Reading Between the Lines

Kasra nouri

Director General of Public Relations

Iran’s Petroleum Engineering and Development Company (PEDEC) has signed agreements with two Iranian firms for the development of the Yaran and South Azadegan oil fields as well as construction of a processing plant.

The $500 million agreement for the development of Yaran and the $961 plus IRR 11,830 billion agreement for South Azadegan may not seem very significant when compared with multibillion-dollar oil projects; however, one has to read between the lines.

Under the Yaran deal, the field’s total recovery would have reached 39.5 million tonne within ten years while South Azadegan would be producing 320,000 b/d within 30 months while capacity building would be made for the production of 200 mcm/d of gas.

The outstanding feature of these projects is that two Iranian contractors are engaged against the backdrop of tough US sanctions on Iran’s petroleum industry and the coronavirus outbreak at the global level.

Iran’s petroleum industry has been under unjust US sanctions for four decades now. The Americans have resorted to every illegitimate and unreasonable tool to stymie the development of Iran’s oil sector. These sanctions are still in place. 

Signing agreement for the South Azadegan and Yaran fields, both lying in West Karoon, indicates that the US’s four-decade pressure has failed to ground Iran’s petroleum industry. Iranian specialists and contractors have become capable enough to implement and manage oil projects.

Iran’s principled policy is cooperation and partnership with all other nations as well as qualified companies involved in the oil, gas and petrochemical sectors. Iran’s Ministry of Petroleum Bijan Zangeneh made it clear that Iran’s petroleum industry was open to all companies, even US companies.

Iran, sitting atop the world’s largest oil and gas reserves combined, could not be removed from the energy market. Oil barrels and not White House officials’ wishes would determine the future of the oil market.   

Zangeneh: We’ll Never Give In

 National Iranian Oil Company (NIOC) has signed an agreement with the Persian Oil and Gas Industry Development Company (POGIDC) for the development of the Yaran oil field which Iran shares with neighboring Iraq.

The agreement, which has been drafted based on the Iran Petroleum Contract (IPC) model, was signed by Reza Dehqan, deputy CEO of NIOC for development and engineering, and Jafar Hejazi, CEO of POGIDC.

The signing of this agreement comes at a time while Iran’s petroleum industry is under tough US sanctions.

Minister of Petroleum Bijan Zangeneh has said that creating strategic capacities is a must for the revival of Iran’s share of the oil market. He said: “We will not give in under any circumstances.”

The Yaran field is jointly owned by Iran and Iraq in West Karoun. The southern part was developed by the Petroleum Engineering and Development Company (PEDEC) and the northern part came online with an output of 30,000 b/d in November 2016 under a buyback deal by POGIDC. Now the entire Yaran field has been awarded to POGIDC for development.

 Reviving Market Share

 Zangeneh, who was addressing the ceremony through videoconference due to the Covid-19 outbreak, said: “It is true that our oil production has declined due to unjust sanctions; however, it will not remain the same forever. We have to boost our capacity in order to jump to the market powerfully to revive our share when needed. We are not supposed to give in and the Yaran field development agreement lies in such a direction.”

He said that the IPC nature of the agreement required production from the field before the contractor was remunerated.

“The remuneration envisaged in this agreement is below $2.5 a barrel, which would be paid for each additional barrel. In other words, $40 would go to state and $2.5 to contractor,” he said.

Zangeneh said the contractor would make gains in case the production increases.

“The period of agreement is ten years, subject to renewal. Under this agreement, POGIDC is required to provide all necessary capital resources, and after the start of operation it will receive its costs and honorarium,” he said.

The Yaran project is estimated to have $227 million in direct capital expenditure while operation costs throughout the agreement would be about $236 million.

The agreement would bring total output from Yaran to 39.5 million barrels.

Mehdi Karbasian, CEO of NIOC, said it was the 6th IPC agreement in Iran’s petroleum industry, adding that the Yaran development would inject $2 billion to state coffers.

 Joint Fields

 Finalizing the case of all shared fields prior to the end of President Hassan Rouhani’s administration and using all contractual capacities for developing oil and gas fields were among topics raised by Minister Zangeneh.

He said that joint fields had always been a must and main issue for the petroleum industry, adding: “Fortunately, we are active in South Pars with maximum output from 27 phases. Development of two phases has been delayed due to sanctions, which Petropars is following up on.”

He said that after France’s Total and China’s CNPCI pulled out of SP11 due to US sanctions, the project was automatically delegated to Petropars.

Zangeneh said the Belal gas field was not independent, adding that an agreement had been signed for it.

“Agreement for developing the Farzad B gas field would be signed soon and the Forouzan field development would be decided upon,” he added.

Zangeneh said the agreements for developing the Aban and West Paydar field had taken effort.

“Therefore, final decision on all joint oil and gas fields would have been made by the end of the 11th administration,” he added. “I don’t say they would have been developed. I would rather say they would have been be decided upon.”

 Contract Types

 Zangeneh said all types of contract would be used for the development of the petroleum industry.

“The petroleum industry can no longer be administered by the methods adopted in previous years. We have to consider new methods for implementing the projects,” he said.

Zangeneh said: “The world is currently working on exploration and production and therefore we have decided to activate Iranian companies in this sector. We have followed a similar approach in the oil commercial sector and Iranian companies are already active. We are helping them, but they can prove effective against the backdrop of sanctions.”

“In the light of using the capacity of various contracts, we will pursue EPC/EPD agreements to enhance oil output. We have received permit to absorb more than $6 billion from the capital market. The advantage with such agreements is that the job would be handed to the contract in an integrated form and the contractor would give back oil,” he said.

Zangeneh said a list of equipment had been attached to contracts, which had to be sourced from domestic manufacturers.

“Development is not limited to joint fields. Rather, all oil and gas fields are being developed. However, necessary sources must be provided by the capital market because oil resources are not sufficient. Various contract methods could prove effective due to their capacities,” said the minister.

 Everything New Has Opponents

 Zangeneh said that no new IPC agreement would be signed without any Iranian party being involved.

He said the IPC model was an evolved version of the traditional buyback format.

“Now we call it traditional. Once it was new and it had its opponents. Everything that is new has its opponents. Buyback deals had their opponents, but after IPC was developed they said buyback was good. That is while the same persons opposed buyback deals when they were new,” he added.

Gholam-Hossein Nozari, former minister of petroleum, said the North Yaran development project was one of few buyback deals that came online with costs less than CAPEX. He said that the CAPEX envisaged in the contract was $700 million, but finally it cost $580 million.

Nozari, who is a board member at Tadbir Energy Development Group, said Tabdir Energy was trying to manufacture pumps.

“In West Karun and other fields, 700-800 wells would need downhole pumps. We hope that such pumps would be manufactured domestically thanks to Minister Zangeneh’s support. These pumps are technologically sophisticated, which are predicted to operate for two years in a row and prevent the inactivation of wells,” he said.

Iran Oil Exports No Longer Dependent on Hormuz Strait

 President Hassan Rouhani and Minister of Petroleum Bijan Zangeneh officially inaugurated the construction of a 1,000-km pipeline extending from Goreh to Jask. The pipeline would enable to Iran to carry 1 mb/d of crude oil from Makran export terminal to target markets.

Rouhani said the project was strategic, adding: “Today is the day of assurance for our [oil] buyers. They can be assured that they could buy our oil under any conditions.”

Minister Zangeneh also said that the possibility of delivering crude oil through a channel other than the Strait of Hormuz, would make Iran’s oil export much more secure than neighboring and Middle East fellow exporters.

But why President Rouhani described the Goreh-Jask pipeline as one of the most strategic projects? It’s easy to answer.

Having built this pipeline to export oil, Iran would no longer merely depend on the Strait of Hormuz, and it would enable Iran to carry its oil from the Makran terminal to target markets. That would mean guaranteeing oil delivery supply to buyers against the backdrop of conditions where the Strait of Hormuz has been faced with a variety of threats over the past two years. As a result, oil consumers were thinking of alternative options for that purpose.

Fereydoun Majlesi, expert on international affairs, has said that Iraq and Kuwait are the most dependent nations on the Strait of Hormuz.

“Saudi Arabia also uses the same route for its Eastern destinations. Iran had to take a strategic step to reduce dependence on this chokepoint. Therefore, building this pipeline as well as storage tanks was important,” he added.

Now, with the construction of this route at a time its petroleum industry is hit with tough sanctions, Iran is assuring its oil buyers that they can rely on this country and buy Iran’s oil safely.

Explaining about the strategic aspects of the Goreh-Jask pipeline, Rouhani said: “Many countries in the region have found an alternative for their oil exports in order to be able to export their oil when the Strait of Hormuz is threatened.”

“Although we control the Strait of Hormuz, we have a problem that if this strait was to be closed for whatsoever reason, its oil exports would be halted and Iran would face problems. Now, we have overcome this problem,” he said.

Rouhani said the line was important in terms of economy, national security and energy.

He added: “Therefore, it would give assurances to our buyers.”

 Jask to Export Oil Early 2021

 The Goreh-Jask line is 1,000 km long, starting from Goreh in the southern Bushehr Province. It will cut through Fars Province and Hormuzgan Province before reaching Jask, the Makran terminal and finally Kharg.

There are 20 oil storage tanks with capacity of about 10 million barrels, a terminal, several single-point moorings, power plants, water desalination plants, access roads as well as industrial infrastructure in Makran and Jask. That would allow the delivery of 1mb/d of heavy crude oil from oil-rich areas and accommodate very large crude carriers with capacity of two million tonnes.

The export terminal would bring Iran closer to its export markets in China, India, East Asia, Europe and Africa, reducing export costs.

It would be also possible to make arrangements for swapping crude oil and petroleum products with Caucasus, Central Asia and Russia.

Javad Yarjani, Iran’s former OPEC national representative, said were it not for oil sanctions, the terminal would be instrumental in facilitating Iran’s oil exports particularly towards East.

Zangeneh said the capital needed for the project was estimated between $800 million and $850 million, adding that oil exports from the Jask terminal would start by early next year.

 Domestic Manufacturing

 Iran’s Petroleum Ministry embarked on this project under the Rouhani administration while the United States re-imposed sanctions on Iran’s petroleum industry after pulling out of the 2015 nuclear deal. The sanctions prompted many foreign companies to leave Iran.

Consequently, equipment shortages were felt in Iran because there was no experience in the manufacturing of some equipment. Therefore, National Iranian Oil Company (NIOC) decided to push ahead with the project without foreigners and only by reliance on domestic manufacturers.

Zangeneh said some equipment in this project had been manufactured for the first time in Iran.

“Contracts had been signed with foreign companies for manufacturing such equipment as slabs used in pipe building. As soon as sanctions were back in place, the contracts were terminated. However, during a ten-month period, Mobarakeh Steel Mill, following hard efforts made Khuzestan Oxin Steel Co. managed to build slabs and billets respectively,” he said.

Zangeneh said the Mobarakeh mill manufactured and delivered 320,000 tonnes of slabs while Khuzestan Oxin Steel delivered 250,000 tonnes of billet. He added that pipe manufacturers had built 440 km of pipeline, 350 km of which had been delivered to sites to be welded.

The minister said 50 giant pumps with capacity of 2.5MW were needed in the project.

Noting that such pumps had not been built in Iran before, he said: “For the first time, manufacturing of these pumps was assigned to three domestic companies for $50 million.”

Zangeneh said that five pumping stations were also under construction in addition to the pumps.

“Twenty tanks with capacity of 500,000-barrel storage are under construction in the Jask area by the private sector under BOT agreements and the agreement for the oil export terminal utilities has been signed,” he added.

 Jask Terminal 40% Complete

 Zangeneh said the Jask export terminal was 40% complete, adding: “Over the past two months the bulk of progress in this project has been made, 7% per month. It is valuable and we hope that this project would be completed this year to allow for exports.”

Referring to a 600,000-barrel to 700,000-barrel condensate pipeline connecting to the Persian Gulf Star Refinery, he said: “By connecting these two lines, it would be possible to carry gas condensate via Jask if need be.”

Highlighting the significance of the Jask terminal project, Zangeneh said: “By implementing this project, in addition to an export terminal, a development hinterland would be created in the Gulf of Oman.”

The minister said $300 million had so far been invested in the project, adding that another $850 million was needed.

“There are of course obstacles and problems, some of which have been overcome. The remaining finance would be guaranteed through capital market so that the project would be completed in due time,” said Zangeneh.

He expressed hope that oil exports would begin from the Jask terminal, as the most strategic project of the Rouhani administration, early 2021.

Reza Dehqan, deputy head of NIOC for engineering and development, said Iranian services and equipment accounted for more than 95% of the Goreh-Jask pipe project.

He said that five pumping stations, three pigging stations, 10 power supply posts, 400km of electricity transmission lines, 3 SPMs, 40km of undersea pipeline and 20 crude oil storage tanks were envisaged in this project, all of which being handled by Iranian contractors and consultants.

“Currently, more than 800 heavy machines and 5,000 service workers are involved in this project and everything is in compliance with health protocols,” he added.

Shazand Refinery Produces Hexane

 On June 25, 2020, the Imam Khomeini Oil Refining Company, known commonly as the Shazand refinery, started producing hexane with a capacity of 190,000 liters a day. The project was inaugurated by President Hassan Rouhani through videoconference due to the Covid-19 restrictions.

With the commissioning of this project the refinery would be producing 50,000 tonnes a year of normal hexane. It is the first time that such product is being supplied domestically.

The CEO of the refinery, Gholam-Hossein Ramezanpour, has said that an initiative project was used for producing hexane at this facility, adding that Iran may now export hexane.

In March 2018, the isomerization unit of the Shazand refinery experienced a technical problem. Meantime, supply of normal hexane, which is the key to the polymerization of petrochemicals, was faced with numerous restrictions. That caused problems for the isomerization section.

Experts at the refinery suggested in October 2019 that the quality of refined products be upgraded, while a valuable product could be developed. Then, an agreement was signed between the Research Institute of Petroleum Industry (RIPI) and the Shazand refinery to develop technical knowhow for producing hexane solution.

Ramezanpour said: “By making some modifications in the isomerization unit of the second phase of the Shazand refinery, we managed to implement our project and bring it into operation in February 2019.”

“Iran’s domestic industrial needs for normal hexane amount to 30,000 tonnes per annum, but this unit at the Shazand refinery can produce 50,000 tonnes a year of normal hexane,” he said.

The refinery can now count on exporting 20,000 tonnes of normal hexane, which would save the country about $20 million a year.

In industry, hexanes are used in the formulation of glues for shoes, leather products, and roofing. They are also used to extract cooking oils (such as canola oil or soy oil) from seeds, for cleansing and degreasing a variety of items, and in textile manufacturing. They are commonly used in food based soybean oil extraction in the United States, and are potentially present as contaminants in all soy food products in which the technique is used; the lack of regulation by the FDA of this contaminant is a matter of some controversy.

A typical laboratory use of hexanes is to extract oil and grease contaminants from water and soil for analysis. Since hexane cannot be easily deprotonated, it is used in the laboratory for reactions that involve very strong bases, such as the preparation of organolithiums. For example, butyllithiums are typically supplied as a hexane solution.

 Creative Project

 The imposition of US sanctions on Iran’s petroleum industry has restricted financing and investment attraction. That has imposed heavy costs on Iran’s petroleum industry, but it has also pushed technical and operating units to develop creative methods for reducing costs and improving the quality of production.

The normal hexane production at Shazand refinery is a case in point. At the beginning, it seemed impossible to develop normal hexane without having built an independent unit. But the company’s experts managed to use the unused capacity of idle units (isomerization unit of Phase 2) and make processing modifications in these units to realize the objective. Now, from a unit where only clean gasoline was being extracted, two varieties of clean fuel and normal hexane are being supplied. Therefore, two birds were killed with one stone as in addition to normal hexane production, the quality and quantity of gasoline was upgraded.

Mohsen Mohammadi, director of techno-engineering services at the Shazand refinery, said: “To set up an independent unit for normal hexane production, we needed $11 million in investment; however, we managed to make it come true with only $100,000.”

