroleum has conducted an interview with Shahaboddin Metaji, director for incorporate planning at National Iranian Oil Refining and Distribution Company (NIORDC). The full text of the interview is as follows:

 

Q:  Would you please tell us about the construction and ownership of these eight refineries within the framework of Siraf Refining Park?

A: There have been certain criteria for selecting companies to invest in this project. These criteria include the capabilities of managers and staff of candidate companies, the background of activities of these companies in marketing, investment and trading product, as well as their economic and technical capabilities with regards to refining and industrial activities. The companies were then scored based on assessments. This project has many advantages for investment, the most important of which is 5-percent discount in the feedstock for these eight refineries. National Iranian Oil Company (NIOC) guarantees 90% of feedstock supply to the refineries for 12 years. Moreover, other companies investing in this project can enjoy common facilities and therefore reduce production and maintenance costs.

 

Q: Are there any foreign companies or investors involved in this project?

A: There are no restrictions for investors to team up with foreign partners. Two companies have so far introduced their bid for grouping up with foreign entities and other companies can take foreign partners after vetting. We believe that we should benefit from the capabilities of Iranian experts in technical knowhow. But we need to apply the latest scientific achievements in the world. This project is designed by Iranian companies and state-of-the-art achievements should be also used so that Iranian and foreign companies would exchange technical savvy. Based on forecasts, 70% of equipment and parts for this project would be supplied inside Iran.

 

Q:  The most important issue in the Siraf refining project is feedstock supply. Since gas condensate is the main feedstock and Persian Gulf Star Refinery may be launched at the same time as the refining project, have any preparations been made for feedstock supply?

A: Given the fact that each refining phase of South Pars produces nearly 40,000 b/d of gas condensate, the gas condensate production capacity in South Pars would be around 1 mb/d during the first ten years of the construction of these eight refineries, from 2018 to 2028. Furthermore, Parsian, Fajr Jam and Farrashband also produce gas condensate. The Persian Gulf Star Refinery is fed by 360,000 b/d, while Borzouyeh Petrochemical Plant needs 120,000 b/d of feedstock. Once all phases of South Pars have been launched, there will no longer be any problems with feeding the eight refineries.

 

Q:  Would you please speak about the products of these refineries and their production capacity?

A: Liquefied gas, light and heavy naphtha, jet fuel and gas oil are all produced by these refineries. The production of LPG will be 3,000 b/d, light naphtha 16,000 b/d, heavy naphtha 18,500 b/d, jet fuel 3,700 b/d and gas oil 18,700 b/d. Companies investing in this project can sell their products at home and abroad at international prices and there will be no obstacles for the sale of these products.

 

Q: When will Siraf refining project come on-stream?

A: To start this project, basic designing has to be done and be provided to investment companies. Technical proposals have already been received from consulting engineer companies. Basic design often lasts eight months and the consulting engineer company should prepare the FEED for the project so that the time needed for detailed design and sales would be cut. This project is expected to become operational in late 2017 or early 2018.

 

Q: What do you think of the role of mini-refineries in the country’s economic prosperity? What are the advantages of construction of such refineries for the country?

A: First of all, I should note that these eight refineries are not considered as mini-refineries and the products of each refinery are equal to the production of an 80,000-barrel refinery. These refineries are medium-sized ones. The Iranian government has so far invested more than $3 billion in the construction of refineries and the private sector is not capable of funding big refineries. Therefore, it has to invest in building refineries which need less investment and could cost between $200 million and $300 million, which the private sector can afford. We have to build refineries which would not cost much while supplying products at home and abroad. Investors will allocate $300 million for each refinery, $260 million of which will be spent on the construction of the refinery and $40 million on joint facilities.

A problem in Iran is that investors prefer to invest in non-production sectors. An advantage of this project is that investments will be attracted back from non-production affairs to be shifted to industrial development activities.

A large number of specialists, experts and manpower are recruited in such projects. We predict 10,000 people to be employed in this project. The products of these refineries will also provide raw materials for other industries and that will eliminate the need for using crude oil as feedstock.

To sum up, I can say that a chain of products could be produced by building mini-refineries.

 

Q: What are the NIORDC policies for implementing Petroleum Ministry’s enhanced recovery plans in these refineries?

A: These eight refineries will not be separate from other sections of Iran’s petroleum industry and their activities will be monitored. In other words, the private nature of these refineries does not mean that they would not be supervised. Regulations will be set for them. These refining companies are authorized to sell their products and they will face no pressure for their supply or choice of market. But if the country needs the products of these refineries, it would be easier to sell these products at international price.

Studies show that the US, Canada and Japan – where refineries are built by their private sectors - apply strict safety and environment regulations ,and private companies are required to comply with specific standards. In Iran, the same regulations set for private refineries will apply to these refineries, too. The companies should sell 35% of their stocks on the stock market one year after they start operation.           

 

What’s Behind Oil Price Slump?

 

The current conditions prevailing over the world oil markets have become like a jigsaw puzzle. Even the officials in oil producing countries and oil experts are unable to clearly forecast the future of black gold prices.

The world oil markets have witnessed unexpectedly complicated and unusual developments in recent weeks. Despite escalation of political unrest in major producing countries, the crude oil price continues to fall while oil supply keeps rising.

In recent years, every time the political and security conditions ran into trouble in oil producing countries like Iraq, Nigeria, Libya and Syria, or when Iran and Russia – two major oil producers – were slapped with sanctions and restrictions we could expect daily growing oil prices. But today, the oil prices are not increasing and lack of coordination among OPEC producers in making a decision for curbing the price slide has resulted in some sort of competition between them to grab a bigger share in the market. To that effect, some of them have even cut their prices.

The world oil prices slumped to $90, the four-year low, while oil was traded at $114 in June. The current oil price fall is reminiscent of price slump in 1983 and 1986.

 

OPEC Extraordinary Meeting

 

OPEC members are divided on how to react to the crude price fluctuations. Venezuela called for an extraordinary meeting of the Organization of the Petroleum Exporting Countries, while Kuwait said any cut in the 12-member group’s production ceiling is unlikely.

In addition, some market players are wondering about the traditional stabilizing role that Saudi Arabia has played in the oil markets, suggesting even that Saudi Arabia might let oil prices drop as a way to fight against the U.S. shale revolution. “We believe the most plausible interpretation of Saudi motivations is that they think they can win any price war given shale’s full cycle production costs of considerably more than Saudi’s ~$4/bbl,” Citigroup said in a recent research note. So far there has been no indication from OPEC that it will reduce production to increase prices.

Some analysts wonder if the Saudis are trying to put the frackers in their place. But it’s more likely that the Saudi Arabia is focused, as it has been for the past decade or so, with bringing opposition within OPEC to heel.

Saudi Arabia’s production stands high and other OPEC member states are moving ahead with their oil production. That makes it difficult for OPEC to reach agreement on oil output cut.

A recent decision by the Saudi government to reduce its official selling price (OSP) is aimed at strengthening its control over the market. The Saudi move prompted some other OPEC members to follow suit.

Saudi Arabia has signaled to oil market activists that it is happy with the significant decline in the oil prices on the long term. The Saudi objective could be urging its rivals, particularly American shale oil producers, to cut their production.

In the oil market, Saudi Arabia is pursuing the policy of price war. This policy has further reduced the prices in light of crude oil oversupply and falling demand in the world markets.

Saudi Arabia further raised eyebrows when OPEC monthly review in October showed that this country had increased its September production to 9.904 mb/d, up 100,000 b/d from the month before.

Over the past three years, Saudi Arabia had constantly raised its production against the backdrop of Arab Spring and the ensuing instability in the Middle East oil production. This time, Riyadh was expected to cut its production when the world oil supply increased in order to help price stability, but it did not do so and even moved to raise its production in September.

But Saudi Arabia did not stop there. In order to grab a bigger share of the Asian market, it decided to reduce its official selling price in the Asian market in an attempt to win a bigger share of this lucrative market.

Enhanced shale oil recovery in the United States left the markets oversupplied with oil. That could be a key contributor to the unprecedented fall in the global oil prices.

Some oil market analysts and experts are of the view that the new wave of oil price falls stems from slowed down economic growth in Europe and China, development of new technologies for shale reserves recovery in the US and Saudi Arabia’s refusal to back high prices for oil. There are also analysts who are convinced that the oil prices will keep falling for a long time.

Most oil analysts say that the companies that have led the boom in drilling across North Dakota and Texas are insulated from the declines for the time being, with the break-even levels for investments around $60 a barrel - which is more than $20 below current levels.

With the number of rigs working in the United States at or near record levels, some oil executives are beginning to express concern about investment decisions next year.

On the supply side, the United States shale drilling boom has been a critical factor. Domestic production has reached 8.7 million barrels a day, about a million barrels a day more than just a year ago and the highest level in nearly a quarter century. Imports from OPEC countries have been cut in half since 2008, forcing countries like Saudi Arabia and Nigeria to compete with one another in Asia, cutting their prices.

Kuwaiti Oil Minister Ali Al-Omair said that prices may stabilize at around $76-77 per barrel, as this is the "cost of oil production in the United States and Russia."

He noted that the oil market would stabilize in winter, when demand on oil grows.

 

Any Political Motivation?

 

Nick Butler, Professor and Chair of the Kings Policy Institute at Kings College London, believes that a 25% drop in less than three months is certainly exceptional and the assumption is that in a “politically driven market a political decision by someone, somewhere must have forced prices down.”

“The most popular conspiracy theory is that the US and the Saudis have combined to take money away from their major enemies – Russia and Iran,” he wrote in Financial Times.

“In both cases,” he wrote, a “shortage of revenue could help to bring Russia and Iran to the negotiating table to sort out a deal on Ukraine and Iran’s nuclear ambitions.”

Excerpts from Butler’s column:

“In a complicated world anything could be true. I don’t happen to believe the conspiracy theory but I accept that it is a possibility. To me the interesting thing is what happens next, and that is down to the Saudis. The risk for the whole industry, and for many countries dependent on oil revenues, is that Saudi Arabia’s games have led them to lose control of the market. Prices could go a good deal lower with wide and mostly negative consequences, starting with more regional instability and a cutback in investment which can only feed the next cycle.

The only action which would break this trend is a sharp and sustained cut in output by Saudi Arabia. Saudi has acted in this way in the past but never alone. Its cuts in output have always been part of an agreed strategy in which it has been joined, if only in a modest way, by its OPEC partners. But the world has changed and it is hard to think of any OPEC state, except perhaps Kuwait, which is in a position to accept any sustained cut in production and revenue.

The Saudis then are on their own. Can they do it? The judgment is very marginal. Restoring order will require a serious cut in output of perhaps 2 million barrels a day for a sustained period to rebalance a market which is in surplus even in the absence of significant supplies from Libya and Iran. In the short term such action would require a revised budget, reduced domestic welfare and defense spending, and a cut in some of the subsidies being made to allies in the region who are trying to maintain order after the Arab Spring.”

An analyst with the Institute for International Energy Studies (IIES), Mehran Amir-Moeini has said consensus in OPEC is very essential at the present circumstances.

He said various elements including lower demand, oversupply, selling forward contracts by speculators and rising oil production in the US and Libya are the main reasons behind the recent slide in oil prices.

“When the market is faced with falling demand and simultaneously rising supply, naturally some countries try to absorb customers by offering discounts”, he said adding even though Saudi Arabia’s move to cut official selling prices could be justified economically, the country’s move is unacceptable as an OPEC member.

According to the IIES advisor, being a member of OPEC means that they should act under their obligations.

He added that OPEC members are expected to ask Saudi Arabia to lower its oil production, otherwise oil prices may fall sharply.

 “In 1998 inadequate reaction by OPEC sent oil prices to as low as 6 to 8 dollars per barrel”, Amir-Moeini said.

 

Supply Overtakes Demand

 

Some analysts believe that oil supply started overtaking demand two years ago, and a relative fall in the prices was totally predictable.

Gholam-Hossein Hassantash, from the IIES, said political factors and geopolitical developments and their impacts on the crude oil supply had kept the prices high.

“Now, geopolitical problems are less; therefore the oil price is falling,” he said.

“With the global mobilization against the ISIL, anxieties for the ISIL attacks against oil-rich regions in Iraqi Kurdistan have been allayed. In the meantime, the unrest in Libya has subsided and oil production from this country has increased,” he added.

Hassantash, however, said that it is too premature to say the oil prices have fallen to a critical level. He said the OPEC prices fell to $61 in 2009 from $94.5.

Mohsen Qamsari, director for international affairs at National Iranian Oil Company (NIOC), said Iran’s oil price cut proportionate to [that of] Saudi Arabia does not mean that Iran seeks to have a deliberate competition with Saudi Arabia.

Since Saudi Arabia’s official oil price in all markets has dropped over the current month, it is natural for the Iranian crude price to decrease proportionally due to technical reasons and it has nothing to do with competition between the two states, Qamsari said.

He enumerated some of the technical reasons for the crude price fall, including the economic situation, supply and demand in the market and the price of oil products in the market.

Ed Morse, head of commodities research institute at Citi, said: “One thing is certain: even the current lower prices are rapidly creating winners and losers. Losers are producers, countries and governments.”

“If Brent falls to $80, OPEC countries would lose some $200bn of their recent $1tn in earnings, affecting not only their ability to earn enough to cover the post-Arab Spring expanded budgets, but also their capacity to service debt without triggering defaults. And for the US, if prices fall much further, capital expenditures to expand production would have to be cut, potentially slowing the US shale revolution,” he wrote.

“On the other hand, the world economy as a whole would enjoy the equivalent of a huge quantitative easing program, helping to spur stalling economic growth. The decline in prices would generate a $1.8bn daily windfall, about $660bn annualized. Tracking this into gasoline prices, in the US, where last year some $2,900 per household was spent on gasoline, the windfall would amount to a tax rebate of just under $600 per household. It would affect all consumers globally save for those in OPEC countries, who already pay little for fuel.”

Hossein Nejabat, member of Iranian parliament’s Energy Committee, laid the blame on Saudi Arabia, Europe’s failure to realize its forecasted economic growth rate and falling demand by European countries for the oil price slide.

“Saudi Arabia, as OPEC’s largest oil producer, heavily influences the market of this strategic product. By producing 11 mb/d of oil, this country can affect the oil market by raising its production or lowering the price of its oil exports,” he said.

“When Saudi Arabia cuts its oil price, other OPEC member states will have to reduce their prices not to lose their customers and it pushes the prices down,” he added.

Nejabat ruled out the possibility of fall in global demand having been behind the price slump.

He also said that behind-the-scenes decisions are likely to have been taken about the oil price in order to affect the economy of oil-producing countries like Iran, Russia and Venezuela.

Demand for OPEC oil in 2014 is estimated at 29.5 mb/d. Since OPEC’s last month supply was estimated at 30.47 mb/d, the organization has nearly 1mb/d in excess of supply.

If the OPEC member states do not take action, the downward trend of oil prices will stay the course.

OPEC ministers are to attend the 165^th Conference on November 27 to discuss the body’s production ceiling. Everyone has to wait and see how OPEC will react.

What’s Behind Oil Price Slump?

 

The current conditions prevailing over the world oil markets have become like a jigsaw puzzle. Even the officials in oil producing countries and oil experts are unable to clearly forecast the future of black gold prices.

The world oil markets have witnessed unexpectedly complicated and unusual developments in recent weeks. Despite escalation of political unrest in major producing countries, the crude oil price continues to fall while oil supply keeps rising.

In recent years, every time the political and security conditions ran into trouble in oil producing countries like Iraq, Nigeria, Libya and Syria, or when Iran and Russia – two major oil producers – were slapped with sanctions and restrictions we could expect daily growing oil prices. But today, the oil prices are not increasing and lack of coordination among OPEC producers in making a decision for curbing the price slide has resulted in some sort of competition between them to grab a bigger share in the market. To that effect, some of them have even cut their prices.

The world oil prices slumped to $90, the four-year low, while oil was traded at $114 in June. The current oil price fall is reminiscent of price slump in 1983 and 1986.

 

OPEC Extraordinary Meeting

 

OPEC members are divided on how to react to the crude price fluctuations. Venezuela called for an extraordinary meeting of the Organization of the Petroleum Exporting Countries, while Kuwait said any cut in the 12-member group’s production ceiling is unlikely.

In addition, some market players are wondering about the traditional stabilizing role that Saudi Arabia has played in the oil markets, suggesting even that Saudi Arabia might let oil prices drop as a way to fight against the U.S. shale revolution. “We believe the most plausible interpretation of Saudi motivations is that they think they can win any price war given shale’s full cycle production costs of considerably more than Saudi’s ~$4/bbl,” Citigroup said in a recent research note. So far there has been no indication from OPEC that it will reduce production to increase prices.

Some analysts wonder if the Saudis are trying to put the frackers in their place. But it’s more likely that the Saudi Arabia is focused, as it has been for the past decade or so, with bringing opposition within OPEC to heel.

Saudi Arabia’s production stands high and other OPEC member states are moving ahead with their oil production. That makes it difficult for OPEC to reach agreement on oil output cut.

A recent decision by the Saudi government to reduce its official selling price (OSP) is aimed at strengthening its control over the market. The Saudi move prompted some other OPEC members to follow suit.

Saudi Arabia has signaled to oil market activists that it is happy with the significant decline in the oil prices on the long term. The Saudi objective could be urging its rivals, particularly American shale oil producers, to cut their production.

In the oil market, Saudi Arabia is pursuing the policy of price war. This policy has further reduced the prices in light of crude oil oversupply and falling demand in the world markets.

Saudi Arabia further raised eyebrows when OPEC monthly review in October showed that this country had increased its September production to 9.904 mb/d, up 100,000 b/d from the month before.

Over the past three years, Saudi Arabia had constantly raised its production against the backdrop of Arab Spring and the ensuing instability in the Middle East oil production. This time, Riyadh was expected to cut its production when the world oil supply increased in order to help price stability, but it did not do so and even moved to raise its production in September.

