Continued Activity and Future Prospects

Kasra nouri

Director General of Public Relations

 Iran has recently seen key events in its petroleum industry. In addition to the startup of several petrochemical projects, 13 oil contracts were signed with Iranian companies.

With the startup of the Kaveh, Kimia Pars Middle East and Lordegan petrochemical projects, Iran’s petrochemical output capacity would increase 4 million tonnes a year. Furthermore, the 13 agreements signed with 14 Iranian firms would add 185,000 b/d to Iran’s oil production capacity.

Although Iran is faced with unjust US sanctions, the petroleum industry is racing ahead in both upstream and downstream sectors by maximizing use of domestic capacity. The sanctions have offered a chance for empowering Iranian companies.

Apart from that, history has shown that the sanctions will be one day lifted and Iran’s petroleum industry must prepare itself, particularly in the crude oil and petrochemical production sectors, for export and retain its market share shortly.

As Minister of Petroleum Bijan Zangeneh noted, survival of the petroleum industry and pinning hope on the future are important. He said sanctions would one day ago, but Iran would survive. Zangeneh said Iran should continue capacity-building in order to have spare capacity.

The minister said countries owe their strength to their influence in the oil market, not their oil reservoirs.

Therefore, the ongoing trend of Iran’s petroleum industry heralds good days for Iran in the future.

Zangeneh: Iran Expected to Have 3mb/d Spare Capacity

 A total of 13 agreements have been signed for oil production maintenance and enhancement between the Iranian Offshore Oil Company (IOOC) and National Iranian South Oil Company (NISOC) on one side and 14 Iranian companies on the other side. The agreements are valued totally at €1.527 billion, whose implementation would add about 185,000 b/d to Iran’s output capacity.

Minister of Petroleum Bijan Zangeneh said at the signing ceremony the agreements were aimed at enhancing Iran’s oil production capacity, adding: “A country will have a foothold in the oil market when its production capacity stands high. We need to have 1-2 mb/d of spare capacity.”

The minister said the agreements being signed under conditions of sanctions against Iran indicated the survival of the petroleum industry and hope in future.

“Some have asked me the logic behind capacity building under conditions of sanctions while Iran cannot use its spare capacity due to sanctions. But I tell them that sanctions will be gone and Iran will survive. We have to work on capacity building,” he said.

Zangeneh said a country’s strength lay in its oil production capacity, not in its reservoirs. “If we want to have a say it would be with our production capacity, not with our reservoirs,” he added.

“We may not be able to have enough production for a period of time, but it would be short-lived and not last long. Our nation has already experienced conditions worse than now, but it has survived. Therefore, the first step under conditions of sanctions would be for us to increase our production capacity,” said Zangeneh.

The minister said that Iran should not wait for the sanctions to be lifted and then take action for workover on fields, which would last two to three years. “That would cause us to lose our share,” he said.

Zangeneh said: “After the sanctions were lifted [in 2015], we reached maximum production very shortly (in three months) and returned to the oil market.”

The minister said the agreements would create jobs for Iranian contractors, noting that 70-80% of commodities and equipment used in this project would be supplied by domestic manufacturers, which would mean job creation.

“Throughout the sanctions and under conditions where foreign companies have pared down their staff or axe jobs and shut down their activities, we have not cut even a single job. It shows attention to employment and local industrialists,” he said.

Recovery Rate

Zangeneh said enhancing the oil recovery rate was the main pillar of all technical activities in the upstream oil sector, which would require systematic technological work.

“Enhanced recovery is as important as joint fields’ development, if not more important. With a one-percent increase in the recovery rate, more than 7 billion barrels of oil would be added to national reserves, which would mean about $300 billion wealth,” he added.

The minister said developing the research sector for enhanced oil recovery as well as service companies and E&P companies were the major pillars of technology development, adding: “The main driver of this activity is competition. All real projects and technological development materialize with competition; otherwise, nothing would occur.”

Noting that market competition was not a choice, he said: “The competition market would not spare anyone. If a company fails to emerge winner in the competition it would mean destruction.”

Zangeneh said competition was key to survival, calling for the development of technology in the field of competition.

“In practice, these are oil companies and oil service firms that would activate universities and research centers for development,” he added.

Zangeneh said Iranian E&P companies would not implement projects; rather, they would be a pillar of developing national technology for enhanced oil recovery.

Int’l Experience

Zangeneh also touched on using international experience in upstream oil projects, saying: “In the issue of international experience, we should not say we differ from the rest of the world. For instance, the Covid-19 disease in Iran is no different from Covid-19 in China or the US. That’s a disease and we can use the experience of foreign countries in vaccine development.”

He said that Iran should also use global experience in the petroleum industry, noting: “We once used buyback deals which we may use again if needed.”

“Then we used the Iran Petroleum Product (IPC) as a new framework. It was similar to buyback in the form and the only difference is that contractor will operate on the long-term on a field. It means that in case the contractor fails to keep its promises, it will see its capital and interests affected,” said the minister.

“We signed agreements with foreign contractors on the IPC basis and we reiterated that foreign parties are required to have an Iranian partner,” said Zangeneh.