Petrochemical plants and food industry are among the major buyers of normal hexane.

Mohammadi has given assurances to customers that the normal hexane at the Shazand refinery is up to standards.

Ramezanpour said the implementation of this project would lead to at least 4,000 b/d increase in feedstock for the isomerization unit.  

“Until recently, 16 ml/d of Euro-4 gasoline was being produced at this refinery. Now, the figure is increased by 500,000 l/d. That would cut pollution in gasoline while hexane exports would earn Iran $45 million in revenue,” he said.

Self-sufficiency in gasoline production is a major success achieved in the administration of President Hassan Rouhani, Iran’s gasoline production was below 52 ml/d, which made the country a net importer. But now, Iran is producing more than 110 ml/d of gasoline. The Bandar Abbas gas condensate refinery has been instrumental in Iran’s self-sufficiency in gasoline production.    

 Normal Hexane

 Hexane is a straight-chain alkane with six carbon atoms and has the molecular formula C6H14.

Hexane is a significant constituent of gasoline. It is a colorless liquid, odorless when pure, and with boiling points approximately 69 °C (156 °F). It is widely used as a cheap, relatively safe, largely unreactive, and easily evaporated non-polar solvent.

The term hexanes refers to a mixture, composed largely ( >60%) of hexane, with varying amounts of the isomeric compounds 2-methylpentane and 3-methylpentane, and, possibly, smaller amounts of nonisomeric C5, C6, and C7 (cyclo)alkanes. Hexanes is cheaper than hexane and is often used in large scale operations not requiring a single isomer (e.g., as cleaning solvent or for chromatography).

Hexanes are commonly used in chromatography as a non-polar solvent. Higher alkanes present as impurities in hexanes have similar retention times as the solvent, meaning that fractions containing hexane will also contain these impurities. In preparative chromatography, concentration of a large volume of hexanes can result in a sample that is appreciably contaminated by alkanes. This may result in a solid compound being obtained as oil and the alkanes may interfere with analysis.

Hexanes are chiefly obtained by refining crude oil. The exact composition of the fraction depends largely on the source of the oil (crude or reformed) and the constraints of the refining. The industrial product (usually around 50% by weight of the straight-chain isomer) is the fraction boiling at 65–70 °C (149–158 °F).

Like most alkanes, hexane characteristically exhibits low reactivity and are suitable solvents for reactive compounds. Commercial samples of n-hexane however often contain methylcyclopentane, which features tertiary C-H bonds and they are incompatible with some radical reactions.

Iran PE Output Capacity Hits 5mt

 The Miandoab petrochemical plant came on-stream in late June. President Hassan Rouhani inaugurated the project through videoconference. The plant’s annual production capacity is 140,000 tonnes of high-density polyethylene (HDPE). The Miandoab plant which would bring Iran’s PE production capacity to 5 million tonnes, is built on the way of West Ethylene Pipeline (WEP). It cost €40 million plus IRR 8,000 billion.

Rouhani said 17 more petrochemical projects would come on-stream by next March, calling on the private sector to invest in Iran’s downstream projects.

He cited a promise from Minister of Petroleum Bijan Zangeneh about the startup of 17 petrochemical projects by next March, adding that the new projects would double Iran’s revenue from petrochemical exports to $25 billion.

Rouhani said Iran would see its petrochemical income reach $37 billion in the third jump.

“In the petrochemical sector we would need another jump, which is downstream jump. As there are diverse petrochemical products, the downstream petrochemical sector could also create many jobs,” he added.

Rouhani said the government would call for the private sector to invest in the downstream development of the 17 projects that would come online in the current calendar year “because of high job creation and higher revenue”.

He said: “We would be witnessing a major change in this sector.”

 Historic Output Hike

 Minister Zangeneh said the Miandoab petrochemical plant was the first of second-jump petrochemical plants to have come online.

“With the inauguration of 17 petrochemical plants in 2020, the production capacity of this industry will increase 25 million tonnes, which will mark the most historic production hike in the history of Iran’s petrochemical industry,” he said.

“Furthermore, with the materialization of the second jump in the petrochemical industry by March 2022, the production capacity of this industry will reach 100 million tonnes, worth $25 billion,” he added.

Zangeneh said the third jump in the petrochemical sector had also started. “Some of the third jump projects are under way with satisfactory physical progress and some others are in the phase of preparation. The third jump projects would bring the value of petrochemical products to $37 billion,” he added.

The minister said 16 of second jump projects were planned to come online this year.

“Once all the 16 projects come online, the petrochemical production capacity will increase from the current 66 million tonnes to 90 million tonnes, up 35%,” Zangeneh said.

Bringing a total of 27 petrochemical projects into operation by March 2022, which marks the end of the second petrochemical jump, would raise Iran’s petrochemical production capacity to 100 million tonnes with a total revenue of $25 billion. In the third jump up to 2026, another 27 petrochemical projects would become operational to bring Iran’s production from 100 million tonnes to 130 million tonnes.

Zangeneh touched on supplying feedstock to downstream units along with developing petrochemical projects, saying: “With a view to increasing the capacity of downstream units, projects have been defined in the methanol, PP, ethylene and benzene chains for accelerating development and diversity in the downstream industries.”

 Petchem Projects

 A group of new projects, known as driver projects, are focused on increasing petrochemical production capacity and diversity, the two sectors set to prove challenging for Iran. In the PP production sector, Iran is faced with 200,000-tonne shortages. Iran is currently producing about 980,000 tonnes of PP. Demand for PP is set to reach 700,000 tonnes in coming years and therefore Iran plans to bring its PP production capacity to 3 million tonnes from methanol and natural gas as envisaged by National Petrochemical Company (NPC). Iran has already mastered knowhow for converting methanol to PP.

Behzad Mohammadi, CEO of NPC, has said that Iran’s petrochemical production capacity would reach 23 million tonnes by 2024, which would create a good opportunity for methanol conversion to PP.

Gas-to-Propylene (GTPP) projects with a view to carrying PP to northern and northeastern provinces for developing downstream industries using Iranian knowhow are among the driver projects.

The first GTPP project using Iranian knowhow is under way in Eslamabad Gharb by NPC, which would come online by 2025.

 Iranian Catalyst

 The Miandoab petrochemical plant is the 15th plant producing a variety of LDPP, HDPP and LDLPP on WEP.

Davoud Reza Rabbani, CEO of Bakhtar Petrochemical Company, said similar plants used until recently to import catalysts.

He said that 10% of the revenue gained from petrochemical exports is guaranteed by the Bakhtar Petrochemical Company. The share is set to reach 15% by next year.

The Bakhtar Petrochemical Company has seven petrochemical offshoots including the Kavian Petrochemical Company; the largest olefin production unit in Iran.Most petrochemical plants located on the WEP route have been hived off to the Bakhtar company.

A review of global and regional offer and demand for PE products shows that following the Covid-19 outbreak, the market is faced with increased demand for packaging products and subsequently increased demand for PE products, particularly film grades.

Market analysts believe that in case the coronavirus spread subsides in the world, demand for various PE grades would increase in the mid-term and long-term as health protocols change and more products would need packaging. Therefore, building and developing PE units for the purpose of meeting domestic needs and boosting exports would remain economically viable.

Permits have recently been given for three new PE projects. The Persian Gulf Petrochemical Industries Company (PGPIC) has announced the planned construction of a 300,000-tonne PE plant near the Gachsaran Petrochemical Plant.

By implementing a project to boost the ethylene production capacity at Arya Sasol Polymer Plant by 10%, operations have started for building a 300,000-tonne PE production unit.

By connecting the Tabriz Petrochemical Plant to WEP, a plan is under way to build a 310,000-tonne PE plant in order to allow for three new PE projects in the petrochemical sector.

The Miandoab petrochemical plant would need 140,000 tonnes of ethylene and 2,000 tonnes of butane-1. Ethylene will be supplied by WEP and butane-1 from other petrochemical plants. The products of this plant would serve as feedstock for manufacturers of pipes, plastics and cable among other products.

The Miandoab plant, whose construction started in 2013 on 22 ha of land in the city of Miandoab, is under Japanese Mitsui license. 70% of its share is owned by the Bakhtar Petrochemical Company and 30% by the Pushineh Methanol Company.

Karun Petchem to Run at Full Capacity

Karun Petrochemical Company (KRNPC) has started work to build an independent hydrogen and carbon monoxide (HYCO) production plant. Work got under way at a ceremony attended by Jafar Rabiei, CEO of Persian Gulf Petrochemical Industries Company.

“Projects like HYCO at KRNPC can remove bottlenecks in production, particularly by using domestic potential,” said Rabiei.

He said a strong point with the HYCO project was that it was being handled by an Iranian contractor.

“We hope that the project would be ready on schedule and become operational next [calendar] year,” he added.

Rabiei said Bandar Imam Petrochemical Company, as the main shareholder of KRNPC, was fully cooperative in clearing the way for this plant, adding: “We appreciate this cooperation whose result would be profit-sharing in this project.”

“We should not let problems prevent companies from reaching their maximum production capacity. Rather than that, by using domestic potential, we need to remove obstacles to production quickly and safely, so that necessary projects would become operational,” he said.

Ali-Reza Seddiqizadeh, CEO of KRNPC, said the preliminary measures for the HYCO project were undertaken with a €50 million budget in previous years to allow for its startup in the current calendar year.

Petropars to Complete Azadegan Oilfield Development

The Petroleum Engineering and Development Company (PEDEC) has signed a contract with Petropars Group for completing the development of South Azadegan joint oilfield besides building a 320,000 b/d central treatment export plant (CTEP) at Azadegan.

The contract to complete the development of South Azadegan field was signed with the aim of increasing the daily production capacity of the field to 320,000 barrels of crude oil in 30 months and within the contract amount worth $961 million and IRR 1,183 billion.

Touraj Dehghani, PEDEC CEO, and Hamid Reza Masoudi, the CEO of Petropars, signed the document in Tehran on Monday. The document was signed in a ceremony held in the presence of Iranian Minister of Petroleum Bijan Zangeneh.

The project entails drilling 35 wells, installation of 50 downhole ESP pumps, completion of 8 manifolds, completion of two intermediate separation plants, construction of 328 km of flow pipelines, 45 km of communication pipelines and 65 km of gas and crude oil transmission pipelines from the CTEP to the West Karun Pumping House and NGL 3200.

Iran Gas Refining Capacity at 1bcm/d

 Iran has brought its gas refining capacity to 1 bcm/d, a senior official at National Iranian Gas Company (NIGC) has said.

“The capacity of gas refining in the country has exceeded 1 bcm/d,” said Masoud Zardouyan, chief coordinator and supervisor at NIGC.

He said Iranian gas refineries were ready to supply sufficient natural gas on schedule.

He said there must be correlation between gas production and consumption in the country because expanding the gas supply network would not be possible without enhancing natural gas production capacity.

Zardouyan said NIGC was making arrangements to increase gas production, adding that refineries were ready to receive more gas for treatment.

“Under the present circumstances, Iranian refineries have an extra 100 mcm/d capacity for processing. If more gas feedstock is provided upstream, it would be possible to treat more gas,” he added.

He said the number of gas refineries in the country would increase to 19 from the current 18 by 2021.

Surplus Methanol Production to Be Managed

 CEO of National Petrochemical Company (NPC) Behzad Mohammadi said that with the launch of new petrochemical projects, surplus methanol production would be managed.

He said that the newly planned petrochemical projects would focus on the methanol, propylene, ethylene and benzene chains, adding that several objectives would be achieved at the same time.

“In this direction, in the light of surplus methanol production in the country and with a view to completing the value chain, converting methanol to propylene is planned in the 2025 horizon,” he said.

Mohammadi said other advantages of this work included management of surplus methanol production, converting methanol to propylene with a higher value-added, supplying domestic needs and using locally mastered knowledge.

He said that NPC’s brand was becoming further known as it is gaining success in all sectors.

“This company is today present in the development plans of the petroleum industry and remains an influential body,” he said.

No Plan to Sell Oil at Discount Prices to China

 President Hassan Rouhani’s chief of staff has dismissed allegations of Iran planning to sell oil at 20 to 30 percent below market prices to China as part of a planned 25-year cooperation plan between the two nations.

“The issue of selling oil at 20-30% below global prices as part of Iran-China 25-year cooperation is not true. Oil relations in Iran have their own mechanism. An agreement has to be signed to that effect. We have not discussed such minor issues,” said Mahmoud Vaezi.

He said: “Over the past decade, Iran-China relations have expanded in various dimensions and at one point it reached a point where the trade between the two countries totaled $50 billion.”

He touched on the 2015 meeting between Chinese President Xi Jinping and President Rouhani, during which they discussed economic ties as two trading partners.

“The two presidents announced that year that they were looking for a long-term cooperation document to pursue strategic relations between the two countries,” said Vaezi.

NIGC Faces No Penalty in Gas Dispute with Turkmenistan

 Minister of Petroleum Bijan Zangeneh said Iran’s state-run gas company was facing no penalties over its gas dispute with Turkmenistan’s Turkmengaz, which was handled by an arbitration body.

“The arbitration verdict in the case of National Iranian Gas Company (NIGC) and Turkmengaz imposes no penalty or damages on NIGC,” he said, adding: “Iran has only to settle its debt with Turkmenistan, which was not unexpected.”

Zangeneh noted that the Iranian government or the Ministry of Petroleum was not party to the gas deal with Turkmenistan.

“It was a commercial deal between NIGC and Turkmengaz. Disputes arose after Turkmenistan suspended gas supply to Iran with Turkmengaz claiming NIGC had not paid its debts,” he said.

“We could not transfer money due to sanctions. Even NIGC agreed to pay the interest on unpaid debt and part of this debt was settled in the form of commodity and services. However, Turkmengaz was insisting on receiving the money in full and it showed no flexibility in this regard.”

“NIGC said if the case was to go to arbitration, the price of gas supplied by Turkmengaz had also to go to arbitration because it was high and unfair. Meantime, NIGC believed that the quality and quantity of gas had to face penalties. They first disagreed with the case going to arbitration; however, they took the case to arbitration after some time,” explained the minister.

 Turkmengaz Penalty to Be Deducted

 Zangeneh said the arbitration verdict was not unexpected, adding: “The arbitration concluded that NIGC had to settle its debt with Turkmengaz; however, it did not impose any penalty or damages on NIGC.”

“The arbiter has also accepted NIGC’s argument about the quality and quantity of gas supply by Turkmengaz. Therefore, penalty would be deducted from NIGC’s debt to Turkmengaz,” he said.

Zangeneh said a mechanism had to be worked out for NIGC to pay its debts. He said Iran and Turkmenistan, as two friendly countries, would eye long-term cooperation.

“Commercial disputes are handled at the international level and there is no winner or loser. Similarly, NIGC and Turkey’s Botas went to arbitration and they continued their friendly ties.”

Zangeneh said the two agreements signed between NIGC and Turkmengaz were now declared null and void.

NIDC Designs Wind Turbine

 National Iranian Drilling Company (NIDC) has for the first time managed to design wind turbines with hydraulic transmission power, an NIDC expert said.

Abdollah Saeedi Asl said: “Wind turbines impose heavy costs despite progress in their construction. Their output is also compared with low costs spent on them.”

He said that some problems with wind turbines included the heavy weight and high price of equipment as well as technical restrictions in their towers, which would limit maximum use of the wind power. 

Saeedi Asl said: “The idea behind this invention is to resolve problems, reduce costs and increase energy efficiency.”

“The previous generation of wind turbines was single-shaft and directly coupled with gearbox and connected to generator. This structure caused some technical problems, particularly during reparation. Therefore, in the newly developed turbines these problems have been resolved in order to allow for maximum use of wind power,” he said.

Hydraulic lifting tower is a very popular tower solution for small wind turbine system, especially for the not easy maintenance and typhoon area customers. After the first tower installation, it will not need the crane or lifting equipment for the lay down and erecting process.

The tower and turbine can be laid down by the hydraulic system within 5 or 15 minutes for the maintenance, repair or typhoon coming.

Heavy Aromatics in Nouri Petchem Export Mix

 CEO of Nouri Petrochemical Company Taqi Sanei said plans were under way for adding heavy aromatics to the export mix of the company.