But Saudi Arabia did not stop there. In order to grab a bigger share of the Asian market, it decided to reduce its official selling price in the Asian market in an attempt to win a bigger share of this lucrative market.

Enhanced shale oil recovery in the United States left the markets oversupplied with oil. That could be a key contributor to the unprecedented fall in the global oil prices.

Some oil market analysts and experts are of the view that the new wave of oil price falls stems from slowed down economic growth in Europe and China, development of new technologies for shale reserves recovery in the US and Saudi Arabia’s refusal to back high prices for oil. There are also analysts who are convinced that the oil prices will keep falling for a long time.

Most oil analysts say that the companies that have led the boom in drilling across North Dakota and Texas are insulated from the declines for the time being, with the break-even levels for investments around $60 a barrel - which is more than $20 below current levels.

With the number of rigs working in the United States at or near record levels, some oil executives are beginning to express concern about investment decisions next year.

On the supply side, the United States shale drilling boom has been a critical factor. Domestic production has reached 8.7 million barrels a day, about a million barrels a day more than just a year ago and the highest level in nearly a quarter century. Imports from OPEC countries have been cut in half since 2008, forcing countries like Saudi Arabia and Nigeria to compete with one another in Asia, cutting their prices.

Kuwaiti Oil Minister Ali Al-Omair said that prices may stabilize at around $76-77 per barrel, as this is the "cost of oil production in the United States and Russia."

He noted that the oil market would stabilize in winter, when demand on oil grows.

 

Any Political Motivation?

 

Nick Butler, Professor and Chair of the Kings Policy Institute at Kings College London, believes that a 25% drop in less than three months is certainly exceptional and the assumption is that in a “politically driven market a political decision by someone, somewhere must have forced prices down.”

“The most popular conspiracy theory is that the US and the Saudis have combined to take money away from their major enemies – Russia and Iran,” he wrote in Financial Times.

“In both cases,” he wrote, a “shortage of revenue could help to bring Russia and Iran to the negotiating table to sort out a deal on Ukraine and Iran’s nuclear ambitions.”

Excerpts from Butler’s column:

“In a complicated world anything could be true. I don’t happen to believe the conspiracy theory but I accept that it is a possibility. To me the interesting thing is what happens next, and that is down to the Saudis. The risk for the whole industry, and for many countries dependent on oil revenues, is that Saudi Arabia’s games have led them to lose control of the market. Prices could go a good deal lower with wide and mostly negative consequences, starting with more regional instability and a cutback in investment which can only feed the next cycle.

The only action which would break this trend is a sharp and sustained cut in output by Saudi Arabia. Saudi has acted in this way in the past but never alone. Its cuts in output have always been part of an agreed strategy in which it has been joined, if only in a modest way, by its OPEC partners. But the world has changed and it is hard to think of any OPEC state, except perhaps Kuwait, which is in a position to accept any sustained cut in production and revenue.

The Saudis then are on their own. Can they do it? The judgment is very marginal. Restoring order will require a serious cut in output of perhaps 2 million barrels a day for a sustained period to rebalance a market which is in surplus even in the absence of significant supplies from Libya and Iran. In the short term such action would require a revised budget, reduced domestic welfare and defense spending, and a cut in some of the subsidies being made to allies in the region who are trying to maintain order after the Arab Spring.”

An analyst with the Institute for International Energy Studies (IIES), Mehran Amir-Moeini has said consensus in OPEC is very essential at the present circumstances.

He said various elements including lower demand, oversupply, selling forward contracts by speculators and rising oil production in the US and Libya are the main reasons behind the recent slide in oil prices.

“When the market is faced with falling demand and simultaneously rising supply, naturally some countries try to absorb customers by offering discounts”, he said adding even though Saudi Arabia’s move to cut official selling prices could be justified economically, the country’s move is unacceptable as an OPEC member.

According to the IIES advisor, being a member of OPEC means that they should act under their obligations.

He added that OPEC members are expected to ask Saudi Arabia to lower its oil production, otherwise oil prices may fall sharply.

 “In 1998 inadequate reaction by OPEC sent oil prices to as low as 6 to 8 dollars per barrel”, Amir-Moeini said.

 

Supply Overtakes Demand

 

Some analysts believe that oil supply started overtaking demand two years ago, and a relative fall in the prices was totally predictable.

Gholam-Hossein Hassantash, from the IIES, said political factors and geopolitical developments and their impacts on the crude oil supply had kept the prices high.

“Now, geopolitical problems are less; therefore the oil price is falling,” he said.

“With the global mobilization against the ISIL, anxieties for the ISIL attacks against oil-rich regions in Iraqi Kurdistan have been allayed. In the meantime, the unrest in Libya has subsided and oil production from this country has increased,” he added.

Hassantash, however, said that it is too premature to say the oil prices have fallen to a critical level. He said the OPEC prices fell to $61 in 2009 from $94.5.

Mohsen Qamsari, director for international affairs at National Iranian Oil Company (NIOC), said Iran’s oil price cut proportionate to [that of] Saudi Arabia does not mean that Iran seeks to have a deliberate competition with Saudi Arabia.

Since Saudi Arabia’s official oil price in all markets has dropped over the current month, it is natural for the Iranian crude price to decrease proportionally due to technical reasons and it has nothing to do with competition between the two states, Qamsari said.

He enumerated some of the technical reasons for the crude price fall, including the economic situation, supply and demand in the market and the price of oil products in the market.

Ed Morse, head of commodities research institute at Citi, said: “One thing is certain: even the current lower prices are rapidly creating winners and losers. Losers are producers, countries and governments.”

“If Brent falls to $80, OPEC countries would lose some $200bn of their recent $1tn in earnings, affecting not only their ability to earn enough to cover the post-Arab Spring expanded budgets, but also their capacity to service debt without triggering defaults. And for the US, if prices fall much further, capital expenditures to expand production would have to be cut, potentially slowing the US shale revolution,” he wrote.

“On the other hand, the world economy as a whole would enjoy the equivalent of a huge quantitative easing program, helping to spur stalling economic growth. The decline in prices would generate a $1.8bn daily windfall, about $660bn annualized. Tracking this into gasoline prices, in the US, where last year some $2,900 per household was spent on gasoline, the windfall would amount to a tax rebate of just under $600 per household. It would affect all consumers globally save for those in OPEC countries, who already pay little for fuel.”

Hossein Nejabat, member of Iranian parliament’s Energy Committee, laid the blame on Saudi Arabia, Europe’s failure to realize its forecasted economic growth rate and falling demand by European countries for the oil price slide.

“Saudi Arabia, as OPEC’s largest oil producer, heavily influences the market of this strategic product. By producing 11 mb/d of oil, this country can affect the oil market by raising its production or lowering the price of its oil exports,” he said.

“When Saudi Arabia cuts its oil price, other OPEC member states will have to reduce their prices not to lose their customers and it pushes the prices down,” he added.

Nejabat ruled out the possibility of fall in global demand having been behind the price slump.

He also said that behind-the-scenes decisions are likely to have been taken about the oil price in order to affect the economy of oil-producing countries like Iran, Russia and Venezuela.

Demand for OPEC oil in 2014 is estimated at 29.5 mb/d. Since OPEC’s last month supply was estimated at 30.47 mb/d, the organization has nearly 1mb/d in excess of supply.

If the OPEC member states do not take action, the downward trend of oil prices will stay the course.

OPEC ministers are to attend the 165^th Conference on November 27 to discuss the body’s production ceiling. Everyone has to wait and see how OPEC will react.

No Return to High Prices Expected for Oil

 

Oil prices have been falling for three consecutive months. OPEC crude oil basket price, which hit the record $110.48 in June, fell to $86.43 in October. It means that OPEC basket price has been down 21.6%. Meantime, Brent oil was down $27.84 (or 23.83%) from June’s $115.32.

Generally speaking, faster growth in oil supply than demand, which started early this calendar year and has been continuing, weakened the market and cut the oil prices. Demand for oil grew less than predictions for early next year and the reason was slow economic growth rate in developed countries and reduced economic growth in emerging countries – China, India and Brazil. These countries mainly contribute to higher demand for oil because per capita energy consumption in these countries is low, while their energy intensity is higher than in developed countries.

 

Oil Oversupply

 

The International Monetary Fund (IMF) revised down its estimates of economic growth in major economies. The latest review by OPEC and IMF also highlight slow economic growth in the world and lower demand for oil.

The Organization of the Petroleum Exporting Countries has made forecasts for crude oil demand based on estimates for global economic growth rate. The falling demand for crude oil is normal ,due to the slow economic growth rate in the world and since non-OPEC producers, particularly, the US, have increased their crude oil supply, oil stockpiles have swollen in the world.

Before anything else, the main factor behind the downward trend of the crude oil prices is this year’s oversupply, as well as forecasts about surplus supply in the market for next year. A review of oil market in the remaining months of 2014 and the year 2015 show that if OPEC maintains its current production ceiling, 30.7 mb/d, for the rest of the year, the oil market will be facing a 680,000 b/d of excess supply.

In that case, OPEC’s production ceiling will reach nearly 31 mb/d next year and the level of oversupply will be higher in 2015. The market will face a 1.8 mb/d of extra oil supply. This oversupply will enter oil storage facilities and the oil prices will be pressured.

 

Oil Storage Hubs Awash

 

In fact, the volume of oil stocks has reached the average of the past five years. The increase in the volume of stocks up to the average of the past five years was significant in September 2014. Moreover, the number of days for covering demands reached 57.9 days by the end of August, compared with 57.7 days in 2013. It shows that the oil stocks have increased undesirably and that has negatively affected the oil prices.

Oil stocks have grown in number, particularly in the US. The total number of stocks stands more than the average of the past five years, while for all developed countries; it is below the five-year average. Such conditions could increase the differential between Brent and West Texas Intermediate (WTI), but the inauguration of a major pipeline stretching from Canada to the Gulf of Mexico, activating the Cushing oil storage hub in Oklahoma, and the possibility of more crude oil exports from the US have decreased the differential between Brent and OPEC basket price ,and WTI. The volume of storage at Cushing hub has reached 20 million barrels in recent days, which is half the previous year’s 40 mb.

It has to be noted that the relation between crude oil prices and stock market indices like Standard & Poor 500 has declined and that shows the influence of fundamental factors on the oil prices.

The impacts of two other factors on the oil prices should not be ignored. One is geopolitical factors and one other is the dollar’s appreciation to other currencies. Politically speaking, it seems that the formation of a global coalition against extremist groups in the Middle East has ended the threat of dominance on the major oil fields in Iraq and the region by these groups and any disruption in oil supply will be short-lived. On the other hand, oil production from Iraq’s Kurdistan is forecasted to reach 1 mb/d by the end of the year, while the production in this region currently stands at only 320,000 b/d. Production in this region is expected to soar to 620,000 b/d, which would be more than China’s 2015 demand, estimated by the International Energy Agency (IEA) at 320,000 b/d. Oil production is also increasing in Libya and it has already reached 900,000 b/d.

 

Dollar and Oil

 

Regarding the impact of strong dollar on the oil prices, one point should be taken into account, which is, the coincidence of the relative decline in the oil prices and other commodities or in other words, the weakness of relationship between trading oil barrel against other commodities with the strength of the dollar exchange rate. The decline in the ratio of the energy carriers’ price index with the general index of other commodities and raw materials indicates the weakness of the relationship between oil trading against other commodities. Had the dollar exchange rate not changed the downward trend of oil prices ,would have further pushed to bold relief the relative decline the power of purchase of OPEC countries. The main point is that the current decline in the prices is not a minor issue and it is reducing the purchase power of OPEC countries. Therefore, under the present circumstances, the falling oil prices stem from both lower oil pricing against other commodities and the strength of the dollar exchange rate against other major currencies.

Regarding the impact of fluctuations in the dollar exchange rate, it has to be noted that numerous studies have confirmed the complicated relationship between the dollar conversion rate and the oil prices.

The dollar’s stronger exchange rate against other major currencies may cut the demand for oil because the oil will be sold at higher prices. Meanwhile, the dollar strength will boost profits for non-US exporters from trading dollars with other currencies. That could also affect the prices in that country. A higher exchange rate for the dollar will also boost the efficiency of dollar-indexed financial assets, which could make investment in oil less attractive, as oil prices keep falling. Moreover, stronger dollar against other currencies may make investment by dollar owners in oil less attractive.

Some economic feasibility studies have shown that 1% increase in the dollar exchange rate cuts the oil prices by 0.7%. In general, one should say that the strength of the dollar is only one of the reasons behind the oil price fall.

 

Saudi Arabia, US Influential

 

Saudi Arabia is the largest oil exporter while the US is the largest consumer and importer of oil. Therefore, their behavior is of high significance in oil trading. The Saudi share of US crude oil imports has declined this year and it has dropped from 20% to 5%. The US has managed to compensate for this decline to a large extent by recovering from its shale reserves. The US Department of Energy has forecasted crude oil production in the US to increase from 7.45/d mb in 2013 to 8.54 mb/d in 2014 and to 9.5 mb/d in 2015, which would be the highest since 1970. It was only in 1970 that the US brought its production to 9.6 mb/d.

Given the falling oil prices, speculators have been selling their futures and therefore added fuel to the downward trend. At New York Mercantile Exchange (NYMEX), the number of contracts has fallen from 360,000 to 192,000. At London Stock Exchange, it has dropped from 240,000 to 46,000.

The important point is that uncertainty under the present economic circumstances has made investors more prudent; therefore the prosperity of other sectors has been slowed down.

The IEA has predicted that unconventional oil production will be profitable even at $80 a barrel. Therefore, shale oil production at $80 will continue. Therefore, the oil prices should fall below $80 before we can witness reduction in the crude oil production. Therefore, the prices can be set at $80 in the short-term.

In the meantime, given the prices outlook in futures market, one can have an assessment of the expectations which show that the crude oil prices will not return to the June 2014 price levels in the coming months.

For 2015, the oil could be estimated to be traded at a range between $80 and $90. The differential between Iran’s light and heavy crude oil and Brent oil, which stands at $2.68 a barrel this year, will continue next year. This differential should be taken into account in estimations about Iran’s crude oil.

   

No Return to High Prices Expected for Oil

 

Oil prices have been falling for three consecutive months. OPEC crude oil basket price, which hit the record $110.48 in June, fell to $86.43 in October. It means that OPEC basket price has been down 21.6%. Meantime, Brent oil was down $27.84 (or 23.83%) from June’s $115.32.

Generally speaking, faster growth in oil supply than demand, which started early this calendar year and has been continuing, weakened the market and cut the oil prices. Demand for oil grew less than predictions for early next year and the reason was slow economic growth rate in developed countries and reduced economic growth in emerging countries – China, India and Brazil. These countries mainly contribute to higher demand for oil because per capita energy consumption in these countries is low, while their energy intensity is higher than in developed countries.

 

Oil Oversupply

 

The International Monetary Fund (IMF) revised down its estimates of economic growth in major economies. The latest review by OPEC and IMF also highlight slow economic growth in the world and lower demand for oil.

The Organization of the Petroleum Exporting Countries has made forecasts for crude oil demand based on estimates for global economic growth rate. The falling demand for crude oil is normal ,due to the slow economic growth rate in the world and since non-OPEC producers, particularly, the US, have increased their crude oil supply, oil stockpiles have swollen in the world.

Before anything else, the main factor behind the downward trend of the crude oil prices is this year’s oversupply, as well as forecasts about surplus supply in the market for next year. A review of oil market in the remaining months of 2014 and the year 2015 show that if OPEC maintains its current production ceiling, 30.7 mb/d, for the rest of the year, the oil market will be facing a 680,000 b/d of excess supply.

In that case, OPEC’s production ceiling will reach nearly 31 mb/d next year and the level of oversupply will be higher in 2015. The market will face a 1.8 mb/d of extra oil supply. This oversupply will enter oil storage facilities and the oil prices will be pressured.

 

Oil Storage Hubs Awash

 

In fact, the volume of oil stocks has reached the average of the past five years. The increase in the volume of stocks up to the average of the past five years was significant in September 2014. Moreover, the number of days for covering demands reached 57.9 days by the end of August, compared with 57.7 days in 2013. It shows that the oil stocks have increased undesirably and that has negatively affected the oil prices.

Oil stocks have grown in number, particularly in the US. The total number of stocks stands more than the average of the past five years, while for all developed countries; it is below the five-year average. Such conditions could increase the differential between Brent and West Texas Intermediate (WTI), but the inauguration of a major pipeline stretching from Canada to the Gulf of Mexico, activating the Cushing oil storage hub in Oklahoma, and the possibility of more crude oil exports from the US have decreased the differential between Brent and OPEC basket price ,and WTI. The volume of storage at Cushing hub has reached 20 million barrels in recent days, which is half the previous year’s 40 mb.

It has to be noted that the relation between crude oil prices and stock market indices like Standard & Poor 500 has declined and that shows the influence of fundamental factors on the oil prices.

The impacts of two other factors on the oil prices should not be ignored. One is geopolitical factors and one other is the dollar’s appreciation to other currencies. Politically speaking, it seems that the formation of a global coalition against extremist groups in the Middle East has ended the threat of dominance on the major oil fields in Iraq and the region by these groups and any disruption in oil supply will be short-lived. On the other hand, oil production from Iraq’s Kurdistan is forecasted to reach 1 mb/d by the end of the year, while the production in this region currently stands at only 320,000 b/d. Production in this region is expected to soar to 620,000 b/d, which would be more than China’s 2015 demand, estimated by the International Energy Agency (IEA) at 320,000 b/d. Oil production is also increasing in Libya and it has already reached 900,000 b/d.