Diversity in Methods

The Iranian minister said developing oil fields would not be limited to a specific method of contracting.

He touched on the EPC and EPD deals, saying the contractor would face no responsibility.

“The responsibility for reservoirs lies with the client, but the important point is that reservoir operations would be integrated. This method may incorporate financing,” he said.

He added EPC and EPD had such advantages of controlled timeframe, controlled costs and benefiting from the capital market for financing.

“Without these projects, all recovery enhancement projects in the oil sector would stop, but now we can continue our work and our rigs remain active,” he said.

Zangeneh said 130-140 wells would be drilled for the projects whose agreement was signed while 60-70 wells would be subject to workover.

The minister said Iran welcomed investment from every foreign state, except for Israel, particularly in technology sharing and enhanced recovery.

Zangeneh said Iran’s oil and gas production was higher than neighboring countries’ in the hydrocarbon fields they share.

185,000 b/d Output Growth

Masoud Karbasian, CEO of National Iranian Oil Company (NIOC), said the number of operating rigs would reach 23.

Regarding financing, he said that Islamic bonds would be used. “In other words, a kind of domestic investment secured by NIOC will be applied.” 

He said that another 10 agreements struck in February 2019 were worth €740 million, aimed at increasing oil production capacity by 75,000 b/d.

“Some 18 drilling rigs are operating in these projects and related activities are monitored through the Project Management System of NIOC regularly,” he said.

Karbasian said that domestic manufacturing had a 70% share in the oil enhancement recovery project, noting that the share would soon reach 80% with subcontractors awarded IRR 54,000 billion worth of contracts.

Reza Dehqan, deputy CEO of NIOC for development and engineering, said: “The time envisaged for most of these contracts is two years, except for the Maroun and Forouzan contracts for which respectively 3 and 2.5 years are estimated.”

“Due to sanctions and our conditions in the country, we have made changes to EPC/EPD projects. They had been regulated when sanctions had been lifted, but after sanctions were reimposed, contractors faced problems,” he said.

“For instance, we had predicted that contractors would account for 20% of financing, but we have annulled this condition because contractors are facing difficult access to financial resources.

Details of Contracts

The 13 agreements would cover the five provinces of Khuzestan, Fars, Kohguiluyeh and Boyer Ahmad, Bushehr and Hormuzgan. NISOC would operate 11 among them with the remaining 2 going to IOOC.

The Zilaei and the Chalingar and Garngan projects were signed with Global Petro Tech Kish Company, the Ramin project with Persia Oil and Gas Industry Development Co., the Mansourabad project with Petroiran Development Company, the Siah Makan project with Pasargad Energy Development Company, the Maroun-2, MAroun-5 and Maroun-6 projects with TENCO, the Maroun-1 and Maroun-4 projects with North Drilling Company, the Maroun-3 project with the Iranian Offshore Engineering and Construction Company (IOEC), the Balaroud project with National Iranian Drilling Company (NIDC) and the Jahan Pars Engineering and Construction Company, the Ahvaz-1 and Ahvaz-4 projects with Qeshm Oil and Energy Industries and Maroun Karan. Moreover, IOOC’s Resalat project was sgined with IOEC and Intelligent Strategies Company and the Forouzan project with Petropars and Mobin Sazeh Gostar.

2/3 of Projects Finalized

IOOC had signed in October 2018 the first agreement for oil enhancement for the Sivand and Esfand fields. Several months after, 9 more contracts were signed between NISOC and Iranian companies for the Kaboud, Gachsaran Khami, Lali Asmari, Nargesi, Mansouri Asmari and Ramshir projects, and three between Iranian Central Oil Fields Company and Iranian companies for the Danan, Saadat Abad and Naftshahr projects.

The total 23 agreements would require drilling 165 wells and workover on 71 wells with a final objective of 280,000 b/d increase in capacity.

The total 33 projects considered for enhanced recovery are handled by NISOC, IOOC and ICOFC in seven provinces – Kermanshah, Ilam, Khuzestan, Kohguiluyeh Boyer Ahmad, Bushehr, Fars and Hormuzgan.

The financial resources needed for this project would be provided by revenue from enhanced recovery projects and issuance of bonds in the capital market.

3 Projects Inaugurated

Zangeneh: Petchem Output to Double

Three petrochemical projects – Kaveh Petrochemical Plant, Middle East Kimia Pars Petrochemical Plant and the catalyst unit of Lorestan Petrochemical Plant – recently come on-stream during a videoconference event at the order of President Hassan Rouhani. The inauguration of the new projects would add 4 million tonnes to Iran’s annual petrochemical production capacity, earning the country $730 million in revenue.

Iran’s Minister of Petroleum Bijan Zangeneh said at the ceremony that Iran’s petrochemical production capacity would double under the current administration.

He said that 13 more projects would come online by March 2021, which would add 25 million tonnes to the petrochemical production capacity of the country.

Zangeneh said one of the most important tasks assigned to the petrochemical industry was to prevent raw materials selling by completing the value-added chain in the oil and gas industry. He added: “Feeding the downstream sector of domestic industries, preventing the flow of more than $5 billion out of the country a year and being the first foreign currency earner in the country are among the major advantages of the petrochemical industry.”