Noting that heavy aromatics was a valuable product with octane 133, used for gasoline production, he said: “In coming months, this product would be added to the export mix of Nouri petrochemicals at the capacity of 3,000 tonnes a year.”

He said the company produced over 4.338 million tonnes of products last calendar year, adding it run at 97% of its nominal capacity while it met its target at 106%.

He highlighted the increased sales of products by the Nouri company, adding that the company had supplied products of higher value.

Sanei said the main three products of the company included paraxylene, benzene and orthoxylene.

“After implementing production enhancement projects last calendar year, 685,000 tonnes of paraxylene was produced, hitting a record. Furthermore, during the first quarter of the current calendar year, paraxylene production was 10% up year-on-year,” he said.

Sanei touched on the production of 417,000 tonnes of benzene last calendar year, adding that in the first quarter of the current year, benzene production was up 7% year-on-year.

NISCO Uses Domestically Sourced Pipes

 CEO of National Iranian South Oil Company (NISOC) Ahmad Mohammadi said the domestic manufacturers would be our priority for supplying pipes required for the reservoirs.

“Developing 28 reservoirs would need 4,500 km of pipes and contractors are required to make maximum use of domestically manufactured pipes,” he said.

Mohammadi who was visiting the Ahvaz pipe mill, stressed the need for further use of the potential of domestic manufacturers. He said: “Pipe is one of widely-used commodities at NISOC. It is used on the ground and also for downhole purposes. More than 4,500 km of pipe is needed for the development of 28 reservoirs.”

He said the Ahvaz mill was able to meet domestic needs, and export services and products to regional countries.

“By predicting future needs, plans were drawn up in consistency with the production capacity of the Ahvaz pipe mill as well as other domestic companies, based on which NISOC revised current standards and shifted from seamless pipes to electric resistance welded (ERW) pipes. This shift would guarantee necessary safety and would enable us to benefit from the capacity of Iranian companies more than before,” he said.

Ali Khanifar, CEO of Ahvaz Pipe Mill, said the company had emerged as successful bidder in most tenders offered for supplying pipe to the 28 reservoirs.

Ilam Refinery to Sell Condensate

 The Ilam gas refinery is selling gas condensate at a higher rate, the manager of the treatment facility said.

Rouhollah Nourian, CEO of Ilam Gas Refining Company, said that gas condensate sales at the facility had increased in the first quarter of the current calendar year year-on-yearNoting that the gas refinery had taken positive steps towards realization of the objective of jump in production, he said: “In the first quarter of the current calendar year, gas input grew 15% year-on-year and gas injection into national trunkline was up 205 year-on-year.”

He said that gas condensate was up 6% while liquefied and granulated sulfur were up respectively 21% and 16%.

“Granulated sulfur grew 14%, LPG delivery to Assaluyeh and Ilam Petchem Plant more than 360% in the first quarter of the current calendar year from corresponding period the year before,” he said.

Nourian said: “In the run-up to planned overhaul, necessary arrangements have been made for preventing the spread of the coronavirus disease.”

Mohammad Nozari, deputy governor of Ilam Province, said that the Ilam gas refinery was instrumental in the province’s sustainable development due to its support for knowledge-based companies and academic centers in the province.

“The Ilam gas refinery has activated downstream industries in the province, thereby creating a chain of job opportunities,” he said.

US Failed to Zero Iran Oil Exports

 The United States has failed to stop the Iranian oil exports despite the intention to bring it to zero, First Vice President of Iran Es'haq Jahangiri said.

“Oil, as the main source of income for Iran, has been under severe sanctions. Under the previous sanctions, the maximum amount of oil exports for Iran was set at one million barrels and then we were selling up to 900,000 barrels of oil. Now they [Washington] said that Iran's oil exports should be brought to zero, and, fortunately, they failed to achieve this,” Jahangiri said.

He added that the present “sensitive and sophisticated” circumstances required action to increase public resilience and national management.

“But it would not materialize just in words,” he said.

Jahangiri said the government had concentrated on the agreements related to the future of the nation.

He touched on the giant offshore South Pars gas field, saying: “Under the 7th administration, Iran and Qatar were equally extracting gas from this field, but when the administration [of President Hassan Rouhani] took office, Iran brought its recovery to twice Qatar’s. Over recent years, we have managed to outdo Qatar in gas recovery from this field.”

Jahangiri said that Iran was recovering 70,000 b/d from West Karoun oil fields in 2013 while Iraq was recovering 100,000 b/d from the same fields it jointly owns with Iran. “But today, our recovery has reached 350,000 b/d,” he added.

Jahangiri said Iran relied on imports to supply its domestic needs during the previous round of sanctions.

“Some petrochemical plants were producing gasoline in order to supply domestic needs. Later on, it was said that petrochemical plants’ gasoline was harmful to the environment,” he added.

Jahangiri said the Resilient Economy Commission had predicted some measures because the US’s disloyalty was never ruled out.

“Today, by relying on resilient economy, we are producing gasoline and gasoil. We are also exporting these products. We recently exported gasoline to Venezuela,” he said.

Jahangiri said Iran’s economy had been largely dependent on oil revenue since long time ago, adding that weaning the economy off oil would take time.

“Iran enjoys extensive potential. The country’s assets, excluding oil, gas and mines, equal IRR 70,000 trillion. We stand at the top in the hydrocarbon ranking and are among the top ten in metal mines.”

ICOFC Boss: Jump in Output across Iran

marjan tabatabaei

The Iranian Central Oil Fields (ICOFC) is a major oil and gas producer affiliated with National Iranian Oil Company (NIOC). Its offshoots are: South Zagros Oil and Gas Production Company, East Oil and Gas Production Company and West Oil and Production Company  and the Sarajeh district in Qom.

Known as the largest strategic onshore gas producer in Iran, ICOFC has been assigned the mission to develop onshore fields located in the provinces of Lorestan, Kurdestan, Kermanshah, Markazi, Qom, Ilam, Khorasan, West Azarbaijan, East Azarbaijan, Ardebil, Fars, Bushehr, Hormuzgan, Chahar Mahal and Bakhtiari and Khuzestan.

Ramin Hatami, CEO of ICOFC, tells" Iran Petroleum" about the plans and priorities of the company for the current calendar year.

Was last calendar year satisfactory for ICOFC in terms of production and development?

Last calendar year, ICOFC with a 257 mcm/d gas production during the winter peak, went beyond fulfilling its gas supply obligations. Despite unlawful sanctions and financial restrictions imposed on Iran, domestic expertise was used for drilling 9 new wells and doing workover on 7 wells by using 8 drilling rigs in order to guarantee sustainable oil and gas production. Furthermore, after 285,000 persons-hours of overhaul and optimal use of domestic resources, the company produced over 70 bcm of gas last calendar year. Moreover, arrangements were made for budget allocation to 16 plans, 80 projects and 1,650 subprojects.

How was the situation with regard to stability in the gas transmission network?

In order to ensure the guaranteed supply of gas to households and industries during cold months, 2.5 bcm of gas was stored in the Shourijeh D and Sarajeh Qom storage facilities in warm seasons. In the cold months of the year, in a bid to make up for shortages of gas injection into national trunkline, more than 2.6 bcm of stored gas was reproduced.

How much was the stored gas higher year-on-year?

About 33%.

If we want to review the details of ICOFC’s performance last calendar year, what are cases in point?

It is noteworthy that last calendar year, in addition to maintaining production levels, five new wells were relaunched to add 6,000 b/d to the company’s oil production capacity. Furthermore, with four new gas wells, about 3 mcm/d was added to the company’s gas production capacity.

What projects are concerned in favor of production prosperity?

Last calendar year we witnessed implementation of various projects whose objective was to enhance the oil and gas production capacity. In response to your question, I can specifically refer to the operation of gas gathering centers in the Khangiran gas field, installation of wellhead equipment and pipelines at Well No. 77 of Khangiran, an addition of 1 mcm/d of gas output, reparation of two well caps without having to install rigs to save IRR 178 billion, conducting 146 kilometers of pigging, operating two oil wells in Saadatabad, starting up EPDF/EPCF projects at the Saadatabad oil field, Naftshahr and Danan, manufacturing and repairing more than 521 items of commodities used in the oil and gas industry.

In light of the current calendar year’s slogan, i.e. jump in production, how are you going to support domestic manufacturing?

Last year, the company produced downhole cameras by breaking foreign companies’ monopoly, manufactured casing, drilling bits, junk mills, demulsifier, packing for pumps’ mechanical seal with nanotechnology, repaired gas compressors and other widely used items of oil and gas wells in support of domestic manufacturing to empower domestic companies. In the current calendar year, the company will continue to support qualified manufacturers of oil and gas industry equipment, and we will move in this direction by relying on the central workshops of subsidiaries.

Research has been a major focus of Petroleum Ministry over recent years. What were your major research activities last calendar year?

In the research sector, we plan

 to sign agreements for lab-scale studies on the process of water and gas-based enhanced recovery from the Bangestan and Asmari reservoirs of the Danan field, conduct lab-scale studies on the process of enhanced recovery from the Danan field reservoirs, sign two research agreements with the Petroleum Ministry and a nano-technology company, conduct gas wetting research projects, decontaminate soil by applying biological methods, build dual frequency desalter and conduct studies on corrosion.

Which projects are prioritized in the current calendar year?

A large number of plans and projects are under way at ICOFC. Flare gas gathering in Naftshahr and Saadatabad for environmental protection, value-added generation and job creation, starting up one of the most complicated seismic testing projects in the petroleum industry in the Tang Bijar area, drilling 18 wells in the Danan, Naftshahr and Saadatabad fields, EPDF/EPCF projects by domestic companies, power supply to wells in the Aban and West Paydar fields, Homa and Varavi gas compressor station, Tabnak separation center, Dehloran compressor station, Kangan gas compressor station and Naar compressor station reconfiguration are just part of activities under way at ICOFC.

Would you please provide more details on the flare gas gathering project you just mentioned?

The flare gas gathering project is under way for the first time by ICOFC in Naftshahr and Saadatabad for the purposes of protecting the environment, creating value-added and creating jobs. This project has led to gathering 12 mcf/d of gas in the Naftshahr and Sumar oil fields run by the West Oil and Gas Production Company and gathering 14.1 mcf/d of gas by two private companies in Sarvestan and Saadatabad, run by the South Zagros Oil and Gas Production Company.

Do you have any plans for gas development and production projects?

ICOFC is involved in major gas projects including gas storage at the Shourijeh-D gas field with the objective of injecting 10 mcm/d of gas during eight hot months of the year so that 20 mcm/d of sweet gas would be reused during four cold months, development of the second phase of the Dalan refinery for the purpose of processing gas supplied by the Aghar field, developing the second phase of the Tang Bijar gas field and establishing the Tang Bijar gas compressor station, building the Kangan gas compressor station to keep production ceiling at 40 mcm/d, reconfiguring the Naar field compressor station to preserve the production ceiling at 18 mcm/d, building the Homa and Varavi compressor station and the Tabnak separator station.

What plans are under way to maintain oil and gas production?

We will follow up on oil and gas production capacity maintenance projects by locating and drilling 13 new wells, as well as establishing wellhead installations and pipelines on drilled wells. It is  noteworthy  that following instructions from the Minister of Petroleum and NIOC Board of Directors on the strategy of oil and gas fields development and maximum efficient recovery, comprehensive studies have been conducted on the Tabnak, Shanol, Varavi, Aghar and Dalan gas fields, as well as the Naftshahr, Sarvestan and Saadatabad oil fields within the framework of five packages to determine the reservoir’s features, develop subsurface and surface patterns, predict the field’s performance, carry out economic calculations and provide enhanced recovery plan.Studies on seven oil and gas fields had been assigned to consulting companies. They are now in their final stages with results expected in coming months.

Last calendar year you announced most sophisticated and largest 2D and 3D seismic testing. What stage is it in now?

With the start of 2D and 3D seismic testing in the petroleum industry, we completed 2D seismic testing in the Babaghir and Bankul fields. Operations for 3D seismic testing in the Tang Bijar and Delavaran fields started early this calendar year to be over by March 2022. These projects cover 1,560 square kilometers in the 3D seismic testing and 800 square kilometers in the 2D seismic testing in Ilam Province. These projects are estimated to cost IRR 1,059 billion plus €39 million, creating more than 500 jobs.

How has your company dealt with corporate social responsibility (CSR) in recent years?

Given the extent of ICOFC work from northeast to south and west, when Iran was hit with heavy flooding last calendar year, ICOFC tried to fulfill its CSR obligations. By providing relief aid to flood-stricken areas in Lorestan, Khuzestan, Khorasan Razavi, Fars and Sistan Baluchestan provinces, ICOFC played its role. Creating routes in inaccessible areas, supplying power and water to villages in the Sarkan, Malkuh and Sarakhs areas, providing local residents with food stuff, dispatching light and heavy machinery and providing medical services were among ICOFC’s measures in assisting flood-stricken areas.

Azar Field Close to Maximum Output

 The pre-commissioning of the Azar oil field development project is under way. Good news is awaiting. Countdown has started for extracting 65,000 b/d of oil from the Azar field.

Kayvan Yar-Ahmadi, manager of Azar development, said: “The most challenging oil field in the country is close to maximum production thanks to domestic efforts and capacities.”

The Petroleum Engineering and Development Company (PEDEC) has announced that a central processing facility (CPF) is ready to receive 65,000 b/d of crude oil supplied by this field.

In case the project turns out to be successful, reimbursement of costs to the buyback contractor will be discussed and approved.

Yar-Ahmadi said: “So far, in various phases of this project, we have mainly benefitted from local residents and manpower and we have made efforts to ensure the continued activity of these local forces.”

 Azar Oil Field

 The Azar oil field is jointly owned by Iran and Iraq. It is located between the cities of Mehran and Dehloran in Ilam Province. The Petroleum Ministry has concentrated on developing joint oil and gas fields.

Minister of Petroleum Bijan Zangeneh said earlier this year that Petroleum Ministry would make decisions on all shared fields before the current administration bows out next year.

He also said that activities were under way in the joint fields located in West Karoun, as well as West Paydar and South Pars fields.

The HP and LP flares of this unit became operational following the completion of activities in the mechanical, piping, electrical and instrumentation activities and the completion of pre-commissioning tests.

An advantage with the Azar oil field in recent years was that early production started at 15,000 b/d. The field is expected to reach 65,000 b/d output.

The Azar development project was initially awarded to Norway’s North Hydro by National Iranian Oil Company (NIOC) under a buyback exploration deal. The Norwegian firm initially drilled two wells at the field. Well No. 1 was not completed due to mechanical problems, but Well No. 2 was successfully completed.

NIOC approved the findings of 2D seismic testing that proved the field to be commercial. Despite intensive talks and finalization of master development plan, North Hydro failed to sign an agreement with NIOC for the development of the field due to tough international sanctions against Iran’s petroleum industry.

Once the economic viability of the field was proven, NIOC embarked on talks with potential investors in 2008 in parallel with land reclamation, land demining, road construction as well as environmental studies.

After signing a non-disclosure agreement and holding technical talks, Malaysia’s Petronas conducted preliminary studies. The project was followed up on more seriously in 2009 in partnership with Russia’s Gazprom. In 2010, most elements of the contract with the Petronas-Gazprom consortium had been finalized. However, this consortium succumbed to international restrictions and no deal was signed. In early 2011, talks got under way with PEDEC and Sepehr Energy (affiliated with Bank Saderat). The talks did not pay off and the Oil Industry Pension Fund Investment Company (OPIC) replaced Sepehr Energy. The agreement was finally signed in October 2011 for the development of the Azar field.

 Close-up on Azar

 The Anaran oil block in Ilam Province comprises two oil fields – Changouleh and Azar. The Azar field holds 2.5 billion barrels of oil in place. The crude oil supplied by the Azar field is light with an API gravity of 32-33. The recovery rate estimated at this field is 16%. The important point is that the Azar oil field is among the tightest and the most challenging fields in Iran and even in the world in terms of geological structure and numerous formation anomalies.