 

Dollar and Oil

 

Regarding the impact of strong dollar on the oil prices, one point should be taken into account, which is, the coincidence of the relative decline in the oil prices and other commodities or in other words, the weakness of relationship between trading oil barrel against other commodities with the strength of the dollar exchange rate. The decline in the ratio of the energy carriers’ price index with the general index of other commodities and raw materials indicates the weakness of the relationship between oil trading against other commodities. Had the dollar exchange rate not changed the downward trend of oil prices ,would have further pushed to bold relief the relative decline the power of purchase of OPEC countries. The main point is that the current decline in the prices is not a minor issue and it is reducing the purchase power of OPEC countries. Therefore, under the present circumstances, the falling oil prices stem from both lower oil pricing against other commodities and the strength of the dollar exchange rate against other major currencies.

Regarding the impact of fluctuations in the dollar exchange rate, it has to be noted that numerous studies have confirmed the complicated relationship between the dollar conversion rate and the oil prices.

The dollar’s stronger exchange rate against other major currencies may cut the demand for oil because the oil will be sold at higher prices. Meanwhile, the dollar strength will boost profits for non-US exporters from trading dollars with other currencies. That could also affect the prices in that country. A higher exchange rate for the dollar will also boost the efficiency of dollar-indexed financial assets, which could make investment in oil less attractive, as oil prices keep falling. Moreover, stronger dollar against other currencies may make investment by dollar owners in oil less attractive.

Some economic feasibility studies have shown that 1% increase in the dollar exchange rate cuts the oil prices by 0.7%. In general, one should say that the strength of the dollar is only one of the reasons behind the oil price fall.

 

Saudi Arabia, US Influential

 

Saudi Arabia is the largest oil exporter while the US is the largest consumer and importer of oil. Therefore, their behavior is of high significance in oil trading. The Saudi share of US crude oil imports has declined this year and it has dropped from 20% to 5%. The US has managed to compensate for this decline to a large extent by recovering from its shale reserves. The US Department of Energy has forecasted crude oil production in the US to increase from 7.45/d mb in 2013 to 8.54 mb/d in 2014 and to 9.5 mb/d in 2015, which would be the highest since 1970. It was only in 1970 that the US brought its production to 9.6 mb/d.

Given the falling oil prices, speculators have been selling their futures and therefore added fuel to the downward trend. At New York Mercantile Exchange (NYMEX), the number of contracts has fallen from 360,000 to 192,000. At London Stock Exchange, it has dropped from 240,000 to 46,000.

The important point is that uncertainty under the present economic circumstances has made investors more prudent; therefore the prosperity of other sectors has been slowed down.

The IEA has predicted that unconventional oil production will be profitable even at $80 a barrel. Therefore, shale oil production at $80 will continue. Therefore, the oil prices should fall below $80 before we can witness reduction in the crude oil production. Therefore, the prices can be set at $80 in the short-term.

In the meantime, given the prices outlook in futures market, one can have an assessment of the expectations which show that the crude oil prices will not return to the June 2014 price levels in the coming months.

For 2015, the oil could be estimated to be traded at a range between $80 and $90. The differential between Iran’s light and heavy crude oil and Brent oil, which stands at $2.68 a barrel this year, will continue next year. This differential should be taken into account in estimations about Iran’s crude oil.

   

Oil Price Slide and Saudi Oil Policy

 

By Heshmatollah Razavi

 

At a time oil oversupply and falling demand for black gold has resulted in a 20-percent slump in the prices, Saudi Arabia was expected to lower its production in a bid to help stabilize the prices in the oil market.

Many analysts maintain that such expectation from Saudi Arabia was the most logical way to strike a balance to oil supply and demand because Riyadh had constantly raised its oil output during years shares of Iran, Libya and Iraq were frozen out of the market. In other words, Saudi Arabia has grabbed portions of the quotas of other oil-producing countries.

As the oil prices keep falling in the world markets, Saudi Arabia announced in early October that it has cut the official selling price (OSP) for its oil. Due to this decision, Saudi oil trade in Asian markets hit its lowest since 2008.

The Saudi price cut could imply that Riyadh intends to seize the share of other Asian oil producers through offering discount in its oil sales.

With Saudi oil policy further driving down the prices, the question is to know whether this oil-rich country is behaving under the influence of oil market mechanisms or it has political motivations for reducing its oil prices.

Saudi Arabia further raised eyebrows when OPEC monthly review in October showed that this country had increased its September production to 9.904 mb/d, up 100,000 b/d from the month before.

In order to understand what has caused Saudi Arabia to behave in this way, four scenarios could be envisaged:

In the first scenario, one can imagine that Saudi Arabia is acting based on the market logic. Oil supply is on the sharp rise while demand in Asia and Europe has not grown accordingly. At the same time, the US has boosted its domestic oil and gas production; therefore sharply slashed its oil imports from the Middle East. Economic logic has required Saudi Arabia to decide to offer discount to its oil buyers in a bid to preserve its share of Asian market. Saudi Arabia is not the only country to do so as other OPEC member states like Iraq, Kuwait and Iran have followed suit in a show of rivalry with Saudi Arabia. Under this scenario, Riyadh is acting based on the market logic and its microeconomic requirements.

The second scenario is that Saudi Arabia, embroiled in regional rivalries, is taking advantage of the market and prices as a tool in favor of its foreign policy. Following a September meeting between Iranian and Saudi foreign ministers in New York on the sidelines of the annual session of the UN General Assembly, a new chapter was expected to open in Tehran-Riyadh relations so that they would cooperate for stabilizing the oil market.

After that meeting, Iranian Foreign Minister Mohammad-Javad Zarif announced that he would travel to Riyadh to discuss further Iran-Saudi cooperation.

Saudi Foreign Minister Saud al-Faisal also said that cooperation between Iran and Saudi Arabia – both influential countries in the Middle East – would serve peace and security in the region and the world. The Saudi minister even said the mistakes committed in the past must be avoided so that the crises in the region would end.

But now as Iran is taking steps towards the resolution of its nuclear standoff with the West so that it would have a bigger share of the oil market in the future, Saudi Arabia is trying to get economic pressure imposed on Iran.

The third scenario is that Saudi Arabia, closely allied to the West, has initiated a war of prices in order to slash the prices so that Russia would see its oil and gas revenues slump. The discount on prices in the Asian price is seen in compliance with the West’s economic sanctions against Russia. In brief, the war of prices by Saudi Arabia is a tool for the West to win concessions from Russia.

The fourth scenario implies that Saudi Arabia has resorted to the war of prices in an attempt against the West and the US.

The daily growing oil and gas production in the US is making this country a potential exporter; therefore the Middle East traditional oil market, supplied by Saudi Arabia and other countries, in Asia is facing an imminent threat.

In this scenario, high oil prices pose both short-term and long-term threats to Saudi Arabia. In the short term, the US will become an oil exporter and deprive Saudi Arabia of its Asian market. In the long term, the US falling dependence on the Middle East oil may undermine the traditional equation of oil-for-security in Saudi-US relations and in the end, Riyadh’s regional position will be weakened.

The war of prices may make the US oil production uneconomical and prevent this country from becoming a rival to Saudi Arabia in the oil markets.

These four scenarios explain only a brief account of the realities on the ground. But a historic experience about Saudi Arabia’s resort to the war of prices can help one understand its behavior in the oil market today. In 1986, Saudi Arabia adopted a similar policy in the face of similar conditions. At that time, OPEC was defending high oil prices; therefore its share was falling in the world markets. Saudi Arabia adopted the policy of war prices in the oil market.

Due to OPEC’s policy of high prices, OPEC total production had dropped to 15 mb/d in 1985 and that meant that non-OPEC producers were gaining more and more shares of the market. Non-OPEC countries did not cooperate with OPEC in its efforts to stabilize the prices and they even cut their prices in order to win bigger footholds in the market.

In compliance with OPEC’s pro-price policy, Saudi Arabia, with a capacity of 10 mb/d, produced only 3.5 mb/d. Saudi rulers decided to raise their production and draw a line at OPEC’s policy.

Having that historic experience in mind, it can be concluded that Riyadh’s behavior is a combination of several scenarios. Saudi Arabia is pursuing its foreign policy interests, while competing with OPEC and non-OPEC producers in getting more shares of the market.

Oil Price Slide and Saudi Oil Policy

 

By Heshmatollah Razavi

 

At a time oil oversupply and falling demand for black gold has resulted in a 20-percent slump in the prices, Saudi Arabia was expected to lower its production in a bid to help stabilize the prices in the oil market.

Many analysts maintain that such expectation from Saudi Arabia was the most logical way to strike a balance to oil supply and demand because Riyadh had constantly raised its oil output during years shares of Iran, Libya and Iraq were frozen out of the market. In other words, Saudi Arabia has grabbed portions of the quotas of other oil-producing countries.

As the oil prices keep falling in the world markets, Saudi Arabia announced in early October that it has cut the official selling price (OSP) for its oil. Due to this decision, Saudi oil trade in Asian markets hit its lowest since 2008.

The Saudi price cut could imply that Riyadh intends to seize the share of other Asian oil producers through offering discount in its oil sales.

With Saudi oil policy further driving down the prices, the question is to know whether this oil-rich country is behaving under the influence of oil market mechanisms or it has political motivations for reducing its oil prices.

Saudi Arabia further raised eyebrows when OPEC monthly review in October showed that this country had increased its September production to 9.904 mb/d, up 100,000 b/d from the month before.

In order to understand what has caused Saudi Arabia to behave in this way, four scenarios could be envisaged:

In the first scenario, one can imagine that Saudi Arabia is acting based on the market logic. Oil supply is on the sharp rise while demand in Asia and Europe has not grown accordingly. At the same time, the US has boosted its domestic oil and gas production; therefore sharply slashed its oil imports from the Middle East. Economic logic has required Saudi Arabia to decide to offer discount to its oil buyers in a bid to preserve its share of Asian market. Saudi Arabia is not the only country to do so as other OPEC member states like Iraq, Kuwait and Iran have followed suit in a show of rivalry with Saudi Arabia. Under this scenario, Riyadh is acting based on the market logic and its microeconomic requirements.

The second scenario is that Saudi Arabia, embroiled in regional rivalries, is taking advantage of the market and prices as a tool in favor of its foreign policy. Following a September meeting between Iranian and Saudi foreign ministers in New York on the sidelines of the annual session of the UN General Assembly, a new chapter was expected to open in Tehran-Riyadh relations so that they would cooperate for stabilizing the oil market.

After that meeting, Iranian Foreign Minister Mohammad-Javad Zarif announced that he would travel to Riyadh to discuss further Iran-Saudi cooperation.

Saudi Foreign Minister Saud al-Faisal also said that cooperation between Iran and Saudi Arabia – both influential countries in the Middle East – would serve peace and security in the region and the world. The Saudi minister even said the mistakes committed in the past must be avoided so that the crises in the region would end.

But now as Iran is taking steps towards the resolution of its nuclear standoff with the West so that it would have a bigger share of the oil market in the future, Saudi Arabia is trying to get economic pressure imposed on Iran.

The third scenario is that Saudi Arabia, closely allied to the West, has initiated a war of prices in order to slash the prices so that Russia would see its oil and gas revenues slump. The discount on prices in the Asian price is seen in compliance with the West’s economic sanctions against Russia. In brief, the war of prices by Saudi Arabia is a tool for the West to win concessions from Russia.

The fourth scenario implies that Saudi Arabia has resorted to the war of prices in an attempt against the West and the US.

The daily growing oil and gas production in the US is making this country a potential exporter; therefore the Middle East traditional oil market, supplied by Saudi Arabia and other countries, in Asia is facing an imminent threat.

In this scenario, high oil prices pose both short-term and long-term threats to Saudi Arabia. In the short term, the US will become an oil exporter and deprive Saudi Arabia of its Asian market. In the long term, the US falling dependence on the Middle East oil may undermine the traditional equation of oil-for-security in Saudi-US relations and in the end, Riyadh’s regional position will be weakened.

The war of prices may make the US oil production uneconomical and prevent this country from becoming a rival to Saudi Arabia in the oil markets.

These four scenarios explain only a brief account of the realities on the ground. But a historic experience about Saudi Arabia’s resort to the war of prices can help one understand its behavior in the oil market today. In 1986, Saudi Arabia adopted a similar policy in the face of similar conditions. At that time, OPEC was defending high oil prices; therefore its share was falling in the world markets. Saudi Arabia adopted the policy of war prices in the oil market.

Due to OPEC’s policy of high prices, OPEC total production had dropped to 15 mb/d in 1985 and that meant that non-OPEC producers were gaining more and more shares of the market. Non-OPEC countries did not cooperate with OPEC in its efforts to stabilize the prices and they even cut their prices in order to win bigger footholds in the market.

In compliance with OPEC’s pro-price policy, Saudi Arabia, with a capacity of 10 mb/d, produced only 3.5 mb/d. Saudi rulers decided to raise their production and draw a line at OPEC’s policy.

Having that historic experience in mind, it can be concluded that Riyadh’s behavior is a combination of several scenarios. Saudi Arabia is pursuing its foreign policy interests, while competing with OPEC and non-OPEC producers in getting more shares of the market.

 

Oil Price Stability

 

By Mohammad Mazraati,

Director of international cooperation at National Development Fund of Iran

 

Some analysts attribute the oil price slide to Saudi Arabia’s efforts, and raise the issue of price war, but the main reason behind the price slump stems from falling demand due to economic recession and low economic growth rate in the world. Due to these conditions, oil surplus in the market has reduced the prices.

The oil price fall to the $80-$90 band has numerous reasons and adversely affects the activities of oil producing countries and companies and particularly shale oil producers, because low oil prices would make shale oil production economically unjustified.

Moreover, if the prices stand low for a long time, investment in the oil sector will stop, leading to shortage in supply in the long term, and then the prices will be driven up to their previous level.

OPEC once sought to stabilize the prices at the $80-$90 band and even Saudi Arabia wanted them to stand below $80. But the prices jumped to $140.

The analysts who blame the falling oil prices on Saudi policies should answer how come Riyadh could not hold the prices unchanged if this country is so influential on the prices.

In general, one can say that dynamics of the oil market are based on supply and demand. However, Saudi Arabia may imagine that low prices will not threaten crude oil competitors including shale oil producers. But this attitude is not strategic.

Under these circumstances, the stability of prices in a specific band is the most important issue for Iran. Once the sanctions have been lifted, Iran would be more active in the market and at that time the important factor for Iran will be the stability of prices in the world markets.

At present, 29% of Iran’s surplus oil revenues are saved in the National Development Fund of Iran (NDFI). These revenues include income from oil, gas and gas condensate sales and this price fall will not harm Iran’s financial capacity because projects of different economic sectors, particularly oil, gas and petrochemical sectors, will be financed regularly.

 

Price Slide, Short-Lived

 

By Saeed Qavampour

Director for Strategic Planning of Iran’s Petroleum Ministry

 

The recent developments which seem to be led by invisible hands in the world oil markets are complicated and unusual.

Apparently, three factors are effective in the oil market; Russia-Ukraine disputes and the ensuing position-taking by the US and West Europe against Russia, Saudi Arabia’s politically-motivated action in coordination with the US and US enhanced recovery from shale oil reserves.

Under such circumstances, analysis of the future of crude oil prices requires gathering fresh data from this highly competitive market.

The prices are likely to fall below $80 because in that case shale oil extraction in the US would no longer be economically justified. Politically speaking, the US and Saudi Arabia seem to be seeking to pressure Russia and that is why the downward trend of the oil pricing seems to be short-lived.

In the face of these fluctuations, Iran’s Petroleum Ministry is pushing ahead with its energy diplomacy and is in consultation with other producers to prevent further slide in the prices through dealing with media hypes as we mainly believe that the price falls are due to media hype so that the buyers would keep waiting for lower and lower prices. But such a thing is impossible because even the Americans, who produce shale oil, will suffer losses. The shale oil producers could stand price fall to $50, but such a resistance will be ephemeral because the US economy could not remain indifferent to shale oil losses and this indicates that resistance will last only several weeks.

The oil price slump is not forever and the prices will rebound in the long-term.  

 

Iran Offshore; A to Z

 

Currently, all petroleum industry activities in the Persian Gulf – ranging from exploration to drilling, extraction and transmission – are fully handled by Iranian engineers. Until a decade ago, all these activities were handled exclusively by foreign companies in Iran.

Once, the lack of technical savvy for designing pipelines, building offshore jackets and platforms forced Iran’s offshore industries companies to resort to foreign engineers. In the meantime, Iranian companies had no option but to let foreign technicians take care of all activities. That imposed heavy costs on Iran only because of lack of technical knowhow.

Before the Western governments imposed sanctions on Iran’s petroleum industry, Iranian petroleum engineers never imagined to be able to operate offshore projects like construction of offshore structures including process and production platforms weighing more than 2,000 tons, living quarters platforms, jackets and bridges, subsea pipelines in the Persian Gulf at the depth of 90 meters, coating of pipelines before laying them in the sea, loading and carrying super-heavy structures, lifting and installing platforms weighing up to 4,500 tons.

In the early 1990s, regardless of some sanctions, the Iranian government put on tender a large number of its oil fields, mainly offshore, for development. A condition set by the Iranian governments for foreign companies bidding for the projects was the establishment of joint companies with Iranian firms. The objective behind this condition was to transfer in technology as well as to manage the projects in the country. The result of this decision was the establishment of major contracting offshore companies like Petropars and Iranian Offshore Engineering and Construction Company (IOEC). These companies are currently meeting Iran’s petroleum industry needs in more than 80 percent of projects without assistance of foreign companies.

Iranian oil service workers are currently handling all activities related to constructing, loading out, transferring and installing metal structures, jackets, bridges, flares and other offshore structures in the Persian Gulf. Offshore pipe-laying, pre-start up and start-up of offshore platforms, operating projects related to power supply in the platforms and even inspecting subsea oil and gas pipeline joints are done with the help of locally-manufactured equipment and domestic knowhow. In recent years, given the considerable volume of operations in Iranian hydrocarbon fields including supergiant South Pars gas field, and the hi-tech packages required in the offshore platforms for oil and gas projects; leading Iranian companies have tried to benefit from the equipment manufactured domestically on condition that no serious delay would happen in operating national projects.