18 Petchem Projects in 6 Years

Minister Zangeneh said Iran’s petrochemical production was valued at less than $1 billion in 1997, which jumped to $11 billion in 2013.

“Since 2013 and within the framework of the second jump in the petrochemical industry, 18 petrochemical projects came online by March 2020,” he added.

“With the startup of 27 more petrochemical projects up to 2021 and with an investment of $17 billion, petrochemical production will total $25 billion. The figure will hit $37 billion by 2024,” said the minister. 

Zangeneh said that by the end of the second administration of Rouhani, Iran’s total petrochemical production would have more than tripled.  

Referring to ethane production, he said: “The ethane production will rise from 3.5 million tonnes at the start of this administration to 14 million tonnes by the end of the term of this administration, i.e. four-fold rise.”

Methanol Output to Rise

Zangeneh said the startup of Kimia Pars Petrochemical Plant and Kaveh petrochemical plants would add 4 million tonnes to Iran’s petrochemical production capacity. He said the three projects were worth $1.6 billion.

“The methanol production in the country was 6.7 million tonnes by last March, which would reach 17.5 million tonnes by March 2021 and 24 million tonnes by March 2025.

“The increased methanol production is good news, but it is also a warning as the market is likely to be saturated. Therefore, methanol producers should pay attention to the downstream sector too,” said the minister.

Zangeneh said: “Fortunately, the downstream chain of methanol reaches propylene. Propylene is a product which the downstream industry heavily depends on and which we are running short of now.”

He said new petrochemical projects, mainly propylene production, would be soon presented for government approval.

The minister said that petrochemical companies held a 25% share of the value of the capital market due to the petrochemical companies’ presence in the stock market.

“They are foreign currency earner and export-oriented groups. Furthermore, people have welcomed petrochemical stocks in the stock market,” Zangeneh said.

The minister said associated petroleum gas gathering was another initiative undertaken in the path of petrochemical industry.

“NGL 3200 and NGL 3100, Persian Gulf Bid Boland gas refining as the largest NGL project in the country and the Kangan petro-refining projects are all for feeding petrochemical plants,” Zangeneh said.

18 Catalysts Envisaged

Zangeneh said there were 40 groups of catalysts, adding that 85 catalysts were used in the petrochemical industry for $270 million.

“Over the past seven years, 18 catalysts valued at $104 million have been manufactured domestically,” he added.

He said 18 more catalysts, valued at about $90 million, would have been manufactured by 2021.

PP Output to Hit 4mt

Behzad Mohammadi, CEO of National Petrochemical Company (NPC), said Iran’s propylene production capacity would reach 4 million tonnes by 2025.    

“Currently, 950,000 tonnes of propylene is being produced in the petrochemical industry, which is consumed entirely. Therefore, there is a shortage of this product,” he said.

Mohammadi said that the propylene production would increase 800,000 tonnes over four years.

He said three 470,000-tonne projects in Assaluyeh under the title of Assaluyeh Propylene Park, three 120,000-tonne projects in Amir-Abad in northern Iran, one project in Anzali and one project in Eslamabad are envisaged to help increase Iran’s propylene production capacity.

Kaveh Petchem to Yield $400mn

Ebrahim Asgarian, CEO of Kaveh Petrochemical Plant, said $950 million had been invested in this project, adding that the plan would earn the country $400 million a year.

Noting that global methanol prices had dropped, he said: “Based on the average price of the past two years, the investment is estimated to return in four years.”

The Kaveh plant is the world’s largest methanol production plant with an annual capacity of 2.3 million tonnes.

“The plant lies in a 200ha land where five projects may be developed,” said Asgarian. He added that the Kaveh plant had its exclusive jetty and utilities.

“The exclusive jetty of Kaveh has been designed and built over seven years. It can handle 100,000-tonne vessels and its capacity could increase to 8 million tonnes a year,” he said, adding that the jetty can load methanol through single-point mooring (SPM).

“The Kaveh petrochemical plant has 9 storage tanks, each with a capacity of 420,000 tonnes,” said Asgarian.

Petrofarhang to Complete Methanol Chain

Marzieh Shahdaei, CEO of Petrofarhang petrochemical holding, said that construction of Kimia Pars Petrochemical Plant had started in 2016 for an annual production of 1.65 million tonnes of methanol.

“The investment made in this project totals $600 million,” she said.

Shahdaei said Petrofarhang would not content itself with methanol production, adding: “Petrofarhang eyes projects for completing the methanol value chain and producing further value-added.”  

She said that Kimia Pars Petrochemical Plant had experienced 14 million persons-hours of work without any accident. She said 700 were directly employed in the project.

“For a daily production of 5,000 tonnes of methanol at Kimia Pars Petrochemical Plant, about 4.5 mcm/d of natural gas and 220 tonnes of oxygen are consumed,” Shahdaei said.

She said Petrofarhang had three more methanol projects under way, adding that the Sabalan petrochemical plant would become operational by next March.