The existence of numerous high-pressure and low-pressure layers necessitates a precise separation of non-homogenous layers. Such pressure changes in the formations in the Azar field are unique.

The Azar field’s fluid is highly corrosive and the necessity of manufacturing pipelines from corrosion-resistant alloys would be a major challenge in this joint field.

Due to its formation as well as reservoir rock, the Azar field could not produce the expected amount of oil after drilling. Therefore, hydraulic fracturing or acid injection would be required. 

NISOC Makes Up 80% of Iran Oil Exports

 The extent of oil and gas facilities in Iran requires widespread development activities. In addition to exploration activities requiring expansion of existing facilities and attracting fresh investment for development, the current facilities are already ageing while oil wells have reached maturity. Therefore, big investment is needed to improve conditions for production. Meantime, the unilateral sanctions imposed by the United States would definitely scare away foreign investors. But gone is the time of easily accessible oil and gas fields not only in Iran, but across the world.

However, given natural decline in production, these fields need to be managed so as to maximize their current value. That would be possible by applying modern methods of enhanced recovery.

National Iranian South Oil Company (NISOC), accounting for 80% of Iran’s oil exports, has undertaken widespread activities over recent years by relying on domestic manufacturers and contractors. For instance, a total of 33 projects (29 onshore and 4 offshore) for enhancing production capacity are under way by National Iranian Oil Company (NIOC) with an investment of $7.2 billion. The idea is to enhance oil production capacity and create jobs for oil contractors and equipment manufacturers. Of the 33 projects, 27 target development of 28 reservoirs run by NISOC.

NISOC is focusing on enhancing its production capacity. A comparison between its official and recorded production capacity in March 2019 and March 2020 shows that its production capacity did not decline against the backdrop of tough sanctions, budget crunch as well as heavy flooding and the coronavirus outbreak. Rather, its production capacity has increased by 10,000 b/d. Regarding the number of wells, NISOC has seen 66% of its development drilling and 78% of workover programs materialize.

 Domestic Manufacturing

 NIOC has adopted a strategy to support domestic manufacturing companies by receiving its necessary materials from them. Foreign companies would be given limited access to the projects and only in financing.

According to Article 10 of the Economic Council’s decision, NIOC is required to sign EPC/EPD deals with financiers/contractors based on rules and regulations governing NIOC. The basis for the financing of projects would be Article 12 of Law on Removing Obstacles to Competitive Production and Upgrading Fiscal Regime. NIOC is required to use domestically manufactured commodities in all the 33 projects. In most commodities, contractors are allowed to file orders with domestic manufacturers only. Furthermore, in designing and defining the projects, efforts have been focused upon less use of the commodities monopolized by foreign companies.

In order to support local job creation, contractors and subcontractors are required to recruit manpower for their projects from cities, villages or the province where the project is implemented.

In a number of projects that have started up, 1,100 persons have been employed directly, more than 85% of whom are local people. Subcontractors are mainly local people, too.

Another significant point with these projects is that contracts are awarded based on the Tender Law. In case qualified companies account for full finance or accept to provide the bulk of financing in return for crude oil, it would be possible to waive tender bid formalities.

It is noteworthy that all top companies endorsed by the Planning and Budgeting Organization for EPC manufacturing and installation in the oil and gas sectors, as well as all companies confirmed for drilling and E&P companies would be qualified to bid for these projects.

 NISOC Projects

 In February 2019, the financing contract for enhanced oil recovery from NISOC-run reservoirs was finalized with a private investors. Moreover, necessary technical designs as well as preparation of tender documents were done with assistance from NISOC experts and domestic consultants.

Based on a strategy determined by NIOC and Petroleum Ministry, for the purpose of risk management and feedback receipt, six packages of NISOC and four packages of Iranian Central Oil Fields Company (ICOFC) and Iranian Offshore Oil Company (IOOC) would be put out to tender. Once the potential and capacity of contractors is assessed, further projects would be awarded. Enhanced recovery projects include Nargesi, Lali Asmari, Kaboud, Mansouri, Gachsaran Khami and Ramshir.

A total of 280 wells would be drilled while offshore and onshore wells would be worked over. Therefore, necessary arrangements need to be made for the implementation of the project in two years.

North Pars, Changouleh Fields Up for Investment

 Some 120 kilometers southeast of the southern Bushehr Province, Iran owns a gas field holding more than 57 tcf of gas in place. North Pars is among fields with high potential for investment. The field is estimated to require $16 billion in investment, including $5 billion in the upstream sector and $11 billion in the downstream sector (mainly LNG plants).
North Pars was discovered in 1963 following 3D seismic testing. Then, 6 exploration, appraisal and development wells were drilled for the field development. Two foreign companies including Exxon were in charge of North Pars development. That was halted in 1979.

At the time of its discovery, North Pars was the largest gas reservoir in Iran. Investment in North Pars was accelerated until the jointly-owned South Pars was discovered to become Iran’s top priority.

Today, South Pars is in its final stages of development and it is time for North Pars to undergo development.

A brief review of North Pars shows that 17 wells have so far been drilled, while 26 offshore platforms have been installed at North Pars. However, development and production are yet to start there.

North Pars, whose production capacity equals four South Pars phases, has capacity to produce 3,600 mcf/d of gas. Such recovery would require drilling 46 wells. The rate of recovery envisaged for North Pars stands at 61%.

North Pars’s gas is planned to be used at LNG plants in order for Iran to produce 20 million tonnes a year of liquefied natural gas.

National Iranian Oil Company (NIOC) officials eye financing and attracting manpower for new projects, including North Pars. The North Pars development is envisaged in four phases, each phase with about 1.2 bcf/d of gas.

The LNG produced from one phase of this field would belong to Iran, while the revenue from the sales of LNG from the other two phases would belong to foreign investor. The foreign party will have authority to sell its LNG to its own buyers. The gas produced from one phase of this field would be used for domestic purposes and injection.

About IRR 12,000 billion is estimated to be required for infrastructure like electricity, water, jetty, access routes, helicopter center, emergency centers and telecommunications.

Geographical integration has been done in North Pars and South Pars, covering a total area of 46,000 ha. North Pars and South Pars cover 16,000 ha and 30,000 ha, respectively.

The Exploration Directorate of NIOC and Pars Oil and Gas Company are jointly conducting studies to have a precise estimate of gas reserves in North Pars.

In case North Pars becomes a special economic energy zone, it would be possible to offer facilities to investors. This issue is currently under review.  

North Pars has also oil layers with an API gravity of 12.

NIOC and Sinopec signed a $16 billion agreement in 2007 for the development of North Pars in four phases, but the Chinese firm pulled out of the project.

Changouleh Attractive Enough

 Changouleh is one of the important oil fields in West Karoun region in southwestern Iran. Foreign companies have time and again shown interest in getting involved in development of this untapped field which Iran shares with neighboring Iraq.

Changouleh is one of the important oil fields in West Karoun region in southwestern Iran. Foreign companies have time and again shown interest in getting involved in development of this untapped field which Iran shares with neighboring Iraq. Three top Russian companies and one Croatian company have already submitted their requests for the development of Changouleh oil field which was among the projects introduced during a conference in Tehran held in the last calendar year to unveil Iran Petroleum Contract (IPC), the new model of oil contracts.

Initial estimates show that Changouleh development needs $2.2 billion in investment. Such activities as 3D seismic tests, location of wells and infrastructural activities like cleaning and construction of access roads for the development of the field have already been done. The development of the field will start as soon as an investor has been chosen.

Studies conducted on this field indicate that 19 wells need to be drilled for recovery from Changouleh.

Development of this field has been defined in two phases. In the first phase, 15,000 b/d of oil will be recovered under early production plan, while in the second phase the output will reach 50,000 b/d.  

Changouleh was first supposed to be independent, but 3D seismic tests and interpretation of seismic data showed its shared nature. The Exploration Directorate of National Iranian Oil Company (NIOC) has confirmed that Changouleh is a joint oil field.

In the first phase development of Changouleh, which is expected to last 40 months, four new wells would be drilled while two exploration wells will be repaired. Furthermore, a 100-km oil pipeline as well as oil and gas separation facilities would be established.

Under the second phase that would last 60 months, 13 new wells will be drilled while infrastructural facilities along with pipelines are envisaged to be provided. That would raise production from Changouleh to 40,000 or 50,000 b/d.

The section of Changouleh lying in Iraqi territory is known as Badra. Changouleh is located near Azar oil field in the Anaran oil block.

Being located 20 kilometers southeast of the city of Mehran in Ilam province, Anaran oil block was discovered in 2005 by Norway’s Statoil and Russia’s LUKOIL. The block is estimated to hold recoverable reserves of 400 to 650 million barrels of crude oil.

Changouleh oil field lies along Iran-Iraq border. Bangestan formation in Changouleh field is the second most important field in Ilam region.

Changouleh is estimated to hold 4.3 billion barrels of oil in place with API at 22. Regarding the construction activities of this project, two new wells are to be repaired while two existing wells are to be repaired for early production from the field. As far as surface facilities are concerned, a separator, transfer pumps, diesel-fueled generator supplied electricity, evaporation pool, flare, stream pipes and wellhead installations are envisaged.

In order to transfer oil that would be supplied under early production, a 130-kilometer pipeline, measuring eight inches in diameter, is being used for delivery to Dehloran.

According to a report by the Petroleum Engineering and Development Company (PEDEC), with the implementation of the early production development of Changouleh field and assessment of the field’s hydrocarbon potential, it would be possible to implement the major development plan for this field with the objective of recovering 65,000 b/d of crude oil.

According to official data provided by the Petroleum Ministry, Iran has more than 102 oil fields, 28 of which are shared with neighboring countries. Onshore joint fields are shared with Iraq, and offshore ones are shared with the littoral states of the Persian Gulf and the Sea of Oman.

But the problem with these joint fields is that development operations in neighboring countries are over, while development projects in Iran are still going on. Our rivals will not wait for Iran to finish its work for their operation of the shared fields.

Aghar, Ferdowsi Up for Investment

 The Aghar gas field which is currently producing 20 mcm/d of gas is among large onshore gas fields in Iran. The Iranian Central Oil Fields Company (ICOFC), which supplies more than 40% of Iran’s total gas, is in charge of development of the Aghar field.

Aghar was introduced along with other fields to foreign investors to undergo development under the newly-coined Iran Petroleum Contract (IPC) model. The second phase of the Aghar field, with a recovery rate of 71.5%, is an attractive investment project.

The annual growth in domestic consumption, as well as international obligations for gas exports to Turkey, Iraq and other neighboring countries has always led the Iran's Petroleum Ministry to envisage gas production hike as a priority.

The Aghar gas field is located 110 kilometers southeast of Shiraz and 35 kilometers southeast of Firouzabad in Fars Province.

Discovered in 1972, the Aghar field has now 16 wells, 13 of which are producing gas.

Gas production from Aghar began in 1999. Natural gas and condensate are separated after production to be delivered to the Farashband gas refinery for processing through two pipelines. Each pipeline is 90 kilometers long.

The second phase of the Aghar gas field is to undergo development to double production to 40 mcm/d. Planning has been made for the second phase development of the Aghar gas field.

In parallel with the plan to double the Aghar gas output, installations would be built near the Farashband gas refinery for processing.

The gas produced at the Aghar field is planned to be injected into southern oil fields, including Maroun. This gas field has wellhead facilities, four gas gathering centers, pipeline to carry gas from wells to central facilities and finally the Farashband refinery, a gathering and separating center, control room, pumping station, and pigging systems.

The Aghar gas production capacity stands at 95.22 mcm/d of natural gas. It also supplied 4,300 b/d of gas condensate.

Studying the Aghar gas field implemented with a view to updating previously conducted studies, incorporating new findings and completing previous studies through interpreting and assessing petrophysical diagram, and modeling of fractures. The studies, which lasted four years, were led by the Department of Reservoirs Studies.  The main finding of these studies is that the field’s in-place gas deposit is up 40%.

The final recovery of over 71% of in-place reserves of this field has been done. In the natural depletion scenario, in light of wellhead pressure restrictions, the final recovery rate is set at 34.7% with a production ceiling of 22 mcm/d by 2023, when the installation of a compressor would bring the recovery rate to 71.5%.

Chief among studies conducted are: drilling operations to enhance recovery and preserve the production ceiling, carrying out periodical static tests, appraisal wells drilling, PGF output phase increase to 30 mcm/d and the optimal scenario after installing compressor and spudding six new wells for reaching the production ceiling of 30 mcm/d.

 Ferdowsi, ME Biggest Heavy Crude Reservoir

 The Ferdowsi oil field in the Persian Gulf is among the Middle East reservoirs with about 37 billion barrels of heavy crude oil.

National Iranian Oil Company (NIOC) hopes to develop this field under the IPC mode. Developing Ferdowsi would require five to seven years.

Over 110 years of search have led to the exploration of supergiant South Pars gas field and Azadegan oil field. There are more than 100 oil and gas reservoirs in Iran, i.e. one new oil/gas field per year over the past century.

Fifty years ago, a Swiss company made a big discovery in the Persian Gulf. No other company has since smashed the record. It was the discovery of the Ferdowsi oil field containing heavy crude oil.

Ferdowsi oil field is located west of the South Pars gas field and near Golshan gas field. Ferdowsi is 190 kilometers far from Bushehr Port and 88 kilometers far from the coastline.

Ferdowsi is a giant heavy crude oil field with some gas in the Dalan and Kangan layers. It is known to be the largest field with heavy crude oil in Iran and the Middle East.

The first exploration well was drilled in 1966 in order to identify heavy crude oil layers. The second well was drilled one year later to examine gas layers potential. Based on the findings of wells 1 and 2, the Swiss company Adax conducted the master development plan (MDP) studies. The findings of studies indicated existence of heavy crude oil in this field.

Ferdowsi is estimated to contain 31 billion barrels of oil in place. It is expected to produce 70,000 b/d of oil. The field is 20 kilometers long and 13 kilometers wide.

After Adax concluded its studies, due to the significance of heavy crude oil reserves and for the purpose of gaining more precise information for the development of Ferdowsi, NIOC instructed the Petroleum Engineering and Development Company (PEDEC) with conducting 3D seismic testing, drilling two appraisal wells for more precise assessment and taking cores from the crude oil layers to carry out necessary tests. The drilling of the third well in Ferdowsi started in April 2010 in order to assess the oil and gas layers. Initial findings showed that there was abundant heavy crude oil with various API gravities in the Kajdomi, Dariyan, Gadovan, Fahlyan and Sourmeh layers.

NIOC drilled a second well in Ferdowsi to study gas potential in the Dalan, Kangan and Faraqoun layers. Gas was proven to exist in these layers in 1967. Based on an appraisal of the Ferdowsi field through the first and second wells, Adax estimated the field’s reservoir at 35 billion barrels with a recovery rate of 6%. But during an announcement about the field in 2015, the field was said to contain 37.1 billion barrels of oil in place.

Development of Ferdowsi field is among projects aimed at acquiring technology to recover heavy and ultra-heavy crude oil in the fractured carbonated reservoirs with a focus on practical research to choose the most appropriate method for heavy crude oil refinery.

NIOC studies indicate that full development of Ferdowsi field would need five to seven years. The significant oil and gas reserves, as well as the commerciality of developing this field make investment in these fields attractive.

Given the special nature of technology used in developing heavy crude oil fields and the use of specialized tools, PEDEC has agreed to provide foreign companies with more data in case any MOU is signed for cooperation.

The Ferdowsi field is projected to produce 10,000 b/d of oil in the first phase and more than 300,000 b/d in next phases.

NPC Earned $15bn in 1 Year

 CEO of National Petrochemical Company (NPC) Behzad Mohammadi has highlighted fluctuations in petrochemical production during the first two-month period of the current calendar year due to the Covid-19 outbreak, saying: “We have now reached stability in production and we are witnessing an 18% growth in the stock exchange transactions years-on-year.”

Mohammadi said the petrochemical industry earned Iran $15 billion last calendar year to March.

He said that 12 new petrochemical projects would come online in the current calendar year, noting that the petrochemical industry is one of the most attractive sectors for investment.