Iranian companies are today capable of manufacturing sophisticated packages like single-point mooring (SPM), building high-pressure processing tanks for the platform of Phase 12 of South Pars, designing and building wellhead control panel for Phase 12, building pig runner platforms in phases 19, 20 and 21, building chemical injection packages, methanol package, nitrogen package, piggy back saddles, pipelines, fenders and shock absorbers for jackets.

 

Heavy Platforms

 

The knowledge for installing heavy offshore platforms has been mastered by domestic companies in recent years. The monopoly of foreign companies on offshore platforms was broken after Iranian companies managed to build 4,000-5,000-ton crane-mounted vessels. Currently, more than 80 percent of staff working on Iranian vessels are Iranians. By indigenizing offshore platforms and installing vessels and equipment made based on the state-of-the-art technology, the duration for the installation of offshore structures in oil and gas projects has been cut by half over the past ten years. That has saved Iran enormous costs.

 

Pre-Startup and Startup

 

Management of pre-startup and startup operations, as the last link in the chain of building and installing offshore structures, in the development of phases 2, 3&4, 5&6 and 7&8 of South Pars used to be handled respectively by France’s Total, South Korea’s Hyundai, Italy’s Eni and Norway’s Statoil. With the operation of offshore projects in phases 9&10 of South Pars by engineers at Iranian Offshore Engineering and Construction Company (IOEC), the technical knowhow for pre-startup and startup operations in offshore oil and gas platforms was indigenized.

Iranian petroleum engineers are currently busy with the pre-startup and startup operations in four platforms of South Pars, namely, 17A, 18A, 12B and 12C.

The operation of this major project is significant for Iran. Indigenization of pre-startup and startup operations for every platform would save Iran 10 to 15 million dollars.

 

Phase 12 to Start Up

 

The managing director of Petropars Company, which is developing Phase 12 of south Pars, has said that the refinery of this phase is to come on-stream this calendar year to March 2015.

Mohammad-Javad Shams said: “All refining units in this phase are being commissioned.” He added that the desulfurization unit of this refinery recently started work. Only three wells remain to be drilled in Platform B of this phase and this platform will be launched with a total of seven wells.

At present, A12 is producing 1.4 mb/month of gas condensate and 25 mcm/d of gas.

 

Phases 15&16 Platforms

 

The flare in the platform of Phase 15 of South Pars has been successfully tested.

Iranian petroleum engineers are working on the fourth terrain of the refinery of phases 15&16 of South Pars and this terrain is projected to become operational one week after the startup of the third terrain.

The refinery of phases 15&16 of South Pars is currently processing 17 mcm/d of sour and dry gas produced from phases 6-8 of this offshore field. Efforts are under way for the production of at least 40 mcm of sweet gas in the three refining units of phases 15&16.

Phases 15&16 development of South Pars is aimed at producing 56.6 mcm/d of natural gas, 75,000 b/d of gas condensate, 400 tons a day of sulfur as well as 1.05 million tons a year of liquefied gas and one million tons a year of ethane for feeding petrochemical plants.

 

Gas Delivery from Phases 17&18

 

The first platform of phases 17&18 of South pars gas field was successfully launched in mid-October and the installations on this platform became operational.

Currently, sour gas is moved to A18 facilities before being transferred to land. A pipeline is being laid out between Phase 18 and phases 15&16 of South Pars because the gas produced in A18 is to be processed in the refinery of phases 15&16. As this pipeline is being laid out, the A18 wells will become operational.

A18, the second prioritized platform, was tested successfully in mid-October. The construction and installation of two satellite platforms for phases 17&18 of South Pars are expected to be over next year. The basic structure of these satellite platforms is ready and the commodities required for this project have been ordered. Meanwhile, drilling operations in two satellite platforms of phases 17&18 of South Pars are 30-35 percent complete.

Phases 17&18 of South Pars are aimed at producing 50 mcm/d of natural gas, 80,000 b/d of gas condensate, 400 tons a day of sulfur as well as 1 million tons a year of ethane and 1.05 million tons a year of liquefied gas.

As the winter approaches in Iran, the development of prioritized phases of South Pars has been accelerated. The flares are being turned on and different structures are becoming operational. Full development of South Pars phases is predicted to ensure sustainable energy supply and earn Iran 112 billion dollars in revenues.

Given South Pars’ crucial role in Iran’s energy supply and its revenue generation, quick development of South Pars is a top priority of Iran’s Petroleum Ministry. To that effect, phases 12, 15&16 and 17&18 development of South Pars are prioritized.

Iran plans to ensure satisfactory gas supply this winter, while cutting liquid fuel in power plants and other industries by delivering natural gas to them.

Petrobras Makes Ultra-Deepwater Find

 

Petrobras has confirmed the extension of an accumulation of hydrocarbons in the ultra-deep waters of the Espírito Santo basin postsalt deposits. Extension well 3-BRSA-1253D-ESS (ANP nomenclature)/3-ESS-219D (Petrobras nomenclature), known as Pudim, was drilled at a water depth of 1,886 m (6,188 ft) to confirm the discovery.

The well is located in the Brigadeiro Discovery Evaluation Plan area, 121 km (75 mi) off the coast of Vitória (Espírito Santo).

Petrobras says that log data analysis, fluid samples, and cable tests from reservoirs some 3,550 m (11,647 ft) deep confirm the presence of good-quality oil.

Petrobras is the operator (65%) of the consortium exploring the Brigadeiro Discovery Evaluation Plan area, in partnership with Shell Brasil Petróleo Ltda (20%) and Inpex Petróleo Santos Ltda (15%).

 

 

 

Angola Awards Project to Technip

 

Total E&P Angola has awarded the Technip/Heerema Marine Contractors (HMC) consortium a $3.5-billion contract for the deepwater Kaombo project in block 32 offshore Angola.

This is the largest SURF (subsea umbilicals, risers, and flowlines) contract ever issued, according to HMC Chairman Pieter Heerema. Technip’s share is around 55% and HMC’s around 45%.

The consortium will perform engineering, procurement, construction, installation (EPCI), and pre-commissioning of the subsea facilities in water depths up to 2,000 m (6,662 ft).

Additionally, the duo will transport and install around 115 km (71.5 mi) of client-supplied umbilicals, manifolds, well jumpers, and flying leads.

 

North Sea Discovery Confirmed

 

GDF Suez E&P UK and BP have had a new discovery in the UK central North Sea. Exploration well 30/1f-13AZ, drilled by the jackup Transocean Galaxy II for operator GDF Suez E&P, encountered hydrocarbons in a Palaeocene sandstone reservoir in BP-operated block 30/1c (license P363) and a subsequent side track into block 30/1f (license P1588) operated by GDF Suez E&P UK.

On test, the well flowed up to 5,350 boe/d. GDF Suez has designated its named portion of the discovery Marconi, while BP refers to its portion as Vorlich.

Ruud Zoon, managing director of GDF Suez E&P UK, said: “This is an encouraging exploration discovery in a part of the central North Sea that needs additional volumes of hydrocarbons to open up development options for several stranded discoveries. The discovery is our third successful well this year.”

The jackup Transocean Galaxy II drilled the well under a joint agreement between the two license groups.

Britain’s Business and Energy Minister Matthew Hancock said: “This discovery shows exactly what can be achieved in the North Sea if companies work together to maximize the considerable potential of remaining oil and gas reserves.”

 

Ichthys Project Reaches Peak Construction Activity

 

Australia's Ichthys project is now officially half way to completion. Three mega-projects in one, the Ichthys project will involve some of the largest offshore facilities in the industry, significant onshore infrastructure, and an 889-km (552-mi) pipeline connecting the two. When complete, the pipeline will become the fifth-longest subsea pipeline in the world.

To date, all 889 km (552 mi) of the 42-in. pipeline has been produced and coated, and pipeline construction started mid-year. The Saipem pipelay vessel Semac-1 is installing around 120 km (74.5 mi) of pipe through Darwin Harbour and beyond before transferring it to a deepwater lay barge, Saipem's Castorone, which will take it all the way to the Ichthys field.

 

Petronas Reaches New Milestone

 

Petronas has reached another milestone with its Petronas FLNG-1 project after successfully lifting the first topside module onto the hull at Daewoo Shipbuilding and Marine Engineering (DSME)’s shipyard in Okpo, South Korea.

The first topside module will house power generation and control function instruments, and weighs 2,000 metric tons (2,205 tons).

There are 20 remaining modules weighing a total of 40,000 metric tons (44,092 tons) yet to be installed on the hull, and the lifting is scheduled to be completed in the first quarter of 2015.

The PFLNG1 vessel will have a capacity of 1.2 mtpa and is 365 m (1,198 ft) in length, 60 m (197 ft) in width, and 33 m (108 ft) in height.

By Zakiye Bahrami, Leila Sadr

Global oil and Asian product market, October

Crude prices continue to fall on oversupply, a faltering global economy and reluctance by OPEC members to cut output.

Crude prices fell for the fourth consecutive month in October. During October crude prices decreased sharply and reached to levels lower than 90 dollars per barrel (see graph 1). The high slide in oil prices was triggered by three major factors: a downgrade in global oil consumption forecasts; oversupply and reluctance by OPEC members to cut output. Since July, prices were moving in downward trend and seems it is going to continue at least for a few month.

According to the International Energy Agency, demand for oil in 2015 will grow far slower than previously forecasts as global economies remain weak, and prices may extend their sharp fall so long as OPEC showed no sign of production cut.

During October, Saudi Arabia- the first oil producer in OPEC- made clear that it was focused on maintaining market share, not supporting prices with production cuts. Kuwait and Iran have since said that they have no plans to cut production.

On the other hand, the U.S. shale boom was hitting a record of new oil production, pushing prices down toward levels that threaten to reduce future drilling.

A four-month reduction in oil markets that has driven Brent crude to a four-year low poses the first major challenge to the U.S. shale sector since it emerged four years ago and sent oil output to its highest in a generation. Shale oil is expensive to extract by historical standards and only viable at high-enough prices, Ed Morse, Citigroup Inc.’s head of global commodities research in New York, said. Oil from shale formations costs $50 to $100 a barrel to produce, compared with $10 to $25 a barrel for conventional supplies from the Middle East and North Africa, the Paris-based International Energy Agency estimates.

Considering all above facts in global oil market, it is not easy to forecast crude price levels. However, there is no doubt that market participants has revised their imagination of the outlook for global oil prices and cut their forecast.

 

Asian Product Markets

In Singapore products market- leader product market in Asia- the mean of most products prices, decreased in line with the fall of crude prices (see graph 2).

Some of the changes in product prices are because of crude price changes. Hence, in order to investigate product market fundamental and its performance, it is necessary to look at product price changes in comparison with crude price changes. The most noticeable monthly change was in naphtha market. The price of naphtha versus Dubai prices fell to its lowest level since October 2013 (see graph 3). Generally naphtha is consumed to produce not necessary goods and its consumption is mostly related to economic growth which is gloomy these days. Of the light distillates, gasoline improved over October. The gasoline prices gained against crude. (see graph 3). It seems that the economic slowdown has had a more marked impact on naphtha demand and slight impact on middle distillates and fuel oil but not on demand for gasoline.

 

 

 

Products market fundamentals in brief

October 2014	Light Distillates Products		Middle Distillates Products		Heavy Products
	gasoline	Naphtha	Gasoil	Jet Fuel	Fuel Oil 180	Fuel Oil 180
	↑	↓	↓	↓	↓	↓

(Upward arrow: strength, downward arrow: weakness)

 

Light Distillates (gasoline, naphtha)

Singapore gasoline market performed strong during October. Tightness in regional supply was one of the driving factor. On the demand side, an uptick in Chinese consumption and Indonesia demand supported the market. Indonesian demand rose due to maintenance in two refineries. It is likely to see weak gasoline market in the coming period on the back of closed arbitrage opportunity from Europe to US. However the European market is now strong due to high export volumes to the Persian Gulf and West Africa.

Over the reporting month, Singapore naphtha prices versus Dubai prices fell to the lowest level since October 2013 (see graph 3). High supplies and regional inventories weighed on the market and led to weak fundamental. Heavy exports from India and high arbitrage volumes from Europe and Mediterranean into Asia limited the market. Moreover, heavy crackers maintenance caused weakness in demand side as naphtha is used as a feedstock for these units. According to Argus report, Indian refiners offered more than 160,000 b/d of naphtha in October. limited spot buying by Japan and Taiwan pushed the naphtha market to downward trend more. Generally naphtha is consumed to produce not necessary goods and its consumption is mostly related to economic growth which is gloomy these days. Such a weakness in Asian naphtha market could be partly due to US shale boom and US naphtha exports. Looking ahead, naphtha market will receive some support from its substitute- LPG- in the coming cold month which seasonally face with higher LPG prices. 

 

Middle Distillates (gasoil, jet fuel)

Gasoil market weakened during the reporting month. High Indian and Taiwanese exports supported the market.

Asian gasoil demand is likely to improve in the coming period in line with seasonal trends related to the start of winter heating oil usage as well as an uptick in Indian demand.

 

Asian Jet fuel market fell on slow demand. During October, China- Asia Pacific’s largest importer- requested only 200,000 barrels for November delivery which is sharply lower than last year. Import tax changes and rising Chinese refining capacity have cut the need for import.

Fuel Oil

Fuel oil market in both grade was performing weak over October. Fuel oil price against crude prices fell  in line with keen selling interest and slim demand in the region. Although market was still in a relatively strong position compared to mid-year levels. Singaporean bunker sales which is mostly fuel oil 380 cts, fell in September to 3.52 million down 4% m-o-m and 2.47 % y-o-y. on the supply hand, cargoes from Europe, US and Russia into Singapore market were noticeable. Start-up operations at new refineries in the Middle East also added supplies to the market, while low fuel oil prices do not seem to have had a significant improving impact on demand.

 

 

 

Iraq Oil Exports Up in October

 

Iraq's oil exports from its southern terminals is holding close to a record high in October and Kurdish shipments are climbing, a further sign that fighting has not derailed an expansion of supplies from  this OPEC producer.

Four months after an advance by Islamic State into northern Iraq sent oil prices soaring to $115 a barrel, the unrest has not led to a reduction in Iraq's exports from the south, the main outlet for its crude to world markets.

Exports from Iraq's southern terminals have averaged 2.55 million barrels per day (bpd), according to shipping data for the first 23 days of October tracked by Reuters. An industry source that monitors the exports had a similar estimate.

The increase in supplies from Iraq, as well as a recovery in Libyan production despite conflict there, adds to the challenge for the Organization of the Petroleum Exporting Countries, which meets to review supply policy on Nov. 27.

Oil has fallen steeply from June's high to a four-year low of $82.60 a barrel this month on ample supplies, reducing OPEC members' income from their principal export.

"So far no country has said it is willing to cut," said Carsten Fritsch, analyst at Commerzbank in Frankfurt. "So it will be difficult for OPEC to find an agreement overall."

The export figure has been achieved despite some delays to shipments and loadings caused by bad weather, making the achievement all the more impressive, oil industry sources said.

Southern Iraqi exports so far in October are slightly up from the average of 2.54 million bpd during September and are within sight of May's average of 2.58 million bpd, which was the highest since at least 2003.

Iraq's oil supplies were held back by decades of war and sanctions. It has been expanding oil production in the south since Western companies signed a series of service contracts with Baghdad in 2010, and boosted export capacity.

Total exports from Iraq's northern and southern ports hit a record 2.80 million bpd in February. But northern exports of Kirkuk crude have been shut since March 2 due to attacks on a pipeline to Turkey, keeping total exports below their potential.

While Kirkuk exports remain halted and are unlikely to return soon, Iraq's Kurdistan region has been exporting a rising amount of oil independently of Baghdad via Turkey's Ceyhan port.

Total Names New Management Team

 

Total S.A., parent company of automotive rubber product supplier Hutchinson S.A., has picked a new management team to oversee the company in the wake of a plane crash in Moscow that killed its chairman and CEO.

Christophe de Margerie, CEO of the Paris-based chemical giant, was on board a private plane taking off from Moscow’s Vnukovo Airport the night of Oct. 20 when it collided with a snowplow on the runway, then burst into flames.

De Margerie and all three crew members died. Press reports from Moscow quoted investigators who said the plow driver was drunk.

De Margerie had worked at Total since 1974, was named CEO in 2007 and added the chairman’s post in 2010.

“Total’s employees are deeply appreciative of the support and sympathy received, both in France and in the many countries where Christophe de Margerie was admired and respected,” said Total’s Chief Administrative Officer Jean-Jacques Guilbaud in a statement.

“Mr. de Margerie devoted his life to building and promoting Total in France and internationally. He was equally devoted to Total’s 100,000 employees.

“As he would have wished, the company must continue to move forward.”

The company’s board of directors met two days after the crash and on the advice of its governance & ethics committee named Patrick Pouyanne as CEO and Thierry Desmarest as chairman.

Desmarest had preceded de Margerie as both CEO and chairman, and already was serving as a member of the board and its honorary chairman. His new appointment is slated to run until the end of 2015.

Pouyanne previously was president of refining and chemicals for Total and a member of its executive board.

 

Russia, Slovakia to Sign Oil Deal by Year-end

 

Russian Energy Minister Alexander Novak said he expected an agreement on oil exports to Slovakia to be signed by the end of the year.

He did not say, however, which of Russian oil companies would export oil to that country.

According to earlier reports, Slovakia’s Ministry of Economy said the county considered this agreement one of its top priorities. The ministry said the agreement would come into force from January 1, 2015 to be in effect till 2029.

The agreement provides for annual pumping of up to six tons of oil to Slovakia via the Druzhba (Friendship) pipeline. Another six tons of oil per year will be pumped from Russia to other European countries via Slovakia.

Pemex Oil Output Dips in Sept

 

Mexico's state-run oil company Pemex said crude oil production fell slightly in September from the previous month to 2.39 million barrels per day (bpd).

 

Crude output for the month dropped 1 percent, compared with 2.415 million bpd in August, the company announced on its website.