Lorestan Petchem Plant

Davoud Reza Rabbani, CEO of Bakhtar Petrochemical holding, said it would focus on catalyst production in order to end its dependence on catalyst imports for petrochemical plants and to be able to supply new grades of petrochemical plants.

He said that the catalyst unit of the Lorestan petrochemical plant had been built with the technology developed by the Petrochemical Research and Technology Company (PRTC).

“This holding has supplied about 600,000 tonnes of products since March 2019,” said Rabbani.

He said the catalyst unit of the Lorestan petrochemical plant had earned $30 million in revenue, adding that investment in this project would return in one year.

He added that the Bakhtar holding had eight knowledge-based projects under way, 6 of which were in Lorestan Province.

Zangeneh: Oil Exports Continuing, We Won’t Back Down

 Iran’s Petroleum Engineering and Development Company (PEDEC)  has signed two agreements for development of as many fields Iran shares with neighboring Iraq during the four months since the beginning of the current calendar year. Both agreements have been signed with Iranian contractors.

Iran’s Minister of Petroleum Bijan Zangeneh, who was addressing the ceremony held to sign agreement for the development of the South Azadegan oil field, said international companies were barred by US sanctions from being involved in Iran’s oil projects. However, he said: “I have no special interest in any foreign country and if I talk to any party it would be just for securing national dignity and interests.”

“We feel compelled to tolerate the toughest pressures under such tough conditions and not back down,” he added.

Regarding oil exports, he said briefly: “The conditions of exports are good.”

Iran’s Petroleum Ministry refuses to disclose figures on oil exports and export destinations due to US sanctions.

By tough conditions, Zangeneh was referring to two issues: The Covid-19 outbreak that has pushed the global economy into unprecedented recession and continues to claim victims across the globe, thereby throwing shadow on the future of the economy; and US sanctions that have put a strain on Iran’s economy and oil sector ever since the US pulled out of the 2015 Iran nuclear deal known as JCPOA.

A top priority of the Rouhani administration has been to develop joint fields located in West Karoun. Ever since taking office, the Petroleum Ministry has sought to make maximum recovery from these fields.

Zangeneh said the oil recovery capacity from West Karoun oil fields had increased from 70,000 b/d to 400,000 b/d.

Such success has been achieved despite numerous bottlenecks the Iranian petroleum industry has been faced with. Due to financial restrictions and the significance of using modern technologies, NIOC has always been willing to engage top international companies in oil projects. However, due to the US’s unilateral sanctions, foreign companies have refrained from cooperating with Iranian entities in recent years. That is why NIOC has turned to Iranian E&P companies.

The agreement signed between PEDEC and Petropars for completing the development of South Azadegan is aimed at raising the field’s production capacity to 320,000 b/d and building a central treatment export plant over 30 months.

The $1.3 billion agreement was signed between CEO of PEDEC Touraj Dehqani and CEO of Petropars Hamid-Reza Masoudi.

One objective sought by Iran in developing oil and gas fields is to use modern technologies to increase the recovery rate of oil reservoirs.

Zangeneh said: “South Azadegan holds 27 billion barrels of oil in place. At the moment, we may recover less than 1.5 billion barrels from this field. In other words, 25.5 billion barrels will remain intact due to technological shortcomings.”

He said 100% recovery is not possible, as access to reservoirs varies depending on the conditions of the ground. The Petroleum Engineering Institute affiliated with the University of Tehran has announced it can raise the South Azadegan recovery rate to 16%, which would add more than $1,000 billion to national revenue.

“Oil can stimulate the economy as it would create jobs and engage domestic companies,” said Zangeneh.

Good Performance in South Azadegan

Zangeneh said South Azadegan oil field was received at a time it was in bad conditions, adding that successive measures turned out to be positive.

Development of South Azadegan, lying along Iran-Iraq border and 80 kilometers west of the oil-rich city of Ahvaz, picked up speed in 2014 when NIOC had to dismiss China’s CNPCI due to foot-dragging. The production capacity of this field has reached 140,000 b/d, far from the 45,000 b/d recorded in 2013.

Zangeneh also touched on partnership with foreign companies, saying: “In cooperation with foreign companies, we are not only looking for capital. Rather, what we are looking for is to attract technology to enhance the recovery rate of reservoirs. Furthermore, mutual dependence can boost our presence in the market. But we will not die if they do not cooperate with us. Over recent years, we have proved that we will go ahead firmly and will not back down.”

No Concessions to China

The planned 25-year cooperation between Iran and China was another question posed by journalists.

Zangeneh said: “It’s a general agreement and I can assure you that in the oil sector, the Chinese have not asked for any concession. Nor will we give them any concession.”

He said that Iran and China plan to cooperate in various sectors including development of fields, refining and petrochemical production.

“We are ready to cooperate with any country except for the Zionist regime. Under the present circumstances, even US companies have not been barred from working as contractor or investor in our projects,” he said.

“Neither the government nor the parliament will let our national interests be sacrificed for the sake of another country. Nobody has such expectation, either. Such cooperation will be friendly and bilateral. Furthermore, our current ties with the Chinese are good and tension-free,” he added.