Mohammadi said the global economy had been affected by Covid-19, adding that Iran’s petrochemical industry had been instrumental in the country's national economic growth. He said the petrochemical sector was the prime currency earner for the country last calendar year.

He added that the petrochemical industry was in the period of transition, which requires it to adapt itself to global developments.

“We have to move from the status of producing a single product from feedstock to several products from the same feedstock in a bid to guarantee sustainable development, boost resilience and remain immune to uncertainties. Therefore, smart development tops the agenda of Iran’s petrochemical industry,” he added.

 $15bn Revenue

 Mohammadi also said Iran’s petrochemical output had been desirable despite US sanctions targeting the country’s petroleum industry.

He said Iran could offer a total of 31 million tonnes of petrochemical products worth $15 billion. He added that Iran neared $10 billion from petrochemical exports last calendar year, the remaining $5 billion having come from selling petrochemicals in domestic markets.

He said that last calendar year, petrochemical production and exports witnessed sustainable conditions. “Even during the new calendar year, despite the Covid-19 outbreak, we have reached stability.”

Mohammadi said the petrochemical industry received 35 million tonnes of feedstock, equivalent of 800,000 b/d of crude oil, last calendar year. “As the number of development projects increases, the daily feedstock receipt will reach the equivalent of 1.5 mb/d by 2021, which would mean shifting from selling raw materials.”

He put at 66 million tonnes the petrochemical production capacity last calendar year, adding: “Despite all bottlenecks and international restrictions we managed to stabilize our production and supply our products in the polymer, chemical, hydrocarbon and urea fertilizer sectors on domestic and foreign markets.”

Mohammadi said 980,000 persons were working in 15,000 small and medium-sized petrochemical entities. He added that it showed the high attractiveness of the petrochemical industry for the labor market.

 12 Petchem Projects to Come Online

 The petrochemical industry envisages two development projects for up to 2025, referred to as the second and third jumps in the petrochemical industry.

“In the second jump that would see 27 projects come online by March 2022, the petrochemical production capacity will rise from the current 66 million tonnes to 100 million tonnes. It would coincide with the end of the 6th Development Plan,” said Mohammadi, adding that income from the petrochemical industry would also increase from $15 billion to $25 billion.

He said the current calendar year would be a golden period for the petrochemical industry.

“We were initially supposed to launch 16 petrochemical projects by the end of the current calendar year, but due to the restriction imposed on the economy by the coronavirus, 12 projects would come online. With a 35% growth in output, the production capacity will reach 90 million tonnes by year-end,” he added.

Mohammadi said that the Kaveh methanol, Bushehr methanol, Kimia Pars Middle East methanol, Bid Boland Persian Gulf, Ilam Olefin, Lordegan urea and ammonia, Masjed Soleiman, Kangan petro-refinery, Miandoab polyethylene, Hegmataneh PVC, Ibn Sina Petrochemistry, Exir Solution pentane and hexane are among projects to come online this year. He added that the Sabalan methanol, Parsian Sepehr refining, Arta Energy and Khomeini PP would come online later.  

 27 Petchem Projects in 3rd Jump

 Mohammadi said that under the third jump, a total of 27 more projects would come on-stream to raise the production capacity from 100 million tonnes to 130 million tonnes, in which case, the income from petrochemicals would hit $34 billion.

He said that the main feature of the third jump projects was high technical knowhow, adding that 10 new products would be offered under the third jump while the private sector’s participation would increase three-fold.

Mohammadi also referred to petrochemical feedstock projects, saying: “NGL 3100, NGL 3200, NGL Kharg, Kangan Petrochemical, Phase 1 of Bushehr Petrochemical, Bid Boland Persian Gulf and Parsian Sepehr would produce 14 million tonnes of feedstock for the petrochemical industry with an investment of $8.5 billion.”

 New Investment Packages in 4 Production Chains

 Mohammadi said new projects were envisaged in the current calendar year to help end Iran’s dependence on imports, balance and diversity the production chain and bring about prosperity in the downstream industries.

“Therefore, we have formulated projects in the four chains of methanol, propylene, ethylene and benzene, whose investment packages will be published in coming weeks,” he added.

Mohammadi said planning was under way to enhance Iran’s propylene production capacity, adding: “Currently about 980,000 tonnes of propylene is being produced in Iran and we are short of 200,000 tonnes. Demand for this product would reach 700,000 tonnes in coming years. We plan to bring propylene production capacity to 3 million tonnes.”

He said that NPC was producing propylene from methanol and natural gas, adding that all across the world, propane is converted into propylene while in Iran methanol would be converted.

According to Mohammadi, Iran’s methanol production capacity would reach 23 million tonnes by 2025, providing a good change for converting methanol to propylene.

“By implementing MTP projects on the coasts and producing propylene from methanol, this product would be piped to central areas in the country and we will see development in central provinces,” he said.

Offering discount in the price of natural gas as feedstock, providing approaches for easing taxation regulations and offering technical knowhow without charging any costs would make the projects more attractive to investors.

Mohammadi said GTPP projects were to produce propylene from natural gas before being transferred to northern and northeastern provinces to develop downstream industries. He said that the first GTPP project, operated by NPC, was under way in Eslamabad Gharb, which would come online by 2024.

Methanol would be produced from gas in northern Iran and from methanol in southern Iran. Propylene storage stations would be also built along the route for transferring PP to northern provinces.

Mohammadi said nationalization of petrochemical technologies was under way in Iran. He said: “So far seven cases of technical knowhow used in petrochemical processes have been indigenized, which would reach 10 by 2021.”

Mohammadi said the global catalyst trading had reached $33.5 billion with the petrochemical and refining industry accounting for about $18 billion. In Iran, the catalyst market is valued at $400 million.

“In the petrochemical industry, there are 40 groups of catalysts, 16 of which have already been indigenized and 11 others would be indigenized by March 2022,” he said.

Iran Gas Flow to Turkey Resumes

Nadi Saboori

 Iran’s gas exports to Turkey came back to normal conditions on July 1. The flow of Iran’s natural gas to its neighboring nation came to a halt on March 31 due to an explosion whose cause has not yet been determined.

Mohammad-Reza Jolaei, head of Dispatching Directorate at National Iranian Gas Company (NIGC), said Iran’s gas exports to Turkey would continue based on commitments by both sides.

On March 31, 2020, when Iran was in the final days of Persian New Year holidays, Turkish news agencies reported a blast in the pipeline on the Turkish territory. The blast was later reported to have struck part of the pipeline, 105 kilometers from Iran’s Bazargan border post.

Turkish officials refused to provide any specific explanation about the explosion; however, separatist groups like Kurdish PKK have already been behind similar acts of sabotage on the pipeline. PKK has so far attacked the Iran-Turkey gas pipeline 11 times.

PKK claimed responsibility for attacking the pipeline, saying one of its fighters, a woman, had conducted an act of suicide blast there.

As the blast occurred on the Turkish section of the pipeline, Turkey was legally responsible for its repair.

Well familiar with such incidents, Iranian gas officials said from the very beginning that the gas flow to Turkey would resume within days. NIGC notified Turkey’s Botas officials that its engineers could repair the damage to the pipeline within eight days.

The Iran-Turkey gas pipeline stretching from Tabriz in northwestern Iran to Ankara in Turkey is 2,577 kilometers long. Iran agreed in 2001 to pump 8.5 bcm a year of gas to Turkey. In the gas contracts where supply and demand security is a key element, there is a “take-or-pay” provision, written into a contract, whereby one party has the obligation of either taking delivery of goods or paying a specified amount. Take or pay provisions benefit both the buyer and the seller by sharing risk, and can benefit society by facilitating trade and reducing transactions costs.

 Line Repair Easy Task

 Minister of Petroleum Bijan Zangeneh said on state radio in late May that the damaged pipeline had not been repaired while it could have been done within days.

“Iran expressed its readiness to repair the gas pipeline, but Turkey did not welcome Iran’s offer,” he said.

Meantime, Mehdi Jamshidi Dana, former director of dispatching at NIGC, said: “The coronavirus outbreak and ensuing oil price slump made the problem worse and the pipeline blast added to challenges.”

Turkey had reportedly invoked “force majeure” following the blast, which is often invoked during natural disasters. However, Iran dismissed the force majeure clause and demanded permission for visiting the damaged pipeline. The logic behind resorting to force majeure for Turkey was not to pay for the period the gas flow had been stopped.

The Turkish party had reportedly told NIGC that the Covid-19 outbreak had delayed the delivery of equipment ordered from Italy.

 Interactive Approach

 NIGC insisted on an “interactive approach”, saying the halt in Iran’s gas flow to Turkey did not mean deprivation from the benefits of the contract. NIGC also expressed its willingness to renew the contract after its expiry in 2026.

NIGC and Petroleum Ministry, in addition to direct correspondence with Botas, followed up on the issue through Iran’s Ministry of Foreign Affairs and Presidential Office.

The issue was discussed during Iranian Foreign Minister Mohammad Javad Zarif’s June visit to Turkey where he met with his Turkish counterpart Mevlut Cavusoglu. In the meeting, Zarif said it was “necessary” to resume gas flow to Turkey.

 Covid-19 and Gas Price

 Crude oil prices always provide an index for gas pricing in normal contracts. After the coronavirus outbreak and the ensuing sharp decline in energy consumption, oil prices dropped sharply. The West Texas Intermediate (WTI) oil price even fell into the negative territory.The oil price developments are expected to affect gas prices sooner or later.

Iran and Turkey are looking to expand and strengthen the level of their trade ties. During Zarif-Cavusoglu meeting, it was announced that Turkish President Recep Tayyip Erdogan would soon visit Iran to discuss economic agreements.

Talks have already started with a view to renewing the Iran-Turkey gas contract whose term ends in 2026. However, Iranian officials say the talks have been slow due to Covid-19 outbreak.

The International Energy Agency (IEA) recognizes Turkey as the biggest buyer of Iran’s gas. Iran supplies 90% of Turkish gas imports. Russia and Azerbaijan are the other two suppliers of gas to Turkey. Turkish Energy Ministry data show that Turkey’s gas imports from Russia had seen a decline since 2017. Instead, Turkey has increased its liquefied natural gas (LNG) imports from the United States.

Turkey’s gas consumption reached 50 bcm in 2019, which is estimated to reach 70 bcm by 2030.

 Iran, Reliable Gas Supplier to Turkey

 NIGChas already said Iran would remain a “reliable gas supplier” to Turkey. During President Hassan Rouhani’s first state visit to Turkey in 2014, joint cooperation in the energy sector was one of the first topics the two nations discussed.

Iran and Turkey are determined to boost their trade ties. Turkey hopes to bring its trade figures with Iran from the current $10 billion to $30 billion. However, White House threats of sanctions remain a major stumbling block on the way of Iran-Turkey trade exchanges.

One sector to have been affected is Turkey’s crude oil imports from Iran. Following the 2015 Iran nuclear deal, Iran sharply increased its crude oil exports to Turkey, which reached 180,000 b/d in some months. But as soon as the US pulled out of the deal and re-imposed oil sanctions on Iran as part of its maximum pressure policy, Turkey had to halt its oil purchase from Iran.

The Oxford Institute for Energy Studies said in a report that Turkish officials would have to become assured of sustained energy supply in order to meet growing energy needs in the country.

Iran is said to be sitting atop the world’s second largest gas reserves. It is currently producing 674 mcm/d of gas. Iran is also determined to increase production from the giant offshore South Pars gas field shared with neighboring Qatar.

Gas exports constitute a key policy in Iran. CEO of NIGC Hassan Montazer Torbati said recently that Iran’s gas exports last calendar year grew 26% year-on-year.

Oil in Covid-19 Purgatory

 Shuaib Bahman

 Oil prices experienced a sharp decline following the Covid-19 outbreak. However, it rallied slightly as oil consumption slowly rebounded to normal in major consuming countries like China. Following the OPEC+ agreement, oil prices jumped 100%. The prices rallied on account of controlled supply alongside increased demand following the first wave of the coronavirus in the world. Meantime, increased demand led to reduction in global oil storage in order to provide room for more oil. As worries grow over a second wave of Covid-19 in some nations, concerns are emerging once more over the future of the petroleum industry.

The first wave of the coronavirus outbreak led to shutdown of many major industries including transportation, as well as factories running on oil and petroleum products. Demand for oil dropped due to restrictions and lockdowns. In one case, the price of oil i.e. WTI dropped below zero.  

Demand for oil may seem to have grown as life is back to normal; however, the shadow of the second wave of Covid-19 is looming large over the energy industry and big economies.

Concerns over the growing number of Covid-19 patients are spreading across the world. Some nations are preparing to deal with the second wave of the Covid-19 outbreak, raising the prospect of a second lockdown which would subsequently reduce prices significantly. Under such circumstances, restoration of restrictions would significantly cut fuel consumption in various sectors of the economy including transportation and large-sized industries.

Meantime, the Covid-19 outbreak that has limited the size of economy in many oil importing nations continues to be an instrumental factor in reduced demand. Undoubtedly, if these countries experience a second wave of Covid-19, their demand for oil will fall anew.  

 Major Economies

 The rapid growth of the coronavirus in the United States and some other major economies including India and Brazil may once more affect economic activities and render the oil market critical once more.

Experts had warned on the possibility of the outbreak of the second wave of the coronavirus some time ago; however, even in the US, officials in many states were caught by surprise.

The US has currently the highest number of Covid-19 patients. Therefore, restrictions in this country would lower demand for oil in global markets. However, restrictions will not remain at the current level and they will be toughened in coming months.

US President Donald Trump is trying to lift the restrictions, but state officials in Texas, Arizona and Florida have had no option but to impose further restrictions. Only by imposing new restrictions, can the US contain the second wave of the disease which would harm the oil sector. Undoubtedly, tougher restrictions would mean lower economic prosperity and shutdown of many sectors in these states, which would in turn affect oil consumption.

Meantime, China’s economic data is not encouraging enough. Industrial production in China in May 2020 grew 4.4% year-on-year. However, it was below expectations. The world’s second largest economy is still trying to regain its previous status.

China’s crude oil throughput in May rose 8.2% compared with a year earlier as independent refiners increased their processing to meet the recovery in fuel demand following the easing of coronavirus lockdowns. China processed 57.9 million tonnes of crude oil last month, equivalent to about 13.63 mb/d. That was the second-highest volume ever on a tonnes basis, down from 58.51 million in December. That is compared with 13.1 mb/d in April and is the fourth-highest per barrel rate ever. The record is 13.78 mb/d also in December.

However, the second wave of Covid-19 is looming large over China’s economy.

 Second Wave Outlook

 The threats caused by the coronavirus pandemic are likely to reinstate restrictions. That is the most influential factor in the global oil supply and demand. In the light of the harmful impact of the coronavirus and the non-existence of a definite solution to eradicate this disease, one may expect that as long as the virus exists the oil prices would not return to over $50 a barrel. Even if such a thing happens it would be short-lived and a new wave of the Covid-19 outbreak would pin down global economies and put a strain on energy demand.

A second wave of outbreak would inflict a new blow on the global demand for oil; however, it would be less harmful than the first wave. In fact, a second wave would not be as destructive as the first wave because many governments have refrained from lockdown they imposed in the first wave. Restrictions in the second wave would be more targeted for some sectors, which would result in the repetition of the historic drop for oil.

Two important factors are likely to turn the second wave of the coronavirus into unfavorable conditions for the future of the oil market:

The first factor is an agreement reached by world oil producers for reducing output. If for whatsoever reason it does not last long the oil prices would slump again. The second factor is the materialization of the possibility of a second wave of Covid-19 in autumn with acute respiratory and viral diseases, in which case, containing the coronavirus would be more than difficult.

Gas Engulfed by Corona-fire

 Shuaib Bahman

 Ever since the outbreak of the coronavirus, the oil price slump has been widely taken into consideration. However, gas and its prices have not been spared. Gas consumption has significantly declined while its prices have been on a downward trend. Like oil, gas is exposed to serious traumas caused by the Covid-19 pandemic.