Meanwhile, crude export volumes in September were up 4 percent from August at 1.158 million bpd, Pemex said.

Pemex reported earlier a much deeper third-quarter loss on falling crude output and prices.

 

Jordan to Finalize Zionist Regime Gas Deal

 

Jordan expects to finalize a deal next month with Noble Energy Inc to supply the kingdom with natural gas from Zionist Regime's Leviathan field, that could save at least $1.4 billion in the country's annual import energy bill, the energy minister said.

Jordan is struggling to meet electricity demand which is growing by more than 7 percent due to a rising population and industrial expansion. At the same time, reducing losses at state electricity firm NEPCO is a key performance criterion in Jordan's 36-month standby loan deal with the IMF.

NEPCO piled up debts of 4.7 billion dinars ($6.6 billion) after it was forced to pay independent power producers for energy generated from costly diesel and heavy fuel, after disruptions to cheap Egyptian gas supplies.

"We are working on the long-term supply deal (with Noble Energy) but we have not yet decided the amounts and prices. We are aiming by mid-November to reach an agreement," energy minister Mohammad Hamed told Reuters in an interview.

NEPCO signed a letter of intent last September with Noble but the parties did not say when the deal would be finalized.

Under the mooted 15 year deal, gas would be transferred directly across the border with Zionist Regime following the completion of a pipeline and would likely to start arriving by late 2017. While the price is still being negotiated, it is likely to be linked to Brent oil prices.

Jordan's energy bill has soared to more than 4 billion dinars annually following the interruption of gas deliveries from Egypt, which it had relied on to generate over 80 percent of its electricity, forcing it to switch to more expensive imports of heavy fuel and diesel.

Egypt gas supplies have stopped completely since May, having been falling sharply since sabotage attacks on the network in Egypt's Sinai region since 2011 and bottlenecks in the country's own domestic market.

 

South Sudan, China, Malaysia Discuss Oil Output Hike

 

South Sudan, China and Malaysia have discussed the need to increase oil production in South Sudan, oil minister Stephen Dhieu Dau said in Juba.

South Sudan currently produces 165,000 b/d of crude oil, a drop of nearly 30% since conflict erupted in Africa's newest country in December 2013.

Before the conflict, pitting President Salva Kiir's army against forces loyal to former vice-president Riek Machar, in December 2013, South Sudan used to produce 245,000 b/d.

Machar's rebel forces shut down the oil fields in Unity state in January 2014.

Prior to the shut down, Unity state, on the border with Sudan, used to produce 45,000 b/d of crude oil.

"I was invited by our partners CNPC in Beijing and Petronas in Kuala Lumpur...During our meetings we discussed strategic issues on the development of oil facilities, capacity building and increasing oil production," Dau told the state-owned South Sudan Television.

He did not disclose how much they would increase the oil production. He hopes to enhance oil production hinge on next week's peace talks in neighboring Ethiopia.

China, the main investor in South Sudan's oil industry, is involved in search for peace in the country.

State-owned China National Petroleum Corporation, or CNPC, has a 40% stake in South Sudan's oil industry, followed by Malaysia's Petronas, and India's ONGC Videsh Limited, or OVL.

 

India to Revamp Exploration Policy

 

After unveiling major reforms since BJP's storming to power, Indian Oil Minister Dharmendra Pradhan plans to overhaul the exploration policy to attract investors, spur energy output and revive the economy.

In parallel, the Ministry is setting stiff targets for state explorers like ONGC to reverse the declining trend in oil and gas output in recent years as it looks to cut on import dependence.

Pradhan, 45, wants to replace the 15-year old production sharing regime, which has produced more controversies and less oil and gas. Only three out of the 252 blocks given out have come to production stage.

Incentives for Petchem Investors

 

Iran has given green light to potential Iranian and foreign investors in the petrochemical industry by setting long-term prices for feedstock for petrochemical plants. This decision is in effect for ten years. Up to that time, 21 percent of Iran’s gas production, estimated at 1.4 bcm, is expected to be converted to petrochemicals.

If long-term rates are set on feedstock, investors will have a more accurate assessment of the projects and they can make up their minds more easily. Setting long-term price on gas feedstock for petrochemical plants will let investors, producers and activists involved in the petrochemical sector to have a clear price horizon and have no concerns about price fluctuations in the following years.

In order to motivate investors to finance projects in Iran, three factors have to be taken into account: The first one is setting feedstock price for the long term to be competitive with rival countries, the second one is creation of infrastructure by the government, and the third one is stable regulations.

The government is set to announce a new formula for the pricing of feedstock for gas-fuelled petrochemical plants. The new pricing formula is speculated to be based on the global price of products like urea. Then the price of feedstock is determined such that the supplier would make a 25-percent gain.

The new formula does not give any fixed price and it requires the gas price to be decided based on an agreement between petrochemical plants and the government. But the price will not be definitely below 13 cents (the current price of gas feedstock for petrochemical plants). This formula is based on two factors – the price of final products and oil price fluctuations.

Iran’s petrochemical sector has a trans-national and trans-regional role due to access to sufficient feedstock, experienced manpower, good geographical position in access to high seas and proximity to target markets, government support and huge investments. Despite some political and commercial restrictions, Iran’s petrochemical industry has preserved its unique position in international markets.

Since Iran is rich in energy and natural resources and enjoys advantages in the oil, gas and petrochemical sectors, setting a rate of return on investment would not make sense. Instead, incentives have to be taken into account while setting prices on feedstock so that foreign investors will be motivated to inject money into this industry.

The volume of investments, the type of products and the manner of supplying raw materials are the factors which should be taken into account in the pricing formula.

 

Feedstock Abundance

 

Undoubtedly, the most important advantage of Iran’s petrochemical industry is access to abundant feedstock – natural gas, naphtha, ethane and gas condensate – at competitive price. Currently, the capacity of gas refining and transmission industries is around 600 mcm/d which will soon reach 1 bcm/d. Access to ethane will consolidate Iran’s position in the face of its rivals for petrochemical production.

With the completion of development of South Pars gas field, 650,000 b/d of gas condensate, 6.7 million tons of liquefied petroleum gas (LPG) a year and 4 mt/year of ethane will be recovered. The produced ethane will directly go to the petrochemical plants and other products will be used in petrochemical production if necessary.

Besides easy access to feedstock, Iran enjoys another advantage which could not be ignored. Iran has access to experienced and skilled manpower, extensive communications infrastructure, common border with 15 countries particularly in Central Asia and Caucasus, special economic petrochemical zones, investment encouraging law, investment facilities including tax exemptions and a chain of petrochemical facilities. The possibility of using facilities provided by the National Development Fund of Iran is also another important advantage for investors.

Currently, 33 billion dollars in investment is needed for financing 55 million tons of petrochemical projects. Such investment can earn the country 26 billion dollars in revenues. There are also 14 or 15 prioritized petrochemical projects which are expected to come on-stream in four years and add 10 million tons to the country’s petrochemical production capacity. Once the finance of seven methanol projects in Assaluyeh is finalized, some 10 million tons of methanol will be supplied on the world markets.

So far, Iran’s petrochemical sector has focused upon ethylene because the abundance of ethane made most products ethylene-based and downstream industries could grow as much as they could. But for further growth in the petrochemical industry, propylene production should be boosted. Iran plans to produce propylene from methanol so that the methanol prices would not be cut in the markets and let downstream industries grow.

 

Gov’t Support

 

Using the facilities of NDFI, making efforts for attracting foreign investors, finance of projects and supporting this industry are the links of the petrochemical chain whose last link could be a 10-30 percent discount on the gas price.

The administration of President Hassan Rouhani is determined to bolster the petrochemical industry. Iran has already been very active in the oil, gas and petrochemical industries and the petrochemical sector is instrumental in generating revenues for Iran and promoting Iran’s economic status in the region. This industry needs more attention as Iran is facing powerful rivals. In addition to bringing in revenues, the petrochemical industry can improve welfare and create jobs.

The Iranian government’s approach regarding the development of petrochemical infrastructure is a sign of special attention to this industry for making it more attractive.

Given Iran’s special conditions and its strategic position in the transaction of energy carriers, further attention to the petrochemical industry is a strategically important decision.

The petroleum and petrochemical products market, ways of trading, pricing and conditions for exports require closer monitoring. The government can also resolve the problems by making timely and quick decision so that everyone would benefit from this strategic market.

 

Feedstock Price Discount

 

The government plans to cut the price of feedstock in impoverished zones in order to erect petrochemical plants in those regions. The Cabinet recently approved a plan for 10-30 percent price cut in the gas supplied to newly-established petrochemical plants in the impoverished regions. This decision has been made to attract further investment in this industry. The government has said that any petrochemical plant expected to be constructed in an impoverished spot will benefit from a 10-percent discount in the gas price. If this plant is built in a spot located by Petroleum Ministry, the discount rate will rise to 20 and if located by Ministry of Industry, Mine and Trade, the discount will be at 30 percent. Such discount will be definitely taken into account by investors. This discount is granted to almost all links of the chain in order to encourage foreign investors.

Investment in the petrochemical industry is not yet in ideal conditions. Domestic production capacity is limited and foreign investment is the resultant of several procedures which require coordination and followed up. These conditions are such that attracting more investment depends on the cooperation of other organs including Foreign Affairs Ministry. Some projects in Iran need foreign direct investment and foreign technology.

The petrochemical industry is a job-creating one which feeds other sectors of the industry. It can contribute to national development by boosting the economy.

In order to achieve a higher growth rate and higher value-added in this sector, it is necessary to take steps for attracting more investment, developing the value chain of petrochemical products including methanol and ethylene and offering products of high value-added. Certain measures have been undertaken in this regard, but they are not sufficient in light of potentialities of Iran’s oil and gas industries.

Nanotechnology Indigenized in Iran Petroleum Industry

 

The global demand for energy is forecasted to double over the coming 50 years. Supplying this volume of energy would require deep revision and changes in energy production and consumption. That objective would not be achieved easily unless new technologies like nanotechnology are applied.

Today, nanotechnology has managed to introduce serious changes into the structure of materials and develops new methods for benefitting from different processes in different industries including the petroleum industry. Examples of nanotechnology application are seen specifically in the separation processes.

Iran’s petroleum industry has in recent years understood the significance of applying new technologies and has undertaken a series of measures in the nanotechnology sector. It has made valuable achievements in this regard. Manufacturing of carbon nanotubes, production of ultra-light drilling cement by nanotechnology and using nanoemulsions for enhanced recovery are among applications of nanotechnology mastered by the Research Institute of Petroleum Industry (RIPI).

Using nanotechnology is of high significance due to its contribution to generation of value-added, reduction of pollution, indigenization of products through reverse engineering and commercialization of products.

A nanotechnology network has recently been launched at Iran’s Petroleum Ministry with the objective of pursuing prioritized projects of petroleum industry. This network is operated by RIPI under the authority of Research and Technology Department of Iran’s Petroleum Ministry. The Nanotechnology Committee is keeping a tab on these activities.

The RIPI has selected 30 nanoprojects which are being followed up by the Nanotechnology of Petroleum Ministry. Given the 10-year background of RIPI in nanotechnology, it is hoped that a new nanotechnology achievement would be developed in the country every six to twelve months.

 

Carbon Nanotubes

 

Carbon nanotubes are largely used in the petroleum industry and drilling cement. Major companies in the world produce 250 to 400 tons of carbon nanotubes every year.

Ali-Morad Rashidi, head of Nano and Carbon Technologies Development Group of RIPI, said a private company is tasked with industrial production of 180 tons a year of carbon nanotubes. The activities of this group also include production of metal oxides and nano-structure metals. This nano-structure is being produced at the rate of 300 kilograms a day at RIPI.

 

ANG Technology

 

RIPI is also working on a project for storing Adsorbed Natural Gas (ANG) in order to prevent natural gas waste throughout repair work. Since this technology can facilitate storage in big volumes of natural gas, it can be considered as an alternative to compressed natural gas (CNG) in the long-term.

This project is under way in collaboration with Iranian Gas Transmission Company (IGTC). In case of success in field test at one of gas pressure booster stations, this technology can be applied in all booster stations.

Another project is about gathering gasoline vapor to be recycled. This technology is expected to be used in a gas station over the coming six months. Rashidi said this project will save several hundred liters of gasoline a day.

 

Ultralight Drilling Cement

 

RIPI has mastered technical savvy for the production of ultra-light drilling cement from nanostructures. This technology is currently being used in Iranian oil wells and its marketing overseas is pursued by RIPI.

Another project is under way by RIPI with the objective of single-stage elimination of acid gases and production of nanocatalysts at NGL 1200 plant in Gachsaran. The results have so far been hopeful. This project would help gather H2S-containing flare gases to produce more sulfur for gaining more revenues.

Rashidi said the RIPI is currently producing corrosion nano-inhibitor, adding: “Given the 130 tons a year consumption of this product by East Oil and Gas Production Company, the RIPI has produced the nano-grade of this product.”

Since West Oil and Gas Production Company, South Zagros Oil and Gas Company and National Iranian South Oil Company are widely consuming these inhibitors, this product will be soon consumed in the country. These inhibitors have been tested in 40 wells of the East Oil and Gas Production Company.

 

Knowledge-Based Company

 

Rashidi said a knowledge-based company involved in nanotechnology has been launched at RIPI. “This company has been established following cooperation between RIPI and the private sector for industrial-scale production recommended by RIPI,” he said.

Rashidi said thermal transmission systems, nano-absorbents absorption and adsorption system, nanocatalyst assessment system and CVD are among equipment made at RIPI over the past one year.

Production of nano-fluids has also been among the significant achievements of the research institute in the nano sector to replace anti-freeze for vehicles. These nano-fluids also fare well in quick heat transmission and they speed up heat transmission by 10 to 20 percent in refineries.

Semi-industrial production of nano-porous graphenes and nano-silicones are other RIPI achievements. Nano-porous graphenes are used in gathering oil slick while nano-silicones are used in production of drilling mud.

 

Enhanced Recovery by Nano-Emulsions

 

The Nano-Technology and Carbon Development Group of RIPI is working to produce nano-emulsions with the objective of applying nano-technology in enhanced recovery from oil fields.

Studies conducted by this group have found that nano-emulsions can boost recovery rate of oil reservoirs.

Mahshad Alaei, a professor at RIPI, said relevant tests conducted on the application of nano-emulsions in enhanced oil recovery have so far proven positive.

Referring to the application of nano-catalysts for converting ultra-heavy oil into light oil, she said that nanocatalysts have been produced for transforming bitumen into gasoline.

The Nano-Technology and Carbon Development Group of RIPI also plans to develop solar cell technology. It is currently in the stage of developing technical knowhow. If finalized, the project will allow generating electricity from solar energy at very low costs.

NIORDC Invests in R&D

 

 According to its 20-Year Vision Plan, Iran is required to make efforts to become the top economic power in the Middle East region. Achieving this important objective necessitates providing infrastructure including technical knowhow as well as effective and state-of-the-art technologies. Given Iran’s century-old experience in the oil and gas sectors, valuable experiences and abundant specialized manpower, achieving the top ranking in the region seems likely. as knowledge-based activities in the petroleum industry are expanding.

Due to the significance of research and technology in Iran’s petroleum industry, all subsidiaries of Iran’s Petroleum Ministry have established a directorate of research and technology in order to acquire the latest technologies and communicate with research centers across the world.

National Iranian Oil Refining and Distribution Company (NIORDC), one of the four major offshoots of Petroleum Ministry, has been no exception. The R&D Directorate of NIORDC was established in 2002. The range of activities of this directorate is wide. It purchases new technologies from foreign companies and conducts research for applying the technologies.

The activities of the R&D Directorate of the NIORDC include mainly quantitative and qualitative improvement of petroleum products, optimization and removal of bottlenecks in operational units, protecting the environment and safety, manufacturing equipment and parts, as well as supporting university dissertations and theses.

 

500 Research Projects

 

Ali-Reza Abhaji, R&D director of NIORDC, told Iran Petroleum that the main task assigned to this directorate is development of technical knowhow and indigenization of technology for Iran’s petroleum industry.

“The R&D Directorate  of NIORDC has proposed 571 research projects since 2002, 121 of which has been conducted by this directorate and 450 others by subsidiaries,” he said.

Abhaji said nine percent of these projects pertain to the quantitative and qualitative improvement of products, 24 percent to the protection of the environment, 32 percent to optimization, removal of operational bottlenecks and industrial protection, 13 percent to the use of new technologies and 22 percent o the manufacturing of equipment.

He said that 19 research projects have been proposed at the company over the past months, adding that eight of them have been assigned to the R&D Directorate.

Underscoring the significance of using new technologies in Iranian refineries, Abhaji said the technical knowhow needed in refineries has to be indigenized on lab, pilot, semi-industrial and finally industrial scales.

“Since the start of the [calendar] year, a number of projects have been proposed for indigenizing technologies needed in refineries. They include indigenization of technical savvy for Fluid Catalytic Cracking Unit (FCCU) and desulfurization units,” he said.

“These two projects are under way with the cooperation of the Research Institute of Petroleum Industry. Since the primary knowhow for designing and building these two units had been already acquired by this research institute, it is now in the stage of pilot. A pilot plant is built for desulfurization of two barrels a day and processing of 0.6 b/d of crude oil in the FCCU.

Abhaji said NIORDC proposes projects in collaboration with refining plants, adding that the R&D Directorate has drafted chapters on how to apply the state-of-the-art technology.

“One of these chapters is sauna reactor desulfurization which is used for reducing the sulfur content of gas oil. It is a new procedure,” he said.

He also said that NIORDC has defined plans for cooperation with foreign companies in order to acquire new technology. He said these plans need to be approved in order to clear the way for the acquisition of new knowhow.

“We have already made significant progress in manufacturing mechanical and rotary equipment. There are also measures under way for building fixed equipment, thermal transducers and pumps. But we need to make further efforts in the field of instruments and control systems,” said Abhaji.