Iranian Firm to Develop Farzad

Zangeneh said the conditions of all joint fields would be finalized by the end of the current administration.

He said an agreement would be signed soon for the development of the Farzad gas field.

Asked about India’s intention to develop Farzad B, he said: “The heads of agreement has been signed for this field earlier and an agreement will be signed with Iranian companies soon. Currently, no foreign company is willing to sign agreement with us and we totally depend on our domestic capacities.”

Azadegan Output to Hit 600,000b/d

Masoud Karbasian, CEO of NIOC, said the South Azadegan production capacity would reach 320,000 b/d in the first phase of the implementation of the agreement.

“But this capacity would reach 600,000 b/d in the next phase and therefore talks with Iranian E&P firms would continue to that effect,” he said.

Karbasian also referred to Petropars’ commitment in completing the South Azadegan development and CTEP construction as the largest oil and gas processing unit in the country. He said: “Despite all shortcomings, NIOC would contribute to the financing of this project. We will make efforts to provide required credit for this project so that Petropars would be able to meet its contractual obligations.”

South Azadegan Background

Dehqani said he expected Petropars to complete South Azadegan’s development and work for enhancing the recovery rate of the giant field.

He touched on the background of South Azadegan and Iran’s cooperation with the Chinese, saying: “After four years of delay by the foreign contractor of this field, the Petroleum Ministry decided in 2014 to put an end to its cooperation with this company in South Azadegan and follow up on the project via Iranian companies.”

Dehqani said three oil agreements were signed with Chinese companies in 2009 for the development of North Azadegan, South Azadegan and Yadavaran fields. The outcome was satisfactory in North Azadegan and Yadavaran.

“But in South Azadegan, where our oil reserves are mainly hidden, we did not see a good performance. The key question here is to know why it happened and the answer is clear. In West Karoun, the more we move northward, we hit the heavy Sarvak layer. The reservoir pressure is low and therefore drilling and production risks are high,” he said.

Dehqani said: “I think that had we not stopped cooperating with the Chinese company in 2014 in this field we were still in talks and at least we might have modified the contract in favor of the Chinese.”

“Therefore, the Petroleum Ministry’s decision to terminate its cooperation with the Chinese party was a smart decision,” he said.

Dehqani also touched on spending for the development of South Azadegan, saying: “Studies show that the costs for one unit of this field would be one-third of costs in similar fields.”

He said that the number of drilling rigs operating in this field had reached 20, while more than 35 wells had been drilled in a single year.

He said that more than 170 wells had been drilled in this field in recent years, adding: “Today, there are 105 operating wells in this field.”

Masoudi also said Petropars had operated projects worth more than $23 billion in the giant South Pars gas field. He said that Petropars was a leading E&P firm in the oil and gas industry.

He said Petropars had been involved in the development of SP1, SP4 & 5, SP6-8, SP12 and SP19. Petropars is currently developing SP11.

Masoudi said compared with other refining projects, SP11 was much more significant.

“The major policy of Petropars in this project is to distribute activities among contractors, suppliers and domestic manufacturers.”

South Azadegan; From Inpex to CNPCI

Negar Sadeqi

Seventeen years have passed since Iran signed a first agreement with a foreign contractor to develop the giant Azadegan oil field. Iran was then slapped with sanctions due to its nuclear program. Foreign contractors came one after another and they quit without having done anything.

In the Azadegan field, it happened twice. Finally in July this year, it was awarded to the Iranian company Petropars.

Azadegan was discovered in 1997 with proven reserves of 31 billion barrels, which new studies put it at 33 billion barrels. Iran wooed foreign companies for investment and technology, but sanctions blocked every attempt. The United States applied all its levers of pressure to dissuade successful bidders from developing this field, similar to what happened to Phase 11 of the giant South Pars gas field.

Japan was the first country to step into Azadegan. During a state visit to Japan by then president Mohammad Khatami in November 2000, Japan won monopoly on negotiations for the development of the giant oil field with a low-interest loan of $3 billion. But talks with the Japanese were not easy. Minister of Petroleum Bijan Zangeneh has said Iran-Japan talks were on the brink of halt on several occasions as the US did not cease to pressure Japan to shun the project.

The talks lingered on. The Iranian Petroleum Ministry gave enough time to Japan to think and express itself on the project by September 2003. Japan had to make up its mind by that time; otherwise, it had to bid for the project in a licensing round that Tehran was planning to hold. Amid Japan’s foot-dragging, France’s energy giant Total and Norway’s Statoil had expressed their intention to develop Azadegan.

Iran’s deadline paid off. In February 2004, Mehdi Mir-Moezzi, then CEO of National Iranian Oil Company (NIOC), KaniHiko Matsu, CEO of Inpex, and Majid Hedayatzadeh, CEO of Naftiran Intertrade Company (NICO), signed an agreement for the development of Azadegan. The signing ceremony was attended by Minister Zangeneh and Japan’s head of Natural Resources and Energy Agency.