Over recent months, two major factors have been instrumental in reduced gas consumption in world markets: First, a moderate winter reduced gas consumption in the northern hemisphere. Second, the Covid-19 outbreak accelerated the slowing trend of demand for gas.

According to the European Commission, gas consumption in the European Union dropped five percent in the first quarter of 2020 year-on-year to 130.8 bcm. The main reason for this reduction was the oversupply of low-cost oil which has also led to gasoline oversupply.

Meantime, Europe’s gas storage capacity is being filled. In coming months, gas prices are likely to drop into negative territory. Currently, about 60% of Europe’s gas storage capacity is filled, which is 15-20% higher than normal. That is while the European economy cannot absorb more gas due to the Covid-19 outbreak. In fact, as long as natural gas consumption does not rebound to normal status, there would not be willingness for more purchase.

Inclination for gas purchase has declined significantly in other markets, too. For instance, the Covid-19 outbreak in Asia has affected gas purchase. Therefore, most producers are looking for buyers.

 Competition Without Customer

 The global reduction in gas consumption is happening at a time competition is under way between producers for exporting gas. For instance, Qatar has been shifting its gas cargoes away from Asia to Europe, but it has failed to find buyers. Some big companies have cancelled their orders for buying LNG from the US and they are paying only for liquefaction of natural gas.

Russia has adapted itself with 20% reduction in gas production; however, Qatar remains the largest exporter of LNG in the world and it has automatically faced tough choices. Qatar has either to cut its LNG production or succumb to ongoing price war in order to secure its market share, in which case, negative LNG prices would not be ruled out.

Most gas producers will have to make fundamental decisions in order to deal with long-term obstacles. If these nations move towards reducing their production of gas as their main source of income, they would see their revenue fall. However, if they stick to their gas output they will have no option but to sell it at low prices. Furthermore, the oil price collapse has put a double strain on LNG prices because of their correlation.

 Stabilizing Mechanism Lacking

 Oil prices rallied quickly once OPEC producers and their partners reached agreement to cut output. But the $600 billion gas market in the world is oversaturated. Although the fall in demand and saturated storage facilities have cleared the way for gas prices to drop to the negative territory in some parts of the world, the worst case scenario is yet to happen in the gas market. In fact, the gas industry is likely to experience the oil scenario when West Texas Intermediate (WTI) was traded below zero.

The present circumstances in global markets show that the gas industry is still far from full recovery from the fall caused by the Covid-19 outbreak. What makes the situation worse in the gas sector is that unlike oil, when OPEC+ reached a unique decision, the gas industry does not enjoy such a possibility. Unlike oil producers, gas producers are not showing any sign of coordination to deal with supply glut. Therefore, any gas price drop would be longer than that of oil.

Petrobras Puts More Shallow-Water Fields Up for Sale

 Petrobras has started the opportunity disclosure stage to sell its operated working interests in the Atum, Xaréu, Curimã, and Espada fields in the Ceará basin offshore Brazil.

Operating since the 1980s, the cluster is 30 km (19 mi) from the coast of the state of Ceará, in water depths between 30 and 50 m (98 and 164 ft).

In 2019, the average production was 4,200 b/d of oil and 76,900 cu m/d of gas, through nine fixed platforms.

Gambia Revised Accords Signed

 FAR has signed new joint operating agreements (JOAs) for the blocks A2 and A5 offshore the Gambia with Petronas subsidiary PC Gambia.

This follows granting by the government of new licenses for the blocks effective Oct. 1, 2019. The partners then took the opportunity to update the terms of the existing JOAs by entering the new agreements.

FAR, which remains operator, is seeking an additional partner for drilling the next well (following the previous dry-hole Samo-1) and aims to conclude a farm-out before the re-start of drilling.

Norway Opens Latest Offshore Licensing Round

 The Norwegian Ministry of Petroleum and Energy has launched the awards in pre-defined areas (APA 2020) round, offering blocks in the North Sea, Norwegian Sea, and Barents Sea.

Deadline for applications is midday, Sept. 22. Awards should follow during 1Q 2021.

Since APA 2019, the acreage offered has been expanded to include 36 more blocks in the Norwegian Sea.

Applicants can apply for all available blocks or parts of blocks within the pre-defined areas.

 Empyrean Given More Time for Offshore China Well

 CNOOC has granted Empyrean Energy a 12-month extension to the first phase of exploration on block 29/11.

The first well must now be drilled by June 12, 2021, although Empyrean will look to start operations sooner, if possible.

It applied for the extension due to restrictions arising from the spread of COVID-19.

The 1,806-sq km (697-sq mi) block is in the Pearl River Mouth basin, 200 km (124 mi) southeast of Hong Kong.

Santos, ConocoPhillips Complete Northern Australia Transaction

 Santos has completed the acquisition of ConocoPhillips’ northern Australia and Timor-Leste assets for a reduced purchase price and an increased contingent payment subject to a final investment decision (FID) on Barossa.

Due to recent market volatility and the deferral of Barossa FID, Santos and ConocoPhillips agreed to decrease the $1.39 billion upfront payment at completion to $1.265 billion and increase the contingent payment on Barossa FID from $75 million to $200 million.

US Refiners Slashed Gasoline Output

 Faced with an unprecedented collapse in gasoline consumption during the most intense period of lockdown, U.S. refiners responded by slashing crude intake and curbing conversion processes used to boost gasoline yields.

But the extraordinary operating changes introduced during the emergency left refiners with a legacy of too much diesel, which is still weighing down diesel prices worldwide, and will have to be eliminated over the next few months.

The scale of the shock and the shift in refinery processes to cope with it were revealed for the first time with the publication of “Petroleum Supply Monthly” by the U.S. Energy Information Administration.

Consumption of all three major fuels fell sharply in April, the most recent month for which data is available, but the hit was greatest for jet (down 61% compared with a year earlier) and gasoline (37%) and much smaller for distillate fuel oil (12%).

Faced with a collapse in the demand for gasoline, refineries cut the volume of crude and other inputs fed into their distillation units to just 70% of their maximum capacity compared with almost 89% a year earlier.

More importantly, they slashed the flow of semi-refined distilled oil into downstream conversion units, including catalytic crackers and reformers, that would normally upgrade more fuel oil into gasoline and jet fuel.

In April, their catalytic crackers were operated at just 59% of their capacity compared with 81% a year earlier. Hydrocracker usage was down to 56% from 71%. And catalytic reformers were down to 61% from 80%.

Cenovus Shipping Oil Through Panama Canal

 Cenovus Energy Inc. is the first Canadian oilsands company to announce it’s shipping crude via the Panama Canal to Irving Oil Ltd.’s refinery in Saint John, New Brunswick, as the industry explores circuitous routes to reach new markets.

The Calgary-based oilsands producer announced July 1 it had loaded a batch of crude at the Trans Mountain terminal in Burnaby, B.C. on the Cabo de Hornos tanker, which has embarked on an 11,900-kilometre journey to Canada’s East Coast via the Panama Canal.

Cenovus shared a photo of the tanker at the Burnaby terminal on Twitter and announced it had sold its first crude oil shipment to Irving Oil on Canada Day.

“We were pleased with the economics of this transaction for Cenovus and excited to work with another strong Canadian company like Irving Oil,” Cenovus executive vice-president, downstream, Keith Chiasson said in an email.

“It’s encouraging to see more Canadian-produced oil refined at a Canadian refinery. It’s a one-off shipment for now, but we believe this Canadian success story has the potential over time to create significant value for both companies and the entire country,” Chiasson said.

The Cenovus shipment was part of Irving’s effort to pursue opportunities that expand the market for the country’s natural resources and provides energy security to customers, Irving spokesperson Candice MacLean said in an email.

Irving was a backer of the cancelled $15-billion Energy East pipeline project, which Calgary-based TC Energy Corp.

 Poland and Germany to Cut Russian Pipeline Oil Imports

 Poland and Germany are set to reduce purchases of Russian flagship Urals crude blend via the Druzhba pipeline after Moscow cut its oil output along with other leading producers, traders said.

Europe has already cut imports of seaborne Urals, which has traded at a premium to the dated Brent benchmark.

Three traders said Urals supplies via the northern spur of the Soviet-built Druzhba (Friendship) pipeline to Poland and Germany will decrease to around 2.5 million tonnes (590,000 barrels per day) in July from 2.85 million tonnes in June.

Of this, Polish refineries will get 200,000 tonnes less than last month, sales to Germany are set to decline by around 150,000 tonnes.

Exxon Signals 2nd Quarterly Loss in a Row on Production

 Exxon Mobil Corp’s oil and gas producing and refining businesses will report operating losses in the second quarter, it said in a regulatory filing, setting the stage for the company to post another quarterly loss this year.

Oil prices are down 35% since January as the COVID-19 pandemic slashed demand and a global glut forced widespread production cuts. Rivals Royal Dutch Shell and BP Plc have disclosed massive spending cuts and writedowns due to the price drop.

Exxon faces a loss for the quarter of $2.3 billion, or 57 cents per share, according to estimates from Refinitiv IBES. It would be the second this year after a $610 million first-quarter deficit.

Japan to Accelerate Closure of Old Coal Power Plants

 Japan will introduce measures to accelerate the closure of old, inefficient coal power plants by 2030, the country’s industry minister, Hiroshi Kajiyama, said.

But he poured cold water on a suggestion by media that the move was a major shift in energy policy, saying Japan will continue to rely on coal power and support the building of newer, more efficient plants.

The Yomiuri reported Japan will close or mothball as many as 100 old coal plants by about 2030, in what Japan’s biggest selling newspaper said was a major turning point for the country on energy.

Alberta Seeking U.S. Democratic Support of Keystone XL Pipeline

 Construction of TC Energy Corp’s oil pipeline project, Keystone XL, has begun in Canada, the premier of the Canadian province of Alberta announced, saying the government has started talking with U.S. Democratic lawmakers for support.

The pipeline project is supported by U.S. President Donald Trump, but faces opposition from presumptive Democratic presidential nominee Joe Biden, who has said he would rescind the permit for Keystone XL pipeline if elected.

“We will be reaching out, as we already have... to members of (Biden’s) party, many of whom support the project,” Alberta premier Jason Kenney told reporters.

Angola Refuses to Comply Fully With Oil Cuts

 Angola is resisting pressure by OPEC for a steeper oil output cut to comply fully with record supply curbs, OPEC and industry sources said.

The Organization of the Petroleum Exporting Countries and allies led by Russia, known as OPEC+, have been cutting oil output since May by a record 9.7 million barrels per day after the coronavirus crisis destroyed a third of global demand.

After July, the cuts are due to taper to 7.7 million bpd until December.

Saudi Arabia, which chairs a panel that monitors adherence with the oil cuts, has been heading efforts to press laggards such as Iraq, Kazakhstan, Nigeria and Angola to improve compliance with the reductions and compensate for May overproduction in July-September.

“Angola is saying they would not compensate for its overproduction in July-September like the rest of the countries but would be able to compensate only in October-December,” said one OPEC source. “We are still trying to convince them.”

Another OPEC source said that Nigeria and Algeria are now reaching out to Angola to convince it to execute the agreement.

“The whole (OPEC+) group is adding pressure on Angola and others who are not complying to adhere to what they have agreed to,” said the source.

Angola’s Ministry of Mineral Resources and Petroleum and state oil company Sonangol did not respond to Reuters requests for comment.

In May, Angola pumped 1.28 million bpd, according to OPEC data, or 100,000 bpd more than its target.

Novak Sees Global Oil Output Cuts Easing From August

 Russian Energy Minister Alexander Novak said the OPEC+ group of oil producers is expected to start easing oil output cuts from August as previously agreed.

He also said the global oil market might achieve a balance between supply and demand in July and could even face a shortage of crude, while oil consumption may not recover to pre-crisis levels before the end of 2021.

OPEC+, including Russia, agreed to reduce their combined oil output by around 9.7 million barrels per day, or some 10% of global consumption, to tackle the fallout from the coronavirus pandemic.

Record cuts were meant to last until the end of June but have been extended into July.

Key OPEC+ ministers will meet in mid-July at a panel, known as the Joint Ministerial Monitoring Committee (JMMC), to recommend the next level of cuts.

Novak told also told the Valdai discussion forum, an economic conference which was conducted online, that no decision has been made yet about the future of the deal.

“We will have a partial resumption of the unprecedented cuts starting from Aug. 1,” he said.

OPEC+ sources told Reuters this week that no discussions have yet taken place about extending the record cuts into August, meaning they are most likely to be eased to 7.7 million bpd until December.

“We will see how the situation develops, what was the technical data and statistics in June. So, the technical committee under the aegis of OPEC will analyse compliance, the market situation and the forecast,” Novak said.

Canada's Supreme Court Dismisses Long-Delayed Pipeline Appeal

 Canada’s Supreme Court removed an obstacle to expansion of the Trans Mountain oil pipeline, dismissing an appeal of a lower court decision that had backed Ottawa’s approval of the project.

The top court posted the decision online without elaborating.

The pipeline has put Prime Minister Justin Trudeau’s government, which bought it in 2018 to ensure the expansion overcame legal and regulatory hurdles, in a political quandary. He has promised to reduce Canadian emissions and improve indigenous relations, but faced pressure to help the slumping oil industry critical to the national economy.

The ruling ends seven years of legal challenges, Alberta Energy Minister Sonya Savage said, adding that most Canadians, including many indigenous communities, want to share Trans Mountain’s economic benefits.

The corporation that runs the pipeline is still finalizing the route with landowners and needs permits, however.

Expansion of the 67-year-old pipeline, which runs from Alberta to the British Columbia coast, is underway. It would nearly triple capacity to 890,000 barrels per day.

The Federal Court of Appeal dismissed challenges in February to Ottawa’s second project approval. They were based on concerns from British Columbia indigenous groups that Ottawa had not meaningfully consulted them.

The groups who sought to appeal are “extremely disappointed,” said Tsleil-Waututh Nation Chief Leah George-Wilson.

Refiner Phillips 66's Return-to-Work Policy Stirs Unease

 About 20 employees of U.S. oil refiner Phillips 66 tested positive at its Texas headquarters for COVID-19 in recent weeks, people familiar with the matter said, alarming employees as the company strove to keep staff working in its offices.

Texas has reported record daily cases of the virus this week and Houston hospitals began emergency staffing and occupancy measures. The state ordered face masks be worn in public, reversing officials’ earlier opposition to a mandate.

Phillips 66, which began bringing back its 2,000 headquarters staff in May, has become a test case for Houston employers looking to recall workers from home offices.

In a video to employees, Chief Executive Greg Garland said their return would support its main product, gasoline, and be fair to company employees who cannot work from home, according to a video transcript reviewed by Reuters.

“Our company bled $1.6 billion of cash in the first quarter. We’ll bleed at least that much in the second quarter,” he said, adding that weak fuel sales put employee jobs in jeopardy. “If people don’t commute, we don’t have a viable business model.”

The company also had very few COVID-19 cases and no workplace transmission that it knew of, he added.

But since then, the rising number of employee cases has troubled staff, according to four people who spoke on condition of anonymity because they were not authorized to talk to media. Phillips only recently mandated masks be worn in all areas of its offices.

Condensate Delivery to Refineries

For the first time in Iran, a project has started in the Bahregan operational center run by the Iranian Offshore Oil Company (IOOC) for receiving gas condensate from the giant offshore South Pars gas field. This project, whose objective is to transfer gas condensate from South Pars to refineries in the north, lies within the framework of a larger policy of “gas condensate efficiency”

IOOC said in statement condensate receipt from South Pars was a “key national responsibility”, adding: “For this purpose, widespread work has been done to verify the feasibility of delivery of gas condensate by the engineering team of the Bahregan area.”

Farrokh Alikhani, deputy head of National Iranian Oil Company (NIOC) for production, after visiting infrastructure in oil-rich areas in southern Iran, said the measures undertaken for the delivery of gas condensate to domestic refineries was part of the “Iranian Gas Condensate Integrated Management” plan with a view to “increasing the gas production stability”.