 

Catalysts Indigenized

 

Abhaji said four projects have been proposed for producing widely consumed catalysts in refineries. “Some of these catalysts have been produced, but activities are under way for producing basic catalysts. The necessary measures have been taken for producing RFCC catalysts with the collaboration of Imam Khomeini Refinery in Shazand, RCD catalyst and hydrocracker with the cooperation of RIPI and isomerization catalyst with the help of Iran Petrochemical Research and Technology Company.”

According to Abhaji, the R&D Directorate of NIORDC has also proposed environmental projects including wastewater treatment at refineries and removal of air pollution and bioremediation.        

      

 

IWEM, World Energy Outlook

 

The Institute for International Energy Studies (IIES) has been instrumental and effective in realizing the objectives set for the petroleum industry in Iran’s 2025 Vision Plan within the framework of scientific, economic and international activities.

Besides contribution to decision-making by senior oil managers, this research institute manages human resources and finance, makes plans and develops technological strategy, reviews world energy scenarios as well as international oil and gas markets. These are all among the IIES’s long-term plans.

IIES is recognized as a reference for regional energy data. The plans on its agenda include organizing the first specialized course on oil and gas management, developing international activities, compiling energy diplomacy document, improving the structure of National Iranian Oil Company (NIOC)’s procedures and developing new models of contracts.

The projects accomplished so far include the publication of an international magazine on regional data reference, designing a global model of energy and designing energy diplomacy website.

 

IJES

 

Hossein Iranmanesh, head of IIES, told Iran Petroleum that the International Journal of Energy and Statistics (IJES) magazine is being published for the second year with the cooperation of World Scientific publications.

“The magazine’s focus is on analysis of global energy data. It is distributed across the world and due to its high penetration rate it has so far been welcomed warmly,” he said. “Articles are submitted from all continents to be published in this magazine. Last year, one of these articles was selected as the best among articles published in other magazines printed by World Scientific.”

Iranmanesh said it has been agreed with the Organization of the Petroleum Exporting Countries (OPEC) that a special edition would be incorporated into IJES.

 

Energy Market Analysis Model

 

Iranmanesh said IIES has a widespread international study network, adding that it plans to become a leading body in conducting strategic studies and research on the oil and gas industries by 2025 and to train qualified human resources in favor of international interests.

“The IIES is currently making efforts to sketch the IIES World Energy Model (IWEM) as the first world energy outlook from Iran’s view,” he said. “A book on IWEM, divided into supply and demand chapters, is being published in Persian. The transportation chapter has already been printed and reviews the world energy outlook so that the country’s officials would have more scientific data for exchange of views and discussions at global meetings and/or gatherings.”

“The model pertaining to Iran energy market analysis in the supply and demand sector is a fully national model and presents a proper model for Iran’s economy and its connection to well-known energy efficiency models,” said Iranmanesh.

He said that this model which is being updated regularly every year is 80 percent complete.

 

Oil/Gas Project Management Course

 

Iranmanesh referred to the signature of a deal between IIES and a European university for holding a joint international course on oil and gas project management, saying: “In order to develop the potentialities of Iran’s petroleum industry, we have reached agreement with a European university for holding the first specialized course on oil and gas management.”

He said that the two-year course is being held for the transfer of technology in oil and gas project management, adding that 30 petroleum industry experts will receive training.

Iranmanesh said the University of Tehran and the IIES are jointly offering oil and gas projects management courses for master’s level. Iranian and foreign professors will be teaching the courses.

 

Iran Comprehensive Energy Plan

 

Iranmanesh said Iran’s Petroleum Ministry is currently concerned with the proper management of projects, underscored by senior officials.

“Regarding studies in the energy sector, review of the comprehensive energy plan was assigned to the IIES four years ago. This national plan is over now. These studies have resulted in the compilation of Iran’s first energy outlook which regulates energy supply and demand for the short, medium and long terms under different economic growth scenarios,” he said.

Iranmanesh said the IIES updates Iran’s energy outlook regularly every year.

“The well-known international models are employed by the IIES experts to make forecasts about the future of energy supply and demand,” he said.

Iranmanesh said the IIES compiles hydrocarbon balance sheet every year to provide an assessment of the country’s energy status.

“Iran’s energy outlook which is the main output of the comprehensive energy plan has already been drafted and it is being edited to be published.” he said.

Iranmanesh also said that Iran’s strategic energy document has already been published and provided to experts, adding that the strategic document is in compliance with general and macro policies of the country.

He said that proposals on an energy diplomacy document were also submitted to the Petroleum Ministry’s Planning Division. An appropriate document is expected to be finally compiled.

Noting that Petroleum Ministry currently seeks to develop energy diplomacy, Iranmanesh said the country’s energy diplomacy document has already been drafted by Ministry of Foreign Affairs. He said the IIES has presented its views on the document which is expected to be finalized shortly.

 

NIOC Structure

 

Iranmanesh said studies on improving the structure of National Iranian Oil Company (NIOC) started at the IIES long time ago under the title of Nasr Project.

“This project is ready to be implemented and is expected to be on the NIOC agenda. Since the company’s structure has remained unchanged for a long time, the significance of Nasr Project is felt more than before,” he said.

“In order to boost productivity in the petroleum industry, a contract was signed last year with the IIES for carrying out the ERP project to study the integration and mechanization of various procedures at NIOC,” he said.

Iranmanesh said a consulting company is in charge of the architecture of the project while an agreement is being signed with a university for the management of the project. The strategy revision module of the project has been implemented by domestic and foreign companies, he said, adding that the ERP is expected to come on-stream on schedule.

He said petroleum industry projects have so far failed to communicate with local and regional communities, adding: “This has caused many problems and for this reason, the IIES has conducted sustainable and social development studies and has other projects under way.”

“One of these projects deals with the issue of negotiating with stakeholders in the Pars Special Economic Energy Zone. This project is currently under way and has been financed by an international institute in the European Union,” he said, adding that this project which pertains to a non-governmental organization (NGO) has successfully regulated relations between oil and local community.

 

Energy Diplomacy

 

Iranmanesh said the IIES studies the latest developments about world energy resources and policies, as well as developments in this sector. He added that various views and developments regarding oil and natural gas market are analyzed in this institute.

He said the most significant issue on the government’s agenda is currently the new contractual frameworks.

Iranmanesh said the government has sought to make the contracts more attractive and mutually satisfactory.

“Given the type of contracts in the region, attractions for investment need to enhance,” he said.

HSE in Iran Gas Industry

 

Natural gas, due to its natural properties, enjoys a special status in the world energy mix. This source of clean energy has brought welfare and security to a large number of people in the world. But gas can also pose threats to those exposed to it. Gas is the second most dangerous industry after nuclear energy; therefore gas industry should always take into account protecting human assets, industrial health and the environment. The health- safety- environment (HSE) section is of great importance in the gas industry.  The main tasks assigned to the HSE section is to minimize accidents, safeguard national assets, guarantee safety, manage industrial crisis and promote the relevant culture among natural gas consumers.

Last calendar year to March 2014, the HSE section of National Iranian Gas Company (NIGC) undertook the following measures: preparing and finalizing 50 safety instructions, setting up a working committee to reduce carbon monoxide related accidents among natural gas consumers, organizing symposiums on preventive measures before overhaul in gas refineries, technical modification of gas pressure booster stations, pig running and pit receiving, drain pit and vent.

Despite achievements, this section is still facing challenges. Mohammad-Reza Yousefipour, head of the HSE section of NIGC, says the main challenges to HSE in the gas industry are improving the level of knowledge of contractors, recruiting experienced and skilled manpower, compliance of managers with safety obligations in different sections of the gas industry, updating safety instructions and regulations, membership to international bodies like OGP in order to create a competitive atmosphere at the international level and compliance with international standards.

 

1^st in Mideast

 

NIGC has taken effective steps toward fulfilling its environmental obligations. The most important of them are execution of two research projects – quantitative and qualitative study of air pollutants and greenhouse gas in South Pars and establishing a system for measuring air pollutant and greenhouse emissions in gas refining companies and gas transmission network – and registration of clean development mechanism (CDM) methodology with the United Nations for gas gathering by Sarkhoun and Qeshm Gas Refining Company in a first-ever project of this type in the Middle East.

Moreover, more than 2,500 ha of green belt, or 19 percent of the total industrial built-up area of NIGC, are being looked after. This belt is twice the standards set by the Department of the Environment.

 

Boosting HSE

 

Gas projects currently under way represent a major part of the NIGC’s performance.

Ali-Reza Gharibi, managing director of Iran Gas Engineering and Development Company (IGEDC) which handles NIGC projects, said IGEDC intends to improve the HSE standards and boost the quality of projects through promoting a systemic view among the company’s staff, suppliers (contractors and supervisors) and effective HSE management.

The most significant measures taken by IGEDC with regards to effective HSE management are establishment of an integrated management system, defining regulations, instructions and methods related to HSE.

Recently, HSE regulations and project risk assessment were submitted to contractors for more transparency on the relevant issues.

In line with HSE requirements, this company has made HSE Plan obligatory in less than 45 days after equipment and HSE experts accredited by the outsourcer that supervises the projects. At present more than 120 HSE experts are monitoring the projects.

Gharibi said IGEDC mustered 593 scores in HSE in the calendar year to March 2013 and 685 scores the following year.

All these figures are indicative of the positive and constructive HSE instructions at NIGC, but more activities are still needed to be conducted in all sectors.

Petroleum Minister Bijan Namdar Zangeneh recently said HSE management system should be upgraded so that accidents would decline. He demanded that HSE be recognized as an organizational value and be taken into account seriously.

 

HSE Management

 

Iran’s gas industry, which is very active across the country with a large number of staff, has to meet its obligations of responsibility before taking any action beyond its boundaries. The experience of international oil and gas companies in this regard show that HSE maintenance is the key to promoting the culture of HSE and broadening the radius of action. Iran’s Petroleum Ministry has already notified all subsidiaries and other companies of the necessity of establishing HSE system.

Serious attention paid by HSE system to contractors, suppliers and consumers as well as stakeholders is proof of the fact that all of them belong to a single community, and the industry owes its survival to each and every one of them.

Establishment of HSE in continuation of other management standards like 9001, 14001 and 18001 shows how tough the road is for Iran’s gas industry to go.

Iran’s gas industry is at the beginning of the way and it is hoped that its efforts for fulfillment of obligations will help it accomplish its mission.

Iran, Japan Cooperate in Environmental Project in Persian Gulf

 

A significant portion of Iran’s huge oil and natural gas reserves lies in the Persian Gulf. Iran’s Petroleum Ministry is currently making efforts to extract oil and gas from these huge hydrocarbon reservoirs.

All activities of Iran’s petroleum industry are under way in compliance with environmental requirements; however, the environment in the Persian Gulf region has been harmed mainly due to the emission of gases and spread of wastewater.

The Health, Safety and Environment (HSE) Department of Iran’s Petroleum Ministry and Japan’s International Cooperation Agency (JICA) have operated a project under the title of “Comprehensive Plan for Upgrading Environmental Management of Petroleum Industry in the Persian Gulf and Coastal Zones” with the objective of boosting the quality of environment management by Iran’s petroleum industry in the Persian Gulf region.

Since Petroleum Minister Bijan Namdar Zangeneh has underscored the need for the development of the giant offshore South Pars gas field and oil production by applying state-of-the-art technology, the HSE Department of Iran’s Petroleum Ministry and its affiliates are focusing on the development of advanced technologies for improving environmental management based on experiences in giant oil facilities.

In this project, the present status of the environmental management of oil, gas and petrochemical industries in the Persian Gulf and coastal zones as well as preparation for dealing with oil slick are studied and analyzed. Moreover, a plan has been worked out for upgrading environment management at sea and on the shores and another system for dealing with oil slick under emergency conditions.

Mohammad-Hossein Ardeshiri, the HSE director of Petroleum Ministry, said the environment management project in the Persian Gulf lasted three years, from March 2011 to March 2014. More than one thousand man-hour of training were held for Petroleum Ministry’s environment specialists in three regions – Mahshahr, Assaluyeh and Kharg – two training courses for familiarizing17 managers and experts with technologies used in Japan for managing the environment.

Under this comprehensive plan, 30 instructions were explained for HSE management system and eight instructions were explained as action plan for preventing environment pollution in Assaluyeh, Mahshahr and Kharg. The measures urgently needed for the development of environment management have been recognized as prioritized plans.

These plans include strengthening the structure and management of Petroleum Ministry’s HSE Department by recruiting specialized and experienced manpower, implementation of One Zone One Management Principle, reducing flare gases and pollutant emission from gas refineries and petrochemical plants in Assaluyeh, reducing to nil water release in crude oil storage facilities in Kharg Island, reducing to zero the mercury emission by applying cleaner production technology at Bandar Imam Petrochemical Company in the southwestern city of Mahshahr.

Since this project requires the approval of Iran’s petroleum minister, budget allocation, coordination with concerned organizations and appointment of staff, the petroleum minister instructed the ministry and its four subsidiaries with providing the required infrastructure for this project.

Given the fact that upgrading environmental management of the petroleum industry in the Persian Gulf and its coastal zones require precise planning and coordination, working groups need to be established for each zone under the supervision of Petroleum Ministry’s Project Steering Committee. These working groups are tasked with compiling supervision programs for executive affairs, communicating and coordinating with relevant bodies, monitoring execution and assess performance before reporting their work to Petroleum Ministry’s Specialized Committee on the Environment. These working groups remain active until the end of the executive period of the comprehensive plan, and special staff has to be recruited.

According to forecasts, more than 90 percent of the environmental problems of the oil, gas and petrochemical industries in the Persian Gulf and coastal zones will be resolved under short-term (two years), mid-term (three to five years) and long-term (seven to ten years) plans.                   

Big Stride in Domestic Manufacturing 

 

During the first half of the current calendar year which started on March 21, ten groups of widely used commodities of the petroleum industry were identified by petroleum engineers so that they would be mass-produced domestically with the collaboration of knowledge-based and private entities. Recently, a production line was launched in Kish Island for the manufacture of three strategic items.

Iran’s industrialization started with the emergence of the petroleum industry, but Iran’s oil sector did not grow sufficiently due to being dominanated by Western governments and shortage of specialized manpower in different periods of time.

In the early years following the 1979 Islamic Revolution, due to the imposed war and the necessity for supplying basic needs in the country, the country’s officials focused their attention on basic needs; therefore, attention to Iran’s oil industry was limited to maintaining production capacity for gaining petrodollars and meeting emergency needs.

After the eight-year war ended in 1988, the country had to be reconstructed. That is why manufacturing of petroleum industry equipment did not receive enough attention until the end of the 1990s.

For nearly two decades, Iran got the required equipment and commodities for its oil sector from foreign companies. But suddenly, international sanctions targeted Iran’s oil sector and the entry of commodities was banned. This challenge still exists and that is why petroleum industrialists identified 10 groups of the widely used commodities to be manufactured domestically by knowledge-based companies.

Iranian engineers have managed to acquire state-of-the-art technology for manufacturing through cooperation with foreign companies. Some wellhead equipment like completion strings, liner hanger, production pig, seal, involute gear, down-hole safety valve and plug valve are manufactured by Iranian companies.

Over the past five years, specifically after Western sanctions were toughened against Iran and foreign companies pulled out of the country, Iran has installed the necessary equipment through a European company in order to complete its gas wells. In the meantime, the manufacturing of this equipment was taken into account in compliance with international standards. To that effect, Petropars Wells Services Company moved to form a joint venture with a European company to manufacture equipment for completing gas wells.

Iranian engineers and technicians have managed to develop five series of mono-bore following tests.

This joint venture is also ready to manufacture SSSV and other equipment used in well completion. That is a strong point of the drilling industry in developing the South Pars gas field. One series of this equipment has already been installed in Phase 19 of South Pars.

 

Manufacturing Group

 

Petroleum Minister Bijan Namdar Zangeneh recently ordered the establishment of a working group to follow up on the manufacturing of 10 groups of widely used commodities in the petroleum industry. Mohammad-Reza Moqaddam, the deputy petroleum minister for research and technology, was appointed head of this committee.

Zangeneh ordered the establishment of the working group in order to accelerate the manufacturing of the ten groups of commodities. This working group is comprised of representatives from National Iranian Oil Company and its subsidiaries, Tehran Kala Naft Company and Mohammad-Taqi Amanpour advisor to the Petroleum Minister.

The reports submitted by all ten groups are to be analyzed so that the best proposals would be picked in view of signature of contract for manufacturing.

Endorsing the text of contracts, the value of each contract, method of payment, terms and conditions of contracts, preferences and guarantees need to be endorsed by the relevant working group. The volume and quality of commodities to be manufactured will be finalized following close exchange of views with them. Forecasting the necessary workshop and field tests for ensuring the proper quality of products, assessment and final decision for the signature of contracts for transferring in technology and manufacturing equipment all lie within the authority of this working group.

The prices need to be competitive while commodities are required to be of high quality. The contracts should be also signed for future orders and they should not interrupt the current activities of the companies.

Indigenization and acquisition of modern technology have always been major concerns for the petroleum industry. This issue has come further to the fore as senior Petroleum Ministry officials have in recent years focused their attention on domestic manufacturing. To that effect, the benefits of commercialization of technology should not be neglected.

Exploring approaches to deal with risks, identifying obstacles to commercialization and guaranteeing the return of investment are among factors to be taken into account for commercialization.

Commercialization of research is so significant that the number of centers providing consultation services in industrialized countries is rising fast. Commercialization has become an important pillar in technological renovation. This important issue has been seriously considered by many organizations and research institutes; however, evidence shows that although a large number of technological researches have technically succeeded only a small portion of them have succeeded in commercialization. That shows the complexity of the process of commercialization.

NIGC Ready to Cope with Global Developments

 

The natural gas share does not cease to grow in Iran’s energy mix. Over the past one year, Iran’s Petroleum Minister Bijan Namdar Zangeneh has repeatedly said that gas production is outstripping gas consumption in the country. He said recently that Iran will no longer need to import gas in the current calendar year to March 2015. In that case, Iran will be experiencing totally different conditions in this sector. Below is a review of Iran’s gas industry development plans for the 2025 horizon.