Under the buyback deal, production from Azadegan had to reach 150,000 b/d in the first phase and 260,000 b/d in the second phase by 2013. The capex for the project was estimated at $2 billion. Inpex had a 75% share in the project with the rest going to NICO.

Once the deal was signed, Minister Zangeneh said Iran achieved its objectives sought in the agreement. He said dozens of rounds of talks were held on the agreement and they were close to ending talks on several occasions.

Zangeneh said increased production, job creation, transfer of technology; enhanced management and upgrading potential in engineering were among objectives Iran was after by signing the deal with Inpex. The Japanese side was also seeking energy supply security and guaranteed energy supply.

But US pressure on Japan did not stop. NIOC hoped that Inpex would remain committed to the terms of the deal and implement the project; however, the pace of work was not satisfactory. Iran gave Inpex ultimatums and no progress was seen. Inpex’s share was revised down to 10% in 2003. In October 2006, NICO gained a 90% share in the project. Then petroleum minister Gholam-Hossein Nozari said Inpex’s share was just reduced because of good trade ties between the two nations and Inpex’s willingness to remain in the Azadegan field despite US restrictions caused by Iran’s nuclear program.

NIOC was willing to start oil production from Azadegan as soon as possible. Phase 1 development of the project was assigned to the National Iranian South Oil Company (NISOC) that managed to start extracting 20,000 b/d of oil from the field in January 2008.

China Next in Line

NICO was a major stakeholder in the South Azadegan project. However, the financing of the project by NICO was no simple task. NIOC was still looking for foreign investment and welcomed any proposal from international firms.

Mohammad Javad Asemipour, the new head of NICO, said in October 2008 that the company was willing to award its 80% of Azadegan, which “received numerous proposals for partnership in the development of the field.” He had said that NICO was paring down its share of the project in a bid to help accelerate Azadegan’s development.

Speculation was rife about the presence of foreign companies in the South Azadegan development. In May 2009, Naji Sa'douni, then CEO of Petroleum Engineering and Development Company (PEDEC), said upon NIOC’s decision, a 70% share of the Azadegan oil field’s development would be awarded to an international firm, preferably a Chinese one. Five months later, i.e. in October 2009, a $2.5 billion buyback agreement was signed in Switzerland’s Lausanne with China’s CNPCI for the Azadegan development. NICO transferred its 70% share of the project to the Chinese firm following six months of talks.

Under the deal with CNPCI, production from South Azadegan would reach 320,000 b/d in the first phase and 600,000 b/d in the second phase.

Moreover, 52 months after a master development plan was adopted for the project, the first phase of South Azadegan would become operational with 185 wells.

Operation started in the field in September 2012. But in October 2013, PEDEC announced that the project was behind schedule. PEDEC said South Azadegan was still producing 54,000 b/d of oil.

CNCPI Procrastination

CNPCI started its procrastination six months into the agreement. Iran was under sanctions when it signed the deal with the Chinese firm. CNPCI agreed to develop the project while it was well mindful of restrictions. At the beginning, everything was going on as planned. But from the sixth month, the pace of work in the project was slowed down. CNPCI was supposed to have been operating 15 drilling rigs by end-2013, but it was still operating the initial five rigs.

Delay in the project caused the client to issue notice to the contractor and demand that the project pick up speed. But notices and warnings fell on deaf ears. PEDEC officials said the Chinese party was not serious enough in the project. The Chinese project manager was absent for months. NIOC did not cease to express its dissatisfaction with the slow pace of work, but the Chinese side did not care.

Notices and warnings continued into the administration of Hassan Rouhani in 2013. Abdorreza Haji-Hosseinnejad, the new head of PEDEC, announced in February 2014 that CNPCI was not meeting its obligations. “The delay is not acceptable to us and we have already given warnings to the contractor,” he said at the time. PEDEC had issued six written warnings to CNPCI, complaining about lack of planning.

One Rig Only

By the end of 2012, PEDEC said the number of drilling rigs was expected to reach 15 by 2013, but the Chinese company had added only one more rig. Under the deal, CNPCI had to operate 25 drilling rigs in a bid to spud 185 wells during a 100-day period. According to Haji-Hosseinnejad, CNPCI had drilled seven wells only.

The Chinese company claimed that project costs had increased due to sanctions and therefore more had to be spent on the project. The client disagreed, noting that the Chinese were well aware of the sanctions at the time of signing the deal. The contractor showed no intention to increase the number of drilling rigs, and tender bids for the field were not held regularly. The client was worried with the contractor’s delay, but the contractor showed no sign of worry.

Shrugging Off Ultimatum

A new ultimatum was given to the Chinese firm. In winter 2014, NIOC issued verbal and written warnings to CNPCI on its foot-dragging in the project. Finally, a three-month ultimatum was given to the Chinese company. Rokneddin Javadi, then head of NIOC, said the Chinese had promised to work for progress in the project. Such promises never came true. Even after the expiry of the deadline, NIOC gave one month to CNPIC to compensate its delays, but no effective measure was taken.