Over recent years, in parallel with a significant increase in natural gas production in Iran, gas condensate production has picked up speed. The Ministry of Petroleum’s 2013 data show that South Pars was producing 280 mcm/d of gas. The figure jumped to 670 mcm/d by February 2020.

Minister of Petroleum Bijan Zangeneh said at a ceremony for the installation of a jacket in the first offshore platform of SP11 development that the South Pars gas production capacity would reach 750 mcm/d this year.

Iran has also seen a significant rise in its gas condensate production capacity. This giant offshore field, which Iran shares with Qatar, accounts for 92% of Iran’s gas condensate output.

Of South Pars’ 9,700 kilometers, 3,700 kilometers belongs to Iran. According to latest figures, Iran’s gas condensate production capacity has reached 1 mcm/d.

Megaprojects

Planning and policymaking by the Iranian Ministry of Petroleum for domestic consumption of gas condensate and boosting Iran’s refining capacity was decided when Iran’s gas condensate exports had hit a record.

In March 2017, Ali Kardor, then CEO of NIOC, said Iran was exporting 800,000 b/d of condensate.

“In parallel with increasing the gas condensate production capacity, by starting up refineries like the Bandar Abbas Gas Condensate Refinery and Siraf condensate refineries, 800,000 b/d of condensate would be consumed and we would end exporting condensate,” he said.

Although US President Donald Trump imposed sanctions on Iran’s petroleum industry, automatically targeting Iran’s gas condensate production, capacity building policies for domestic consumption of gas condensate failed to impose heavy costs on Iran.

According to official data, 420,000 b/d of gas condensate is being fed into the Bandar Abbas condensate refinery, commonly known as the Persian Gulf Star refinery. This facility is producing high-quality gasoline. Mohammad Ali Dadvar, manager of the refinery, said it would be able to process 480,000 b/d of condensate by fall.

The Bandar Abbas condensate refinery is the largest condensate refiner in the world. Feasibility studies for this project began in Iran. Thanks to the 2015 Iran nuclear deal, the refinery’s equipment was supplied and it was then launched.

As part of its plans to boost its refining capacity, Iran launched in 2015 a project known as the Siraf refining project. It comprises eight independent refineries, each of which processing 60,000 b/d of condensate.

Minister Zangeneh has said that 130,000 b/d of condensate was being delivered to petrochemical plants. Iranian refineries consume 80,000 b/d of condensate.

In recent years, establishment of more centers for transferring gas condensate has topped the agenda of the Iranian Oil Pipeline and Telecommunications Company (IOPTC). 

The Goreh-Jask pipeline whose construction recently started is expected to carry crude oil and gas condensate to east of the Strait of Hormuz to be delivered to refineries and petro-refineries in the Makran area.

At the order of Minister Zangeneh, gas condensate was also traded on the international floor of the Iran Energy Exchange in May 2019. However, it took one year for 200,000 barrels to be sold. Under the terms of Iran’s national budget law for the current calendar year, 2 million barrels of condensate would be traded on the international floor of IRENEX every month.

Condensate Export

Increasing gas condensate production capacity under the present circumstances would feed domestic plants like the Persian Gulf Star refinery and guarantee Iran’s foothold in international markets.

Although due to the current US threats, buyers of Iran’s gas condensate cannot buy condensate, it will remain a key and influential product in the market as it is totally different from crude oil, natural gas and other petroleum products from the viewpoint of pricing mechanism.

Iran’s condensate exports increased significantly after Iran’s 2015 nuclear deal took effect in early 2016. South Korea brought its Iranian condensate imports from below 20,000 b/d to more than 300,000 b/d. 

South Korean buyers of Iranian crude and condensate include SK Energy and SK Incheon Petrochemical, owned by SK Innovation, Hyundai Oilbank Corp and Hanwha Total Petrochemical Co.

After the US sanctions against Iran came into effect in 2018, South Korea had to find alternatives. South Korea bought and tested as many as 23 different types of condensate from 15 countries as possible substitutes for Iranian condensate, at a cost of about $9 billion, government and trade data analyzed by Thomson Reuters showed.

In late March 2019, the Pars Oil and Gas Company (POGC) announced that 300,000 barrels of condensate produced at SP13 had been loaded to be exported. China, the United Arab Emirates, South Korea and Japan were the main buyers of Iran’s condensate. Barely had Europe started buying condensate from Iran than Trump reinstated sanctions against Iran.

Gas condensate storage costs too much. In 2013 when Iran was still under sanctions, 75 million barrels of condensate was parked on sea due to shortage of storage capacity.

During the previous round of sanctions which coincided with the two administrations of Mahmoud Ahmadinejad, about 60 million of condensate was being parked on 30 to 40 vessels in the Persian Gulf. Iran was paying $70 a month per tonne of condensate for remaining floated.

Gas condensate floatation carries security and environmental risks. Zangeneh said his ministry planned to keep condensate from being exported directly so that they would be converted to products at the Persian Gulf Star and Siraf refineries.

Gasoline Storage, Oil Sanctions Antidote

 Farzin Savadkoohi

 Falling demand for crude oil and petroleum products across the world due to the Covid-19 outbreak and uncertainty over the development of an effective vaccine have increased gasoline storage in various countries. Iran has been one of them. The country has in recent years built capacity for gasoline production to end its gasoline import needs and even become an exporter. The Iranian Oil Pipelines and Telecommunication Company (IOPTC) has contributed to infrastructure provided for boosting gasoline storage, thereby reducing gasoline consumption and exports following the coronavirus pandemic.

 Storage Infrastructure

 In parallel with increasing gasoline and petroleum products production capacity, IOPTC has expanded its infrastructure for gasoline storage.

Ali Ahmadipour, deputy CEO of IOPTC for operations, recently said the company’s spare capacity had been used to help store surplus gasoline production.

“Ever since the gasoline consumption has been on the downward trend, given gasoline storage restrictions across the country and with a view to making maximum use of unused spaces and capacities for storage, we decided to empty and clean crude oil storage to be used for gasoline storage,” he added.

Ahmadipour said: “Iran is faced with crude oil and petroleum products export restrictions due to sanctions. Therefore, petroleum products’ storage at big volumes in oil transfer centers has prevented accumulation of gasoline at the Persian Gulf Star refinery.”

He said that storage at existing capacity would compensate for crude oil exports in case sanctions strike.

He added that the crude oil storage site in the Moghanak area near Tehran was partly emptied to allow for gasoline storage. He said another storage tank would be used for storing gasoline in the Sari area in Mazandaran province.

“Furthermore, by accelerating operation of repair and construction projects related to balanced tanks, a number of oil storage tanks at the Naein oil transmission center would be used for storing gasoline produced at the Persian Gulf Star refinery,” he said.

The key point here is that these storage tanks have not been built basically for storage, but as National Iranian Oil Products Distribution Company (NIOPDC) sites hold a specific amount of petroleum products and they had restrictions, these storage tanks were prepared so as to store surplus gasoline.

 Gasoline Storage in North

 In the middle of spring, significant measures were undertaken in other parts of the country for storage. In northern Iran, which is a strategic district run by IOPTC, necessary infrastructure was prepared for surplus gasoline storage.

Arsalan Rahimi, director of IOPTC for northern Iran, has highlighted the technical preparedness, equipment sufficiency and manpower in the area for carrying fuel to consumers.

“Under such circumstances, a tangible reduction in gasoline consumption was seen in northern Iran. Therefore, the company made necessary arrangements for gasoline storage at the Sari and Neka transmission centers based on its policies,” he said.

Rahimi touched on other plans for this area for increased gasoline storage, saying the Sari oil transmission center was being prepared for storage.

“This storage facility will soon join the storage network,” he said.

Northern Iran has also taken steps in other fields related to hydrocarbon storage.

Rahimi said huge volumes of crude oil were carried from Neka oil terminal to the Tehran refinery through the Neka-Rey pipeline. He added it was aimed at enhancing capacity for storing petroleum products.

He said that new capacity would be built for gasoline storage after emptying the aforesaid tanks.

Once the Iranian Oil Terminals Company (IOTC) has cleaned the tanks, gasoline transmission and storage via Rey-Sari-Neka pipeline would start.

Ali Akbar Fazlikhani, an IOPTC official, said that it was possible to store surplus gasoline in Malayer and Hamedan areas, which could be increased by up to 50%.

He said that safe and favorable conditions were prepared for the transmission and storage of various petroleum products.

The central district of IOPTC covers 1,600 kilometers in Lorestan, Markazi, Qom, Hamedan and Isfahan provinces.

Mostafa Soltani, director of northwest, said: “Following the coronavirus outbreak and subsequent fuel consumption cut, the CEO of IOPTC ordered fuel storage in the storage facilities of that area. The Urmia oil storage facility is planned to be used.”

He said that some other areas in the country were also making necessary arrangements to facilitate petroleum products storage as easy as possible.

 Persian Gulf Regional Markets

 The increased storage capacity for crude oil and petroleum products in the Persian Gulf littoral states has been a major approach pursued by Iran’s petroleum industry.

Taking into account regional markets would be profitable for the country both when exports are possible, and when like now sanctions are causing problems. With US sanctions in effect, gasoline storage could be a winning alternative in the refined products market.

Currently, design, manufacturing, installation and operation of storage facilities for a variety of products near Persian Gulf waters are in the final steps in line with the aforesaid objective.

Even under sanctions conditions, Iran would maintain its long-term view of presence in the energy market among regional rivals.

As the number of storage tanks increases in different refineries including the Bandar Abbas Gas Condensate Refinery and the Bandar Abbas Oil Refinery, the sanctions become less effective for Iran’s petroleum industry. That means regional energy players could still count on Iran’s commercial potential.

The volume of Iran’s strategic gasoline reserves have increased compared with previous years. Preparing prefabricated gasoline storage tanks, which used to hold crude oil and other hydrocarbon products, marks a new chapter in Iran’s petroleum industry.

Against the backdrop of the Covid-19 outbreak with negative impacts on global markets, Iran’s petroleum industry has realized that tight competition is under way in the world for storing strategic fuels.

Iran is also ready to export a variety of petroleum products to other areas. Launching projects for enhancing gasoline production capacity at big refineries in Iran has paved the ground for storage at big tanks and facilitated conditions for domestic use. That would help Iran consider exports for future, while reduced gasoline consumption in the country would boost storage to boost fuel potential in the country.

A sharp decline in the price of crude oil, as well as petroleum products due to falling demand has brought Iran’s crude oil and oil products storage to levels unseen in the history.

Iran’s refining industry is taking maximum benefits from the current opportunity while the storage of gasoline and similar products would continue.

Tehran Refinery Overhaul in 28 Days

 Overhaul and periodic reparation is routine in the refining industry. In case overhaul is not done, the output of industrial unit will decline significantly.

Tehran Oil Refining Company started its overhaul at a time when the global petroleum industry has been challenged by the coronavirus pandemic. On the one hand, health protocols have to be respected while on the other, due to sanctions, the reparation of some equipment has faced restrictions. However, refinery officials said they started the overhaul of the ISOMAX and northern hydrogen sections of the treatment facility. The overhaul was supposed to start sooner, but the Covid-19 outbreak and concomitant health protocols changed the schedule.

More than 84 items need to be carried out in this round of overhaul. Catalyst discharge and recharge in the reactors of ISOMAX unit No. 2 and the reformer furnace of hydrogen unit No. 2, replacing the damaged part in the body of 2V-209 tower and replacing all pigtails of 2H-801 furnace and repairing the insulants of the furnace ceiling are among the major tasks to be carried out throughout overhaul.

According to the refinery officials, over 500 skilled persons would be involved with the overhaul.

 Less Fuel Oil

 The ISOMAX unit No. 2 and hydrogen unit No. 2 are among the most significant sections of Tehran oil refinery. The ISOMAX unit with a rated capacity of 15,000 b/d converts the isofeed gained from the distillation tower in vacuum to products of higher value and quality. This unit converts feedstock to light gas, liquefied gas, light and heavy naphtha, jet fuel and premium gasoil. Nickel-molybdenum catalysts are used in this process. The significance of this unit is that it produces less fuel oil and instead supplies products of high quality.

Furthermore, hydrogen unit No. 2 is running with a nominal capacity of 1 mcm/d. It is fed by gas produced at the catalytic and natural gas conversion sections. The feedstock for the hydrogenation unit is mixed under specific conditions with oversaturated steam, and crosses the finance at a high temperature.

The overhaul of refining units is done based on common standards at each processing unit based on technical and engineering reports drawn up following regular field visits. One important aspect is scheduling based on which the refining unit would finish its overhaul on time. Iranian refineries are no exception to the rule.

The coordinated overhaul plan for all refining companies, including atmospheric and vacuum distillation units, fixed-platform catalytic units, mobile platform including gasoline production, hydrocracking and hydrogen production, catalytic cracking, middle distillate refining, heavy materials refining, visbreaker, amine, RFT and other sections would be overhauled on schedule.

 Operation Stops during Overhaul

 Refiners should halt operational units during overhaul. Therefore, there must be proper planning in the light of high gasoline consumption in the country so that CR (catalytic reformer) or CRU (catalytic reforming unit) and other sections would stop operating throughout overhaul.

Iranian refining industry planners would handle the overhaul of other processing units of the refinery on schedule and through making required coordination.

The refining units, like every other factory, would need overhaul and reconfiguration after some time in order to guarantee the sustained production of petroleum products. At refineries, fouling, corrosion and transformation in the structure of equipment often result from sulfuric materials, i.e. they are common issues. When oil substances enter into contact with equipment and machinery, they cause damage to them. Undoubtedly, changing or reconfiguring some of these sections would guarantee safety throughout the process of production. Alongside these challenges, the negative impact of polymer materials and coke compounds would block processes, which may cause irreparable damage to a refining unit.

The sensitive phases of overhaul and upgrading refineries in Iran are often carried out every three to four years. During the overhaul which often lasts 25 to 35 days, refining operations will halt. All equipment is shut down so that the equipment would be dismounted and cleaned completely and possible defects would be identified so that defective parts would be replaced.

 Step-by-Step Repair

 Fouling in refinery catalytic units is not uncommon. As time passes, sulfur-based substances stack up on the equipment. Meantime, nitrogen and other metals would affect the efficacy of catalyst and reduce the lifecycle of equipment due to depositing. Therefore, overhaul would require precision.

One major obligation for refinery overhaul staff is to carry out technical inspection of pipe and equipment joints, particularly where the flow of substances changes. That would be of high significance.

Corrosion is not easily visible and therefore it could cause serious risks. Therefore, operators would inspect and change equipment step by step.

Like Tehran oil refinery, overhaul is carried out with high sensitivity in other refineries as well because it constitutes a major chapter in safety in production.

Petro-Refineries, Key Feedstock Supplier

 Petro-refineries link refining and petrochemical facilities. Their production is not limited to liquefied petroleum gas (LPG), gasoline, kerosene, gas oil and fuel oil. Besides these products, they supply feedstock for polymer and chemical plants.

At these plants, some of which are almost coming online, crude oil is used as feedstock to numerous processing units in order to provide a combination of basic petrochemical and fuel products.

The basic design of petro-refineries is based on integration between refining and petrochemical plants with a view to diversifying products (varieties of fuel and basic petrochemicals), reducing the cost price of products, optimizing the output and enhancing profitability.

Petro-refineries would need to simultaneously use transformative and complementary processing units in order to be able to produce hydrocarbon products and basic petrochemicals. These units include cracker unit, catalytic conversion, propane dehydrogenation, aromatics and olefins extraction and separation.

The petroleum industry has in recent years moved towards building petro-refineries. Currently, alongside scheduling for the inauguration of the Kangan and Parsian petro-refineries, time has been set for new petro-refining projects. Meantime, appropriate measures have been undertaken to pay further attention to investors. The Iranian parliament last year passed an Act on supporting downstream crude oil and gas condensate industry using public investment. According to this law the Petroleum Ministry was required to have a bylaw on the implementation of this law approved by Council of Ministers within two months so that notice would be issued for attracting investors within one month.

 Final Step

 The Cabinet gave its nod to the executive bylaw for the aforesaid law. Then in February this year, the Petroleum Ministry called for investment in refinery and petro-refinery construction.