 

$62b Investment Needed

 

National Iranian Gas Company (NIGC) runs 13 refineries, 71 gas pressure booster stations and more than 35,000 kilometers of pipeline. It plans to bring the number of its refineries to 19, gas pressure booster stations to 90 and extend pipelines to more than 40,000 kilometers in three years. These facilities would increase the country’s gas production to 330 mcm/d.

In 2017, 94.5% of Iran’s population will be supplied with natural gas. Currently 63 million Iranians have access to natural gas and the figure is expected to reach 71 million in three years. Such a major development requires finance.

Managing director of NIGC Hamid-Reza Araqi said recently that realization of the 2017 objectives necessitates infrastructure and finance because gas industry activities are extensive.

He said that NIGC will witness a 200-mcm increase in gas refining capacity by 2017, requiring $21 billion in investment. The extension of gas pipelines by 5,000 kilometers and construction of 19 gas pressure booster stations would also require $34 billion.

Moreover, gas storage sector is forecasted to be supplying 115 mcm of gas in 2017. Reaching this capacity needs $3 billion in investment.

Extending the gas coverage network to 3.5 million more households would also need $4.5 billion in investment.

In total, NIGC would need $62.5 billion in investment to realize its 2017 objectives.

 

Strategic Objectives

 

Iran’s gas industry and NIGC are bracing for more changes up to the 2025 horizon. Barely has any other Iranian company faced such challenges.

These changes include a two-fold increase in demand for gas, emergence of major industrial customers with high bargaining power and growing population.

By 2025, Iran’s energy basket will depend on gas for more than 70 percent. Gas will be traded at international level; therefore challenges will arise. By then, cooperation with big international companies will be a must for acquiring technology and getting the necessary finance.

Therefore, given the above-mentioned issues, NIGC should prepare itself for dealing with these challenges.

 

Triangle of Missions

 

Araqi said the main missions assigned to Iran’s gas industry are symbolized in a triangle whose three angles are energy supply in the country, economic efficiency and optimization of value chain and providing resources for national development.

These missions have been defined under gas supply management, gas industry restructuring management and active presence in global trade opportunities.

Gas supply management is significant because it coordinates the gas industry value chain with international regulations, better performance in the gas industry, supply security, customers’ satisfaction and commitment to safeguarding the environment in the country. In the meantime, restructuring management will make the gas industry effective and competitive with the participation of the private sector and that will make effective contribution to energy supply, finance and national development.

Grabbing opportunities for presence in the world gas markets and creating chances for the gas industry to gain experience would be the results of trading of Iran’s gas in international markets. That will bring Iran profits in the long-term and will strengthen Iran’s international position.

 

Demand and Fluctuations Management

 

Accomplishment of the aforesaid missions in the gas industry requires strategic necessities. The first one would be making efforts to manage demand and its relevant fluctuations, which would require liberalization of the prices and modifying them in compliance with world gas trading prices, accepting the fact that the gas prices differ from region to region and consumption level varies in different seasons of the year. Economically justified gas supply development within the framework of production, refining and transmission plans is also of great significance in the management of demand.

In the meantime, introducing and promoting more effective technologies aimed at energy efficiency and making efforts for reducing energy consumption, completing and developing storage projects, controlling demand fluctuations in imports and exports by replacing electricity with gas in industry and housing sectors during warm and cold seasons of the year in coordination with power and gas pricing organizations need to be considered.

The gas industry should also make the necessary arrangements with the upstream sector in order to be able to boost gas supply. Such coordination and enhanced supply requires acceleration of development of hydrocarbon fields with joint fields prioritized, negotiations for exploration and development of new fields and enhancing production and reducing losses in the entire value chain.

 

Commercialization

 

Commercialization is another strategic requirement in the gas industry for development in the future. To that effect, the value chain, geographical, technical and organizational structures have to be defined clearly. It is also necessary that measurement systems be designed and installed to match the appropriate business model.

The tasks defined for Petroleum Ministry, National Iranian Oil Company, NIGC and their subsidiaries need to be defined in clear terms. Legal and financial relations between different government institutions should be also clarified.

Structural design, optimal portfolio of NIGC, re-engineering and establishment of transmission and dispatching company will be of great help in this regard.

 

Funds

 

Another issue with strategic requirements is the establishment of institutions. To that effect, a new law governing gas industry needs to be drafted in order to help implement a proper business model, create gas market with appropriate trading instruments and create a gas regulatory body in the country.

Encouraging the establishment of gas retail companies, establishing oil fund and designing financial instruments for the gas sector (like futures) in order to curb price fluctuations are other factors contributing to the development of gas industry in the country.

 

Privatization

 

Privatization of gas industry requires the assessment of the portfolio of subsidiary companies. Cession should be also carried out in the gas distribution network in order to improve marketing and guarantee competition between companies.

Optimal design of management processes at NIGC, enhancing productivity and reducing costs and optimal design of mechanisms for coordination between NIGC and its subsidiaries are also strategic necessities which must be taken into consideration.

On the other hand, boosting the status of the IT section at NIGC and girding information systems for an effective performance in business model through integrated information flow, as well as benefitting from project management knowledge for optimal and productive implementation of projects are other necessary preconditions for improving operations in the gas industry.

 

Modern Technologies

 

If we consider acquisition of modern technologies as another strategic requirement in the gas industry, we will have to acquire technologies particularly for liquefied natural gas (LNG) quickly and improve technology management procedures in this industry.

Developing technologies for transmission, dispatching, storage and measurement and applying highly-efficient technologies in refining processes are other necessary measures in this sector. A technological roadmap is required to be sketched in the gas industry in order to acquire technologies needed for safeguarding the environment.

 

FDI Attraction

 

Financial resources are instrumental in development. Providing the necessary finance and controlling costs, constitute important points in the development of gas industry. One option for attracting resources will be to sell the stocks of subsidiaries in order to make investment in the gas industry and printing bonds at national and international levels for more profitability.

Attraction of foreign direct investment, joint venture projects, replacement of electricity with gas in remote and warm regions will also help reduce costs.

Furthermore, exercising control on the upstream sector which has the highest margins in the gas value chain, establishing an accounting system for monitoring subsidiaries and making efforts for attracting financial resources through domestic sale and export of gas are among effective methods.

 

Global Market

 

On its way towards development, the gas industry should benefit from opportunities presented in the world markets and brace for joint venture projects in the foreign markets.

Consumer markets, gas equations and the activities of rivals need to be regularly monitored and the current contracts have to remain effective in order to guarantee presence in the limited regional markets. LNG swap, presence in bigger gas markets by laying out pipelines, developing LNG technology and diversifying exports markets will be helpful in this regard.

To realize these objectives every organization will need dynamic, specialized and committed manpower. Human resources might be the most important requirement for gas industry development.

Human resources need to be developed in light of new technologies and knowhow, while policies and procedures of human resources management need to be revamped.

In order to boost human resources, it would be also necessary to upgrade marketing skills in organizations taking care of exports. Seminars, on the job training courses, publications and information dissemination about strategies of NIGC are important tools for strategic development.

 

Harmony with Macroeconomic Policies

 

In order to comply with the country’s macroeconomic policies, NIGC has drawn up plans under four categories: finance and technology, human resources and gas supply and demand.

Araqi has said that NIGC envisages sustainable resources, financial discipline, asset management and interaction with financial bodies.

With regards to gas supply and demand, high energy intensity, the big share of gas in household consumption, optimal allocation of resources and security of energy supply have to be taken into account.

Providing the necessary finance for sustainable development, protection of the environment and active presence in global energy trading and energy supply security are among other requirements for energy demand management.

Optimization of consumption through demand management has to be taken into account at this point. To that effect, pricing management is required to be done within the framework of subsidy regulation plan, while social institutes have to promote culture of gas consumption.

Effective energy technologies, standards and new consumption patterns have to be designed.

As far as human resources are concerned, confidence-building, meritocracy and leading a comfortable life ought to be ensured at gas complexes, particularly at South Pars gas field in southern Iran.

As for technology, domestic manufacturers and knowledge-based companies should be supported. A case in point is the acquisition of technology for manufacturing gas turbines inside the country, manufacturing intelligent pigging for technical inspection of pipelines and development of technology for designing sulfur recovery and gas desalting units.

NIGC Ready to Cope with Global Developments

 

The natural gas share does not cease to grow in Iran’s energy mix. Over the past one year, Iran’s Petroleum Minister Bijan Namdar Zangeneh has repeatedly said that gas production is outstripping gas consumption in the country. He said recently that Iran will no longer need to import gas in the current calendar year to March 2015. In that case, Iran will be experiencing totally different conditions in this sector. Below is a review of Iran’s gas industry development plans for the 2025 horizon.

 

$62b Investment Needed

 

National Iranian Gas Company (NIGC) runs 13 refineries, 71 gas pressure booster stations and more than 35,000 kilometers of pipeline. It plans to bring the number of its refineries to 19, gas pressure booster stations to 90 and extend pipelines to more than 40,000 kilometers in three years. These facilities would increase the country’s gas production to 330 mcm/d.

In 2017, 94.5% of Iran’s population will be supplied with natural gas. Currently 63 million Iranians have access to natural gas and the figure is expected to reach 71 million in three years. Such a major development requires finance.

Managing director of NIGC Hamid-Reza Araqi said recently that realization of the 2017 objectives necessitates infrastructure and finance because gas industry activities are extensive.

He said that NIGC will witness a 200-mcm increase in gas refining capacity by 2017, requiring $21 billion in investment. The extension of gas pipelines by 5,000 kilometers and construction of 19 gas pressure booster stations would also require $34 billion.

Moreover, gas storage sector is forecasted to be supplying 115 mcm of gas in 2017. Reaching this capacity needs $3 billion in investment.

Extending the gas coverage network to 3.5 million more households would also need $4.5 billion in investment.

In total, NIGC would need $62.5 billion in investment to realize its 2017 objectives.

 

Strategic Objectives

 

Iran’s gas industry and NIGC are bracing for more changes up to the 2025 horizon. Barely has any other Iranian company faced such challenges.

These changes include a two-fold increase in demand for gas, emergence of major industrial customers with high bargaining power and growing population.

By 2025, Iran’s energy basket will depend on gas for more than 70 percent. Gas will be traded at international level; therefore challenges will arise. By then, cooperation with big international companies will be a must for acquiring technology and getting the necessary finance.

Therefore, given the above-mentioned issues, NIGC should prepare itself for dealing with these challenges.

 

Triangle of Missions

 

Araqi said the main missions assigned to Iran’s gas industry are symbolized in a triangle whose three angles are energy supply in the country, economic efficiency and optimization of value chain and providing resources for national development.

These missions have been defined under gas supply management, gas industry restructuring management and active presence in global trade opportunities.

Gas supply management is significant because it coordinates the gas industry value chain with international regulations, better performance in the gas industry, supply security, customers’ satisfaction and commitment to safeguarding the environment in the country. In the meantime, restructuring management will make the gas industry effective and competitive with the participation of the private sector and that will make effective contribution to energy supply, finance and national development.

Grabbing opportunities for presence in the world gas markets and creating chances for the gas industry to gain experience would be the results of trading of Iran’s gas in international markets. That will bring Iran profits in the long-term and will strengthen Iran’s international position.

 

Demand and Fluctuations Management

 

Accomplishment of the aforesaid missions in the gas industry requires strategic necessities. The first one would be making efforts to manage demand and its relevant fluctuations, which would require liberalization of the prices and modifying them in compliance with world gas trading prices, accepting the fact that the gas prices differ from region to region and consumption level varies in different seasons of the year. Economically justified gas supply development within the framework of production, refining and transmission plans is also of great significance in the management of demand.

In the meantime, introducing and promoting more effective technologies aimed at energy efficiency and making efforts for reducing energy consumption, completing and developing storage projects, controlling demand fluctuations in imports and exports by replacing electricity with gas in industry and housing sectors during warm and cold seasons of the year in coordination with power and gas pricing organizations need to be considered.

The gas industry should also make the necessary arrangements with the upstream sector in order to be able to boost gas supply. Such coordination and enhanced supply requires acceleration of development of hydrocarbon fields with joint fields prioritized, negotiations for exploration and development of new fields and enhancing production and reducing losses in the entire value chain.

 

Commercialization

 

Commercialization is another strategic requirement in the gas industry for development in the future. To that effect, the value chain, geographical, technical and organizational structures have to be defined clearly. It is also necessary that measurement systems be designed and installed to match the appropriate business model.

The tasks defined for Petroleum Ministry, National Iranian Oil Company, NIGC and their subsidiaries need to be defined in clear terms. Legal and financial relations between different government institutions should be also clarified.

Structural design, optimal portfolio of NIGC, re-engineering and establishment of transmission and dispatching company will be of great help in this regard.

 

Funds

 

Another issue with strategic requirements is the establishment of institutions. To that effect, a new law governing gas industry needs to be drafted in order to help implement a proper business model, create gas market with appropriate trading instruments and create a gas regulatory body in the country.

Encouraging the establishment of gas retail companies, establishing oil fund and designing financial instruments for the gas sector (like futures) in order to curb price fluctuations are other factors contributing to the development of gas industry in the country.

 

Privatization

 

Privatization of gas industry requires the assessment of the portfolio of subsidiary companies. Cession should be also carried out in the gas distribution network in order to improve marketing and guarantee competition between companies.

Optimal design of management processes at NIGC, enhancing productivity and reducing costs and optimal design of mechanisms for coordination between NIGC and its subsidiaries are also strategic necessities which must be taken into consideration.

On the other hand, boosting the status of the IT section at NIGC and girding information systems for an effective performance in business model through integrated information flow, as well as benefitting from project management knowledge for optimal and productive implementation of projects are other necessary preconditions for improving operations in the gas industry.

 

Modern Technologies

 

If we consider acquisition of modern technologies as another strategic requirement in the gas industry, we will have to acquire technologies particularly for liquefied natural gas (LNG) quickly and improve technology management procedures in this industry.

Developing technologies for transmission, dispatching, storage and measurement and applying highly-efficient technologies in refining processes are other necessary measures in this sector. A technological roadmap is required to be sketched in the gas industry in order to acquire technologies needed for safeguarding the environment.

 

FDI Attraction

 

Financial resources are instrumental in development. Providing the necessary finance and controlling costs, constitute important points in the development of gas industry. One option for attracting resources will be to sell the stocks of subsidiaries in order to make investment in the gas industry and printing bonds at national and international levels for more profitability.

Attraction of foreign direct investment, joint venture projects, replacement of electricity with gas in remote and warm regions will also help reduce costs.

Furthermore, exercising control on the upstream sector which has the highest margins in the gas value chain, establishing an accounting system for monitoring subsidiaries and making efforts for attracting financial resources through domestic sale and export of gas are among effective methods.

 

Global Market

 

On its way towards development, the gas industry should benefit from opportunities presented in the world markets and brace for joint venture projects in the foreign markets.

Consumer markets, gas equations and the activities of rivals need to be regularly monitored and the current contracts have to remain effective in order to guarantee presence in the limited regional markets. LNG swap, presence in bigger gas markets by laying out pipelines, developing LNG technology and diversifying exports markets will be helpful in this regard.

To realize these objectives every organization will need dynamic, specialized and committed manpower. Human resources might be the most important requirement for gas industry development.

Human resources need to be developed in light of new technologies and knowhow, while policies and procedures of human resources management need to be revamped.

In order to boost human resources, it would be also necessary to upgrade marketing skills in organizations taking care of exports. Seminars, on the job training courses, publications and information dissemination about strategies of NIGC are important tools for strategic development.

 

Harmony with Macroeconomic Policies

 

In order to comply with the country’s macroeconomic policies, NIGC has drawn up plans under four categories: finance and technology, human resources and gas supply and demand.

Araqi has said that NIGC envisages sustainable resources, financial discipline, asset management and interaction with financial bodies.

With regards to gas supply and demand, high energy intensity, the big share of gas in household consumption, optimal allocation of resources and security of energy supply have to be taken into account.

Providing the necessary finance for sustainable development, protection of the environment and active presence in global energy trading and energy supply security are among other requirements for energy demand management.

Optimization of consumption through demand management has to be taken into account at this point. To that effect, pricing management is required to be done within the framework of subsidy regulation plan, while social institutes have to promote culture of gas consumption.

Effective energy technologies, standards and new consumption patterns have to be designed.

As far as human resources are concerned, confidence-building, meritocracy and leading a comfortable life ought to be ensured at gas complexes, particularly at South Pars gas field in southern Iran.

As for technology, domestic manufacturers and knowledge-based companies should be supported. A case in point is the acquisition of technology for manufacturing gas turbines inside the country, manufacturing intelligent pigging for technical inspection of pipelines and development of technology for designing sulfur recovery and gas desalting units.

1972 Oil Market

 

In the years following the World War II, the global oil market underwent serious changes. Such factors as increased demand by industrialized countries that did not produce any oil, the emergence of the United States as a major importer and the former Union of Soviet Socialist Republics (USSR)’s hidden role as a top exporter, growing oil production in the Middle East and intensified oil exploration operations in the world were instrumental in the changes introduced to the oil market, particularly the supply and demand balance.

 

Oil Production

 

In 1972, named the year of global oil prosperity, supply and demand were in harmony. Oil exploration and production operations were increasing in harmony with the growing demand in the market. Oil production soared to 2.5 billion tons in 1972 with the Middle East accounting for 91 million tons. Iran’s share stood at 254 thousand tons a year. Iran was the top producer in the Middle East region, followed closely by Saudi Arabia. In the meantime, oil production in Iraq and Libya dropped while Kuwait stopped extracting oil for fear of depletion of its wells.

According to official figures, the world oil production showed a 5-percent increase in 1972 compared with the previous year. Iran and Saudi Arabia were instrumental in this growth in output.

