NIOC Investment Opportunities
By Hamid-Reza Shakeri-Rad
Recently for the first time, National Iranian Oil Company (NIOC) put on tender 20 mcm of flare gases produced in some oil and gas fields for conversion into valuable products like electricity in an attempt to safeguard the environment by avoiding associated gases from being burnt. The plan was warmly welcomed by the private sector.
NIOC officials are offering tender for the associated gases, NGL, ethane recovery and other utilities in order to encourage the private sector to become more active and protect the environment.
Ali Kardor, NIOC deputy managing director for Investment and Finance, shares his views in an interview with Iran Petroleum.
Q: What made you consider putting on tender flare gases?
A: Flare gases have been burnt for years and that has inflicted economic damage on the economy and the environment. Mindful of all these, NIOC has worked out different mechanisms like converting these gases into valuable products like NGL. But these projects were delayed due to financial problems. Now, at the order of Petroleum Minister Bijan Namdar Zangeneh, the flare gases are supposed to be given to the private sector to be transformed into valuable products. I think this project could become one of the most effective economic projects in the country. In the meantime, I have to note that NIOC does not seek vested interests in this project but it envisages environmental concerns and involvement of private investors in some sectors of the petroleum industry.
Q: Would you please tell us about the basic price, volume and timeframe of selling these gases?
A: The envisaged price is on average 3 cents per cubic meter. The timeframe considered for the sale of flare gases is up to March 2020. The total gas needed to be available for sale is 20 mcm, equal to one phase of South Pars.
Q: You just mentioned that this project could be economically effective. How?
A: Flare gases could be converted to a variety of products, but we believe that the best and the simplest method for investors would be to transform these gases into electricity. Currently, around 1,000MW of electricity is being exported from Iran while 20 mcm/d of gas could be converted into 3,000MW of electricity, or thrice Iran’s current gas exports. According to international prices, this volume of gas could earn the country $1.5 billion a year. That would serve the interests of the private sector and would also boost Iran’s electricity exports capacity. Therefore, I believe that this project can be the most economical project in the country, not to mention environmental issues and less air pollution.
Q: What other products could be achieved from flare gases?
A: In addition to electricity, other products like gas liquids and LNG could be achieved from flare gases through Mini-LNG or FLNG facilities. That requires huge investment and application of state-of-the-art technology. We have to consider more time than for electricity generation for them.
Q: You highlighted economic benefits. Do you have any estimates of rate of return on investment for converting these gases into electricity?
A: Yes. The rate of return on investment for this project is 20-25 percent a year. But given the progressive electricity prices in the coming years in the country, the profitability of these projects will also increase.
Q: Have you held any talks with Iran Energy Ministry officials to that effect?
A: There have been preliminary talks, and of course it requires the cooperation of Iran’s Energy Ministry. Getting permit from the Department of the Environment and other bodies and also signing contracts with Energy Ministry for the sale of generated electricity are also up to potential investors.
Q: Would you please explain about fields in question?
A: The fields producing flare gas have been picked from 50 operational spots run by National Iranian South Oil Company, Iran’s Central Oil Fields Company, Iran Arvandan Oil and Gas Company, Iranian Offshore Oil Company and National Iranian Gas Company. Their volume of gas varies between 0.01 mcm/d and 5 mcm/d.
Q: What are terms and conditions after the signature of contract?
A: The timeframe for the implementation of the project is one year. If it becomes operational sooner than one year, the investor will enjoy a 30% discount. After one year, whether or not the investor would be ready to receive the gas, NIOC will charge 80% of the gas price agreed upon. If NIOC delivers less gas than agreed it will grant discount. Private companies should request for renewal of contract at least six months prior to its expiry. Where there is a possibility of authorizing use of NIOC-owned lands we will make announcement. These plots of land will be rented out to companies only for installations, and the land will remain under ownership of NIOC.
Q: How many private companies have so far announced their readiness? When do you think the contract will be signed?
A: More than 40 private companies have voiced readiness and they attended our informative meetings. Applicants will have to submit their requests no later than January 9, 2015 and the contracts will be signed up to March 11, 2015.
Q: You have reportedly offered other packages than flare gases to the private sector. Would you please explain more?
A: Yes, we are preparing three other packages on NGL plants, ethane recovery, crude oil and gas condensate storage facilities as well as utility to be commissioned to the private sector. These packages will also have benefits for both sides, let alone significant environmental aspects.
Q: What stage are these projects in?
A: A working group has been established for preparing these sectors. In the first step, a formula was developed for determining the price of NGL feedstock and ethane recovery based on the amount of investment and international prices. The formula will be finalized soon. The period envisaged for these formulae is ten years and then it will be renewed.
Q: What about NGL and ethane recovery projects?
A: Nine NGL plants including NGL 1700, NGL 1800, NGL 2000, NGL 2300, NGL 2400, NGL 3100, NGL 3200 and NGL Kharg as well as ethane recovery from Phase 12 of South Pars, Parsian and Bidboland are among them.
Q: Have you had any estimates of the amount of investment in these projects and the rate of return?
A: The investment needed for the implementation of these projects is estimated to be between $15 and $20 billion. The rate of return will definitely be more than 20%.
Q: Is it possible for foreign investors to bid?
A: Yes, there are no restrictions and foreign investors can be present under FIPPA law and following registration in Iran or in collaboration with Iranian investors. Regarding investment in oil and gas fields, Iran Petroleum Contract (IPC) is being finalized and new fields have been discovered. The conditions will be soon announced to domestic and foreign investors.