According to the aforementioned law, a petro-refinery will have a “feedstock grace period” for a specific period starting from the date of operation. In other words, in the preliminary years, the feedstock price would not be paid in advance. Once the petro-refinery has become operational, the total sum invested by the shareholder would be repaid within one year. The rate of return of investment would last one year instead of eight to ten years.

 42 Applications

 Minister of Petroleum Bijan Zangeneh recently said at the Energy Committee of the Iranian parliament that a bylaw was being drafted on the construction of petro-refineries by engaging people.

Meanwhile, Deputy Minister of Petroleum for Planning Houshang Falahatian said 42 companies had applied for financing petro-refineries in Iran. He said that the Petroleum Ministry and National Iranian Oil Refining and Distribution Company (NIORDC) would start reviewing the files of applicants in order to choose those meeting requirements.

The important point is that over recent years, investors have been shifting their attention to petro-refineries. Many new investors have emerged. For instance, the commander of the Khatam al-Anbia Headquarters has expressed willingness to finance petro-refineries. Saeed Mohammad said that petro-refineries provide an effective tool in stopping direct crude oil sales.

“In the past, petro-refinery construction was faced with opposition. Had we made necessary arrangements in the past we would be more resilient today in the face of sanctions,” he said. “As in this sector, the Petroleum Ministry has not presented many projects; Khatam al-Anbia voiced its readiness to make investment.”

“The important thing is to bring the projects into operation. We are not seeking to own them. A bright future is awaiting petro-refineries,” he said.

Zangeneh has predicted that nearly $20 billion would be attracted into petro-refinery construction.

 Petro-Refineries Attract Investment

 Falahatian has said the Act on petro-refinery construction with public investment enables candidates to receive feedstock on credit for some time. He said that the value of granted feedstock would equal the total value of investment. Therefore, the capital and interest could be paid. For feedstock, loan would be granted from the National Development Fund of Iran (NDFI).

“Reimbursement of this NDFI loan would be subject to regulations applicable to other facilities and loans given to industrialists and economic actors,” he added.

According to NDFI regulations, loans paid for refinery and petro-refinery construction would be reimbursed over an eight-year period – three years for the construction of the refinery, six months for the feedstock grace period and 4.5 years for the reimbursement of facilities.

Falahatian said: “But if these petro-refineries are built in underdeveloped areas, the period would be extended to ten years. However, there is room for flexibility to extend the eight-year period to ten years and the ten-year period to twelve years should the investor offer justified reasons. The rate of interest for NDFI loans for petroleum industry projects is 6%.”

He said that NDFI would grant loans in hard currency and therefore the reimbursement should be also carried out in hard currency.

“Based on technical and economic studies, the investor presents a financial model and estimates the value of his planned investment. As required by Act, the equivalent of capital and interest on investment would be paid to him,” he said. “Our main objective is to support downstream oil industry, end crude oil sales and create a value-added chain in the petroleum industry by building refineries and petro-refineries in the country.”

Among petro-refineries ready to come on-stream, the Kangan and Parsian plants in Assaluyeh are ready to become operational. The pair is part of the second jump in Iran’s petrochemical industry, which National Petrochemical Company (NPC) hopes to inaugurate in the current calendar year.

Woman Striker

I Love Football, That’s All!

 Arash Jafari

 Women’s football premier league has shined in recent years. Zahra Hatamnejad is one of them. She represents Kurdish footballer girls in western Iran. She remains committed to her city’s football team – Palayesh Gaz Ilam (literally Ilam gas refining). Hatamnejad is a striker in her team.

Palayesh Gaz Ilam was ranked the 5th in the table when only four weeks had remained before the end of the pro league matches. It had a good start and fared better than ever.

Hatamnejad has scored 16 goals in this season.

The following is an exclusive interview with Hatamnejad:

 Would you please introduce yourself?

 My name is Zahra Hatamnejad, born September 14, 1986. I was born in Ilam and started playing football here in Ilam.

 When did you start playing football?

I started football and futsal in 2002. First I played futsal. Three years later, i.e. in 2005, I started football. Women’s football team was nascent and there was no premier league. But later on the form of matches changed and the premier league was formed. The matches were initially centralized and every week, one province hosted the games.

 How come you opted for football?

In our family, everyone was interested in football and I used to play football since childhood. I had also a good talent for football. When I learnt that futsal was being played in women’s clubs, I started futsal. My first coach was Ms. Pour-Nader. She recommended me to join the provincial team and I agreed. That was exactly when I formally entered football and futsal.

 It seems that your family was not opposed to you playing football.

Not at all. Everyone supported and encouraged me. Particularly my brothers were of great help to me. They supported me and I kept playing.

 You are currently the captain of Palayesh Gaz Ilam. How did the team do in this round of pro league?

Our team has been present in the league from the very beginning and is among deep-seated teams in women’s football. Our team was in good conditions in this season too and we are currently in the 5th position. Palayesh GazIlam’s footballers are Kurdish-speaking girls from Ilam, except for a 14-year-old girl from Tabriz. In the 2019 league, we were ranked the 5th before the league matches were stopped and even if we consider it as the final result, our team fared better year-on-year. In 2018, we were the 7th. I feel happy that we played in Ilam and I enjoyed playing for Palayesh Gaz Ilam.

 How do you assess the quality of women’s league? Not just technically, I mean financially and from other aspects.

Women’s football has in recent years improved and pro league is attracting more and more attention. Thanks to cyberspace, women’s pro league has been seen more than ever. That has helped the team make headway. In the first years of the pro league, women had fewer facilities, maybe about 10% of standards. But thanks to God, our teams are technical and financially better now. Of course, there is still room for our teams and footballers to do better. The footballers in the league have no other job and their life is limited to football. Every team will experience better conditions if it is supported further, in which case, women’s football will see progress.

 You’ve been in football since 2002. How has women’s football changed in recent years?

It has been subject to changes in all aspects. Earlier, the teams used to come together and play at lower costs. But now the matches are two-round. There are sponsors, and women’s football is not boring like before and there are qualified players. It means success.

 Does this trend instill hope?

Should this trend continue, we will have a more dynamic league and a better national team. Football is a profession and field of interest for most of us. When you spend all your energy on football you have to run your life. I hope that women’s football would get more attention. I feel happy that our futsal team is the top team in Asia and we have qualified players. However, I hope more attention will be paid to it. Such minor issues would lead to problems if they remain unresolved and are combined.

 You’re a member of national team. How do you see the situation of women in this team now?

Thanks to God, the team is in very good conditions. We have a qualified trainer, Ms. Azemoon. She is among few competent football trainers. Every training has been planned. Given our current conditions, we are hopeful for future wins.

 Do you follow men’s league matches? Which team do you prefer?

Yes, I follow their matches. Since childhood, I was supporter of Persepolis and I continue to support it. All members of my family support Persepolis.

 What about foreign teams?

I love Barcelona. Lionel Messi is my favorite footballer.

 Which footballers have been examples for you to follow?

Globally speaking, I love Messi. In Iran, I love Ali Daei, Ali Karimi, Ali Parvin and Nasser Hejazi. They are my favorite footballers.

 Do you have any unrealized football dreams?

Thanks to God, there is nothing. I have realized all my dreams. That’s unbelievable.

 Do you have any championship background in the pro league?

Yes, I won the pro league championship in the 2010-2011 season when I played for FC Bam Municipality.

 What about goal scoring?

Yes, I topped scorers with 27 goals.

 Do you have any specific title among fellow players?

Not now. But a former member of our team used to call me Andrey Arshavin, the Russian player of Arsenal. She said I was like Arshavin. I think she was somewhat right.

 Do you think the current season’s league can continue despite the Covid-19 outbreak?

I think with the current halt, it would no longer be correct to continue the league. How can a team whose members have been away for three months return to the pro league matches? Footballers living in western Iran may enjoy better conditions for training under Covid-19 conditions; however, in big cities where everyone is living in apartments and footballers have to play on the rooftops it would be impossible for them to return to the league. Furthermore, the teams in women’s football league do not have sufficient players and all players do not enjoy similar conditions. Financially speaking, four more matches would mean more financial burdens for the clubs with financial problems.

 Have you ever thought of leaving football forever?

I’ll be playing football as long as I am alive. I love football and it is what I am very fond of. Every day I become more motivated. I watch my physical readiness and it would be too early for me to leave football. I have plans for the future and winning new titles. I would like to say goodbye to football at a time I would still be a striker.

 Anything to say in conclusion?

I would like to offer my sincere gratitude to all those involved in Palayesh Gaz Ilam. It may be the only organ to have supported women’s football. I also offer my gratitude to the former and current managers, trainers and players and everyone else supporting this team. Thanks to their efforts, we fared well in the 2019 league.

History of Western Iran Oil Discovery

 If we want to find the root of Iran’s petroleum industry, we need to go through a process whose ups and downs are interlinked with the history of Iran.

The history of Iran’s oil is inseparable from its contemporary history. Learning about oil may add to our knowledge of the country with a view to opening new horizons and paving the ground for further progress and development.

Oil and gas activities were so high in western Iran that in 2000 the West Oil and Gas Production Company (WOGPC) was established as an offshoot of National Iranian Oil Company (NIOC) to specifically focus on that area. WOGPC runs five districts known as Naftshahr, Tang Bijar, Cheshmeh Khosh, Sarkan and Dehloran.

The Naftshahr production unit lies 220km west of Kermanshah and 60km from Qasr-e Shirin. It has a rated capacity of 15,000 b/d. The oil produced at the Naftshahr oil field is processed, sweetened and desalted prior to being pumped to the Kermanshah refinery as feedstock. Since Iran shares this reservoir with neighboring Iraq, it is a strategic and important oil field in western Iran.

The Tang Bijar production center is located 70 kilometers from the city of Ilam. The first phase of this center came online in 2007. It has capacity to process 7 mcm/d of gas. The gas gathered at this facility is sent to the Ilam gas refinery as feedstock. Gas condensate is also transferred to the Ilam refinery through a pipeline of 6-inch in diameter.

The Cheshmeh Khosh production unit is located 52km from the city of Dehloran in Ilam Province. It has a nominal capacity of 130,000 b/d (75,000 b/d of sweet oil and 55,000 salt oil). The oil produced at the Aban, Cheshmeh Khosh, Paydar, West Paydar and Dalpari is processed and sent via a 153-km pipeline to the Ahvaz production center and the Shahid Chamran pumping station.

The Dehloran production unit is located 20 kilometers southwest of the city of Dehloran. It has capacity to process 55,000 b/d of oil supplied by the Dehloran and Danan fields. A 52km pipeline will carry the processed oil to the Cheshmeh Khosh desalination unit.

The Sarkan production unit lies 15km from the city of Pol Dokhtar. It has capacity to process 30,000 b/d of oil that would be carried in a 21km pipeline to the Afrineh pumping station and finally the Kermanshah refinery.

 Reynolds Indefatigable

 Reynolds was scouring the entire western Iran, particularly Qasr-e Shirin, and verified reports provided by geologists appointed by William Knox D’Arcy. He visited fire temples in ruins in search of oil in the ancient traditions of Iranians. In Qasr-e Shirin, Reynolds visited Char Qapi Fire Temple. Charqapi is a historical monument of the Sassanid era in Qasr-e-Shirin. It was made of stone and gypsum and was counted as one of the largest fire temples of the Sassanid period. The fire temple has a square shaped chamber in the center with a domed ceiling, which closely resembles the other fire temples of the period. The width of the main opening of this fire temple is over 16m. 

The main entry into the fire temple was located in the east, surrounded by spaces and a yard. The only surviving building in this monument is located in the westernmost part of the edifice. It was the most conserved part when Reynolds was visiting.

At a time when there was no seismography and geophysics available to verify underground oil and gas reserves, the only indicator for geologists to learn about hydrocarbon reserves was oil and gas gush.

Something strange kept Reynolds from conducting drilling around ancient fire temples. Furthermore, D’Arcy had to comply with the terms of the concession he had signed with Iran.

Article 4 of the concession read:

The Imperial Persian Government grants gratuitously to the Concessionaire all uncultivated lands belonging to the State, which the Concessionaire's engineers may deem necessary for the construction of the whole or any part of

the abovementioned works. As for cultivated lands belonging to the State, the Concessionaire must purchase them at the fair and current price of the Province. The Government also grants to the Concessionaire the right of acquiring all and any other lands or buildings necessary for the said purpose, with the consent of the proprietors, on such conditions as may be arranged between him and them without their being allowed to make demands of a nature to surcharge the prices ordinarily current for lands situated in their respective localities. Holy places with all their dependencies within a radius of 200 Persian archines are formally excluded”.

Without this article, search for oil might have destroyed part of Iran’s history.

 Adventure Begins

 The name of Qasr-e Shirin in western Iran is intertwined with war and earthquake. However, not long ago, it was instrumental in Iran’s oil history; the period when Iran’s oil ended in the hand of D’Arcy and his colleagues and Reynolds started exploration. Reynolds was assured that oil existed in Iran’s territory.

Farshid Khodadadian writes: “In a strange link, the ancient monuments of the Iranian territory were directly linked with oil and gas resources in the country. If later on in May 1908, the first oil well in Iran and the Middle East became operational near an ancient fire temple in a Bakhtiari-dominated area, efforts got under way for oil exploration in Kermanshah and Qasr-e Shirin near a group of ancient monuments reminiscent of the Sassanid era.”

However, there is an older story of oil exploration in Kermanshahan Province in western Iran.

Khodadadian writes: “Many years before the signature of the D’Arcy Concession, by 1891, the then governor of Kermanshahan State had heard that there was oil and bitumen. He had asked French archeologist Jacques de Morgan to study this issue. De Morgan reported later that oil existed in Kermanshahan.”

The important thing with the start of drilling for exploration is that drillings in western Iran started by D’Arcy team around Qasr-e Shirin. Qasr-e Shirin is referred to in older books as Naftshahr.

According to Khodadadian, the surroundings of Qasr-e Shirin covered a zone sharing borders with the Ottoman government and extending as far away as the Naftshahr. Oil explorers had tried their chance for oil exploration in the area shared with the Ottoman empire before going to Zagros Mountains and the Bakhtiari-dominated area.

Differences emerged in the D’Arcy team. Some geologists did not believe in the existence of oil in western Iran, advising against the start of operations in the areas shared with the Ottoman empire. However, Reynolds remained adamant. Reynolds, who was an expert in drilling, came to Iran from London in 1901. He was determined to prospect for oil in western Iran. He had smelt oil in the ancient land.

 Persian-Ottoman Territory

 Restrictions incorporated in the contract pushed Reynolds towards Iran’s border area with Ottoman Khanaqin. The area was known as Chia Sorkh or red well. Drilling began there and Reynolds had to deliver necessary equipment by sea and through Basra in the Ottoman empire. There were so many problems and challenges in the way. On one hand, Reynolds had to go through very tough routes while on the other the Ottomans were not cooperative and did not let the equipment pass Khanaqin Bridge to reach Iran’s territory. Naturally, the Ottomans did not like their eastern neighbor to reach success in the oil sector. They finally started drilling in Chia Sorkh. But it did not last long because D’Arcy complained about no find. Reynolds’ dreams were shattered.

Khodadadian writes: “Anyway, the drilling of the first oil well began on November 8, 1902 in Chia Sorkh despite all local and political challenges. The oil rock was broken into pieces by drills and one year later, oil was seen at the depth of about 705 meters. However, the amount of oil was not sufficient to justify the continuation of drilling. Reynolds made a second attempt in Chia Sorkh near Well No. 1 and the oil extracted from the second well in January 1904 reached 120 b/d. Until this point, D’Arcy had lost about 150,000 liras of his initial investment and had told his friends that his money was limited.”

But news of oil discovery in Chia Sorkh pleased him and his friends in London. This happiness did not last long and turned into despair in May that year.

Drilling in Chia Sorkh cost Iran a lot as it drew the attention of the Ottomans. With political pressure and influence peddling, nine years later, i.e. 1913, the Persian and Ottoman borders were redrawn. Chia Sorkh was attached to the Ottoman empire. Following later partitioning, it is now part of Iraqi territory.