An Iranian delegation visited China to protest the delay in the project. But China insisted on its own plan which had failed to meet conditions laid out by the Iranian side. NIOC officials were assured that CNPCI’s plan could not make up for delays in the South Azadegan development. The Iranian delegation’s visit ended inconclusively. Now it was Iran’s turn to show its seriousness.

Under the terms of the deal, after a 90-day ultimatum, Iran was entitled to cancel the project should the Chinese side fail to take any concrete action. In the end, the Legal Affaires Directorate of NIOC sent an official letter to CNPCI, announcing the termination of the deal due to the CNPCI’s “time-killing in the South Azadegan field’s development”. They could not believe that the Petroleum Ministry was so serious and it no longer accepted any delay.

Touraj Dehqani, CEO of PEDEC, during a recent ceremony for awarding the South Azadegan development project to Petropars, said: “Had we not terminated the deal with the Chinese company in 2014, we were still in talks and at best we had to modify the terms of the agreement in favor of the Chinese. Therefore, the Petroleum Ministry’s decision to terminate its cooperation with the Chinese side at that time was a smart decision.”

After CNPCI was expelled, PEDEC took over without waiting for foreign companies to develop South Azadegan. With an increase in the number of drilling rigs in South Azadegan, production from this field varied between 25,000 b/d and 45,000 b/d from 2009 to 2016. In 2017, the output reached 105,000 b/d, and in 2018, South Azadegan was producing 140,000 b/d of oil. The number of active wells in South Azadegan soared from 21 in 2014 to 105 in 2018.

Finally in July this year, PEDEC signed an agreement with Petropars for completing the development of South Azadegan and building a central treatment export plant (CTEP). Petropars will have 30 months to complete the remaining 30% of Phase 1 development of this giant field.

Why EOR in South Azadegan Matters

Saeed Saviz

Acting head of R&D, PEDEC

Rarely is an oil field found in the Middle East to have been as popular as Iran’s South Azadegan in Google search. Iran shares the giant South Azadegan oil field with Iraq, where it is known as Majnoun. Four layers – Sarvak, Kajdomi, Gadvan and Fahlyan – have been identified in South Azadegan.

Azadegan is located between Sousangerd and Ahvaz in Khuzestan Province, covering 90 square kilometers. The first exploration well at this field was drilled in 1976 and the second well, an appraisal one, was drilled in 1999.

Ever since Japan’s Inpex agreed to develop Azadegan, the field was divided into North Azadegan and South Azadegan. North Azadegan is located in marshlands. South Azadegan has experienced three foreign contractors and one Iranian contractor since 2003. The first one was Inpex (which pulled out in 2006), the second one was China’s CNPCI (which was expropriated in 2014) and now Iran’s Petropars is in charge.

Sanctions have always posed a major obstacle to the development of South Azadegan. It is noteworthy that Inpex conducted fundamental studies to draw up a master development plan (MDP) for the field. It was drafted based on data collected from six wells, but it contained solid data which was later of great help to CNPCI. However, once CNPCI left, South Azadegan underwent development with Iranian knowhow and investment. The pace of work was slow at the beginning, but it picked up speed in 2016. Exactly when Iran decided to regain its production quota within the Organization of the Petroleum Exporting Countries (OPEC), South Azadegan’s output reached 140,000 b/d. 

More than 60% of South Azadegan’s oil is deposited in its Sarvak reservoir. Sarvak holds 23 billion barrels of oil in place, only 3% of which is recoverable due to the reservoir rock and natural production mechanism. In other words, only 690 million barrels may be recovered naturally and the rest, a tempting amount, remains intact. By applying enhanced oil recovery (EOR) methods, it would be possible to extract millions of barrels from deep underground. For a reservoir with such amount of oil, it would be enough to lift the recovery rate to 10% so that 2.3 billion barrels would be recovered. That is why in petroleum engineering, EOR is a key field for which efforts are under way to develop new technology for further recovery from oil fields. It is also noted that although EOR methods are to treble oil production cost, they help enhance output alike. In simpler terms, the high price of oil gave cause to the petroleum engineering science to spend more capital for further recovery.

EOR would mean every action that would change the conditions in our favor in order to maximize our short-term recovery from each well and our long-term recovery from each reservoir in a more tangible manner than natural production or production through injecting water and gas into reservoirs.

In a reservoir with high-quality light crude oil, the idea would be to maintain the current conditions in order to recover more oil in better conditions, while in the reservoirs with lower productivity; a mechanism has to be worked out in order to boost the movement of fluids in these microscopic shafts for a further recovery.

The Sarvak reservoir has been also studied like many other heavy crude reservoirs. Almost all lab-scale and software studies have convinced specialists that injecting low-salt water with engineered ions would be the best EOR method for recovery from the reservoir.

Flooding oil reservoirs with low-salt water started like water injection under certain circumstances.

In fact, it seemed for the first time that due to the shortage of fresh water, salty water was injected into reservoirs and the result was surprisingly remarkable. Further studies showed that the positive and negative ions of salt solved in water could make oil flow on the water and subsequently increase oil production.  

Researchers later found that in case this water is less salty while special ions capable of replacing charged oil on the rock are reinforced further, the output would be better. In general terms, low-salt water can remove the oil stuck on the rock and therefore increase production.