 

Ups and Downs

 

Oil production remained approximately unchanged in Western countries. For instance in the US, which makes up 20 percent of the world production, the output did not change waiting for oil production in Alaska. Iraq’s oil production slumped 20 percent to reach 97 million tons because of nationalization of an international oil company there. But Saudi Arabia, which was the third largest producer behind the US and the USSR, boosted its oil production by 27 percent to reach 285 million tons. In Africa, oil production was growing slowly and did not exceed 1.8-percent. Oil production dropped sharply in Libya and Algeria.

 

Modern Exploration

 

Amidst these ups and downs in the oil production, oil companies braced for modern exploration activities. Caltex Malaysia, which was a joint venture between Standard Oil Co. of California and the Texas Co., was the first company to announce in January 1972 the discovery of three oil fields in Sumatran state. The company said the newly discovered fields contained low-sulfur oil. Simultaneously, Australia made a significant gas discovery, while British Petroleum drilled an offshore well.

In Iran, exploration operations picked up speed and Iran Oil Consortium, which was operating the development of 16 oil-rich zones, mounted three offshore drilling platforms. These exploration operations were conducted in Susangerd, 40 kilometers from the southwestern city of Ahvaz. National Iranian Oil Company (NIOC) and three other oil companies carried out drilling in oil-rich zones. No oil was found in Haft Cheshmeh, but exploration operations proved to be successful in Kuh Rik.

 

All-Out Prosperity

 

The daily growing demand for oil in 1972 required more investment in the petroleum industry. Production and sale of oil were such that experts could not precisely predict the amount of necessary oil for the future.

In that year, due to the exponential gains made by oil companies, the gross revenues of these companies grew 12 percent – an unprecedented figure in the history of oil.

Meantime, transportation was progressing and more than half of vessels were carrying crude oil. In 1972, oil was mainly transported to long distances because the distance between production spots and markets were long and the Suez Canal was blocked.

 

Oil Security

 

Given the growing oil production in the world and the significance of discovery of oil reserves and the fast growing oil demand, one can understand how difficult the conditions could be for consuming countries in the event of political crises.

At that time, analysts had predicted that the world would not witness any significant oil shortage up to the end of the 21^st century, as new techniques are making discoveries.         

 

 

Arg-e Bam, World’s Largest Adobe Monument

 

The city of Bam is one of the most historically and geographically important cities in Kerman province in southeastern Iran. Bam is the only Iranian city to have been listed by the United Nations Educational, Scientific and Cultural Organization (UNESCO) as cultural heritage. The city has a mysterious history.

 

Mythical History

 

The origin of the ancient city of Bam, known as the largest adobe monument in the world, remains unknown. Historians have failed to find any strong evidence about the formation of this city. There are mythical and historical views about the origin of Bam. Ferdowsi, a prominent Persian poet, has attributed the construction of this city to the era of legendary kings who ruled the ancient Persia. One of legendary figures who ruled southeast Persia was Rostam. According to legend, Rostam had killed Esfandiar who ruled Touran. Later, Esfandiar’s son, Bahman, moved to Sistan and Kerman to avenge the death of his father. He battled Rostam’s nephew, Farmaraz, whom he killed and hanged. That place has since been named “Dar Zin”, a Persian word for gallows. Bahman had ordered a citadel to be constructed where he defeated Faramarz. The citadel was later on named Bahman Fortress.

In his poem, Ferdowsi says impoverished people who lived near the fortress built new houses around the fortress and the city of Bam took shape.

This story has been taken into account by a large number of Iranian historians and that is why they say Bam is short for Baham or Bahman.

 

Bam under Sassanids

 

When Sassanids were in power (224-651) in Iran, major developments transpired the country. The most significant among them were shift from feudalism, instated by Ashkanians, to kingdom, declaration and recognition of a single religion in the country, regulation of new administrative and military rules and creation of social classes among people.

Expansion of urban communications and prosperity in business resulted in the accumulation of wealth, growth of population and finally the expansion of the city of Bam.

In order to protect the city and its well-heeled residents from attacks, a towering wall was erected around Bam. The wall provided protection for businessmen and industrialists, but farmers and gardeners had to work on their lands and in their gardens which were outside the fortress. For this reason, another wall was decided to be constructed to include the gardens and farmlands.

During the end of the Sassanid rule, Bam was divided into three sections:

1. Governing Fortress: It was built on a rock in the north of the city and overlooked the Bam Desert.
2. Public Fortress: This one was built in the southern part of the city to house industrialists and businessmen.
3. Suburbs: It housed farmlands and gardens.

 

Bam Embraces Islam

 

After Islam arrived in Iran, more physical changes occurred in the defense systems, spaces of living as well as religious, public benefit and ceremonial facilities. The first mosque was then built in the public fortress.

A bazaar, a school, a bathroom, a zurkhaneh (sports club), a military barracks and a notorious jail were also constructed. The existence of such places in Arg-e Bam shows that the ancient city of Bam was home to people, and the citadel inside it housed rulers.

Looked from far distance, the citadel is like a pyramid whose base is where ordinary people lived, its body was the military barracks and its cone was reserved for rulers.

When the Safavids came to power, Iran enjoyed a high level of security. People gradually left the city and built houses outside the fortress. However, they used to flock the ancient city as soon as they were alerted about an imminent attack.

 

Bam in History

 

Regularly attacked by invaders and struck by natural disasters, the city of Bam recounts a history replete with ups and downs.

This great citadel was nearly flattened in 2003 following a killer quake. However, the city continues to stand tall, thanks to restoration work. The tall walls of the citadel, expanding on 6 ha of land, provide wonderful scenery for every viewer. The city looks to be surrounded by this fortress. The walls still bear the hallmark of enemy attacks, but they have been restored many times as they were the only protection to the city.

 

Social Gaps

 

The city is surrounded by deep trenches which were filled with water for defense.

The city had several entry gates, one of which still remains usable. There are also remnants of other gates. These gates were closed during night in order to protect the city.

The ancient city of Bam had four entry gates. One of them was the main gate, another one led to the mosque and two others were located in the easternmost and westernmost parts of the city.

Ordinary people lived in small houses connected to one another. There are also two-storey houses which belonged to the rulers and rich residents. The social and economic influence of the owners of these luxurious houses could be seen in the extent and location of the buildings.

The Bam citadel symbolizes differences between social groups. This difference is visible in the architecture of the citadel.

 

Citadel, Center of Governance

 

The citadel was the center of governance. It was located in the most important and the most strategic part of the city. Located on a rock, it has its own fortresses. To reach the citadel, one has to go through several gates. The citadel is equipped with a towering watchtower known as kiosk. As it is so tall, that gives view to the entire city. It was even taller in the past. The main tower has been destructed and a new one has been built. This tower has a building known as four-season edifice. It was home to the ruler’s family. There are also other buildings belonging to the ruler. These buildings had also a secret passageway which was used in emergency conditions.

 

Unique Urban Structure

 

From above the tower and the fortresses, the first thing striking a viewer’s mind is the method of construction used by Iranians in the past. The houses are built next to each other and they were connected through narrow alleys. The interesting point is that every alley or passageway leads to a religious center, the bazaar, the water reservoir or schools. Some of these alleys are roofed and some others are connected in a maze style. The main passageway stretches from the first to the second entry gate. This is where the city’s bazaar was located.

 

Citadel Revived

 

Iranians lived in the citadel until several decades ago. That is why it was the largest adobe monument in the world to have survived before the 2003 devastating earthquake struck.

Despite the quake destructions, the city continues to attract visitors after it was restored. The citadel receives visitors from across the world.

Arg-e Bam, World’s Largest Adobe Monument

 

The city of Bam is one of the most historically and geographically important cities in Kerman province in southeastern Iran. Bam is the only Iranian city to have been listed by the United Nations Educational, Scientific and Cultural Organization (UNESCO) as cultural heritage. The city has a mysterious history.

 

Mythical History

 

The origin of the ancient city of Bam, known as the largest adobe monument in the world, remains unknown. Historians have failed to find any strong evidence about the formation of this city. There are mythical and historical views about the origin of Bam. Ferdowsi, a prominent Persian poet, has attributed the construction of this city to the era of legendary kings who ruled the ancient Persia. One of legendary figures who ruled southeast Persia was Rostam. According to legend, Rostam had killed Esfandiar who ruled Touran. Later, Esfandiar’s son, Bahman, moved to Sistan and Kerman to avenge the death of his father. He battled Rostam’s nephew, Farmaraz, whom he killed and hanged. That place has since been named “Dar Zin”, a Persian word for gallows. Bahman had ordered a citadel to be constructed where he defeated Faramarz. The citadel was later on named Bahman Fortress.

In his poem, Ferdowsi says impoverished people who lived near the fortress built new houses around the fortress and the city of Bam took shape.

This story has been taken into account by a large number of Iranian historians and that is why they say Bam is short for Baham or Bahman.

 

Bam under Sassanids

 

When Sassanids were in power (224-651) in Iran, major developments transpired the country. The most significant among them were shift from feudalism, instated by Ashkanians, to kingdom, declaration and recognition of a single religion in the country, regulation of new administrative and military rules and creation of social classes among people.

Expansion of urban communications and prosperity in business resulted in the accumulation of wealth, growth of population and finally the expansion of the city of Bam.

In order to protect the city and its well-heeled residents from attacks, a towering wall was erected around Bam. The wall provided protection for businessmen and industrialists, but farmers and gardeners had to work on their lands and in their gardens which were outside the fortress. For this reason, another wall was decided to be constructed to include the gardens and farmlands.

During the end of the Sassanid rule, Bam was divided into three sections:

1. Governing Fortress: It was built on a rock in the north of the city and overlooked the Bam Desert.
2. Public Fortress: This one was built in the southern part of the city to house industrialists and businessmen.
3. Suburbs: It housed farmlands and gardens.

 

Bam Embraces Islam

 

After Islam arrived in Iran, more physical changes occurred in the defense systems, spaces of living as well as religious, public benefit and ceremonial facilities. The first mosque was then built in the public fortress.

A bazaar, a school, a bathroom, a zurkhaneh (sports club), a military barracks and a notorious jail were also constructed. The existence of such places in Arg-e Bam shows that the ancient city of Bam was home to people, and the citadel inside it housed rulers.

Looked from far distance, the citadel is like a pyramid whose base is where ordinary people lived, its body was the military barracks and its cone was reserved for rulers.

When the Safavids came to power, Iran enjoyed a high level of security. People gradually left the city and built houses outside the fortress. However, they used to flock the ancient city as soon as they were alerted about an imminent attack.

 

Bam in History

 

Regularly attacked by invaders and struck by natural disasters, the city of Bam recounts a history replete with ups and downs.

This great citadel was nearly flattened in 2003 following a killer quake. However, the city continues to stand tall, thanks to restoration work. The tall walls of the citadel, expanding on 6 ha of land, provide wonderful scenery for every viewer. The city looks to be surrounded by this fortress. The walls still bear the hallmark of enemy attacks, but they have been restored many times as they were the only protection to the city.

 

Social Gaps

 

The city is surrounded by deep trenches which were filled with water for defense.

The city had several entry gates, one of which still remains usable. There are also remnants of other gates. These gates were closed during night in order to protect the city.

The ancient city of Bam had four entry gates. One of them was the main gate, another one led to the mosque and two others were located in the easternmost and westernmost parts of the city.

Ordinary people lived in small houses connected to one another. There are also two-storey houses which belonged to the rulers and rich residents. The social and economic influence of the owners of these luxurious houses could be seen in the extent and location of the buildings.

The Bam citadel symbolizes differences between social groups. This difference is visible in the architecture of the citadel.

 

Citadel, Center of Governance

 

The citadel was the center of governance. It was located in the most important and the most strategic part of the city. Located on a rock, it has its own fortresses. To reach the citadel, one has to go through several gates. The citadel is equipped with a towering watchtower known as kiosk. As it is so tall, that gives view to the entire city. It was even taller in the past. The main tower has been destructed and a new one has been built. This tower has a building known as four-season edifice. It was home to the ruler’s family. There are also other buildings belonging to the ruler. These buildings had also a secret passageway which was used in emergency conditions.

 

Unique Urban Structure

 

From above the tower and the fortresses, the first thing striking a viewer’s mind is the method of construction used by Iranians in the past. The houses are built next to each other and they were connected through narrow alleys. The interesting point is that every alley or passageway leads to a religious center, the bazaar, the water reservoir or schools. Some of these alleys are roofed and some others are connected in a maze style. The main passageway stretches from the first to the second entry gate. This is where the city’s bazaar was located.

 

Citadel Revived

 

Iranians lived in the citadel until several decades ago. That is why it was the largest adobe monument in the world to have survived before the 2003 devastating earthquake struck.

Despite the quake destructions, the city continues to attract visitors after it was restored. The citadel receives visitors from across the world.

Arg-e Bam, World’s Largest Adobe Monument

 

The city of Bam is one of the most historically and geographically important cities in Kerman province in southeastern Iran. Bam is the only Iranian city to have been listed by the United Nations Educational, Scientific and Cultural Organization (UNESCO) as cultural heritage. The city has a mysterious history.

 

Mythical History

 

The origin of the ancient city of Bam, known as the largest adobe monument in the world, remains unknown. Historians have failed to find any strong evidence about the formation of this city. There are mythical and historical views about the origin of Bam. Ferdowsi, a prominent Persian poet, has attributed the construction of this city to the era of legendary kings who ruled the ancient Persia. One of legendary figures who ruled southeast Persia was Rostam. According to legend, Rostam had killed Esfandiar who ruled Touran. Later, Esfandiar’s son, Bahman, moved to Sistan and Kerman to avenge the death of his father. He battled Rostam’s nephew, Farmaraz, whom he killed and hanged. That place has since been named “Dar Zin”, a Persian word for gallows. Bahman had ordered a citadel to be constructed where he defeated Faramarz. The citadel was later on named Bahman Fortress.

In his poem, Ferdowsi says impoverished people who lived near the fortress built new houses around the fortress and the city of Bam took shape.

This story has been taken into account by a large number of Iranian historians and that is why they say Bam is short for Baham or Bahman.

 

Bam under Sassanids

 

When Sassanids were in power (224-651) in Iran, major developments transpired the country. The most significant among them were shift from feudalism, instated by Ashkanians, to kingdom, declaration and recognition of a single religion in the country, regulation of new administrative and military rules and creation of social classes among people.

Expansion of urban communications and prosperity in business resulted in the accumulation of wealth, growth of population and finally the expansion of the city of Bam.

In order to protect the city and its well-heeled residents from attacks, a towering wall was erected around Bam. The wall provided protection for businessmen and industrialists, but farmers and gardeners had to work on their lands and in their gardens which were outside the fortress. For this reason, another wall was decided to be constructed to include the gardens and farmlands.

During the end of the Sassanid rule, Bam was divided into three sections:

1. Governing Fortress: It was built on a rock in the north of the city and overlooked the Bam Desert.
2. Public Fortress: This one was built in the southern part of the city to house industrialists and businessmen.
3. Suburbs: It housed farmlands and gardens.

 

Bam Embraces Islam

 

After Islam arrived in Iran, more physical changes occurred in the defense systems, spaces of living as well as religious, public benefit and ceremonial facilities. The first mosque was then built in the public fortress.

A bazaar, a school, a bathroom, a zurkhaneh (sports club), a military barracks and a notorious jail were also constructed. The existence of such places in Arg-e Bam shows that the ancient city of Bam was home to people, and the citadel inside it housed rulers.

Looked from far distance, the citadel is like a pyramid whose base is where ordinary people lived, its body was the military barracks and its cone was reserved for rulers.

When the Safavids came to power, Iran enjoyed a high level of security. People gradually left the city and built houses outside the fortress. However, they used to flock the ancient city as soon as they were alerted about an imminent attack.

 

Bam in History

 

Regularly attacked by invaders and struck by natural disasters, the city of Bam recounts a history replete with ups and downs.

This great citadel was nearly flattened in 2003 following a killer quake. However, the city continues to stand tall, thanks to restoration work. The tall walls of the citadel, expanding on 6 ha of land, provide wonderful scenery for every viewer. The city looks to be surrounded by this fortress. The walls still bear the hallmark of enemy attacks, but they have been restored many times as they were the only protection to the city.

 

Social Gaps

 

The city is surrounded by deep trenches which were filled with water for defense.

The city had several entry gates, one of which still remains usable. There are also remnants of other gates. These gates were closed during night in order to protect the city.

The ancient city of Bam had four entry gates. One of them was the main gate, another one led to the mosque and two others were located in the easternmost and westernmost parts of the city.

Ordinary people lived in small houses connected to one another. There are also two-storey houses which belonged to the rulers and rich residents. The social and economic influence of the owners of these luxurious houses could be seen in the extent and location of the buildings.

The Bam citadel symbolizes differences between social groups. This difference is visible in the architecture of the citadel.

 

Citadel, Center of Governance

 

The citadel was the center of governance. It was located in the most important and the most strategic part of the city. Located on a rock, it has its own fortresses. To reach the citadel, one has to go through several gates. The citadel is equipped with a towering watchtower known as kiosk. As it is so tall, that gives view to the entire city. It was even taller in the past. The main tower has been destructed and a new one has been built. This tower has a building known as four-season edifice. It was home to the ruler’s family. There are also other buildings belonging to the ruler. These buildings had also a secret passageway which was used in emergency conditions.

 

Unique Urban Structure

 

From above the tower and the fortresses, the first thing striking a viewer’s mind is the method of construction used by Iranians in the past. The houses are built next to each other and they were connected through narrow alleys. The interesting point is that every alley or passageway leads to a religious center, the bazaar, the water reservoir or schools. Some of these alleys are roofed and some others are connected in a maze style. The main passageway stretches from the first to the second entry gate. This is where the city’s bazaar was located.

 

Citadel Revived

 

Iranians lived in the citadel until several decades ago. That is why it was the largest adobe monument in the world to have survived before the 2003 devastating earthquake struck.

Despite the quake destructions, the city continues to attract visitors after it was restored. The citadel receives visitors from across the world.