Given the proximity of the Persian Gulf to Khuzestan and the possibility of transferring seawater to this area, flooding with engineered ions seems to be a reasonable scenario. Of course, it is expected that in the new wave of South Azadegan oil field development, this important issue would be taken into consideration by relying on domestic potential.

In coming years, the West Karoun area and particularly the South Azadegan oil field would have a significant share in Iran’s oil production.

Last but not least, gone is the time of oil production with natural mechanism. Rather, it is the right time in Iran to go beyond theory and apply EOR methods to enhance recovery rate.

Review of West Karoun Oil Field Cluster Development

2013

Output below 70,000 b/d

Prioritizing development of West Karoun joint oil fields by the 11th administration

2014

Applying Article 12 to joint fields

Expropriating the Chinese contractor in South Azadegan oil field due to delay

Signing technological development agreement with the University of Tehran for South Azadegan

2015

Trial-run production in Phase 1 of Yadavaran and North Azadegan fields

2016

Operating Yadavaran (Phase 1), North Azadegan (Phase 1) and North Yaran

Increasing West Karoun production capacity to 270,000 b/d

2017

Start of increased production from South Yaran

Start of increased production from South Azadegan

2018

Launching mobile sales unit with foreign investment in South Azadegan

2019

Operating downhole pump in North Yaran

North Azadegan’s accumulated production exceeding 100 million barrels

Drilling the first directional well in South Azadegan field

2020

Signing agreement to develop Yaran field

Signing agreement to complete and develop South Azadegan field and build central treatment export plan (CTEP)

Ilam Refinery Feeds 20% More Gas

The injection of Ilam gas refinery’s gas into the national trunkline increased 20% during the first quarter of the current calendar year year-on-year, the refinery’s head said.

Ruhollah Nourian said the refinery saw a significant increase in its output in the current calendar year y-o-y.

“Gas injection into the national trunkline increased 20%, while gas condensate, sulfur and LPG production increased 6% and 21%, respectively and more than 360%,” he said.

Ilam gas refinery was built in 2007 with an installed capacity of 6.8 mcm/d of gas to help sustain gas supply in western Iran.

Nourian said: “The product-based nature and diversity in products explain why this industrial facility is of help to the economy.”

He said well thought out plans were under way in the current calendar year (started on 20 March 2020) to increase output and market products.

“Following up and resolving temperature problems in the amine and ethane recovery units, removing the problem of instability of power plants and upgrading the control system of Siemens compressors and low-pressure boilers, as well as an ethane sweetening unit are among other important projects under way for better-quality products and sustained production,” he added.

Nourian said the refinery met 83% of its 1.9 bcm natural gas commitments last calendar year (ended on 19 March 2020), adding the 100% mark was missed due to a 58-day overhaul.

Khangiran Gas Well Work-over

The shut-in and acidizing operations in Well No. 40 of the Khangiran zone has been carried out successfully with a view to increasing production. That would increase gas production from this well by 40%.

Ali Kheirabadi, director of oil engineering at East Oil and Gas Production Company, said in a bid to prevent water leak from this well, various measures including wellhead separator and MQTX had been installed.

He said that for the first time, the data achieved from MQTX from the depth of the well and the temperature and pressure logs were interpreted by Iranian engineers. He added that $40,000 was saved throughout this operation.

Kheirabadi said the shut-in operation was done by using a coiled tubing belonging to National Iranian Drilling Company (NIDC).

“Producing over 40% gas from Well No. 40 of the Khangiran area is among important achievements following the shut-in operation,” he said.

Kheirabadi said acidizing was the most important operation for reducing damage around the well, adding: “By conducting productivity index tests and analyzing results, the well was rehabilitated.”

Iran Monthly Gas Exports at 79mcm/d

The acting head of Directorate of Dispatching of National Iranian Gas Company (NIGC) has said Iran exported a record 79 mcm/d of natural gas in the first month of summer ending July 21.

“Iran’s gas exports had never reached 70 mcm/d, but a new record was registered as it hit 79 mcm/d,” said Mohammad-Reza Joolaei.

He added: “Iran’s average daily gas export to Turkey and Iraq currently stands at 75 mcm."

“Of course, Turkey requested four days ago to stop gas flow from Iran to repair the export pipeline, which reduced Iran’s gas exports for some days,” he said, adding that Iran resumed gas exports to Turkey on August 4.

Iran is at the peak of refinery overhauls and electricity consumption and the power plants are in operation at full tilt, but at the same time their gas is being fully supplied, and liquid fuel is not used for power generation.

He said Iran is currently exporting gas to Iraq and Turkey, and provides the whole volume requested by them.

SP14 Wells Acidizing Performed

The manager of South Pars Phase 14 has said that acidizing 11 wells in Platform B of this phase had ended.

“This operation is aimed at achieving maximum production capacity in the well and to ensure maximum efficient recovery in South Pars,” Mohammad Mehdi Tavasolipour said.

He said the contractor for offshore drilling in the project was the Iranian Offshore Engineering and Construction Company (IOEC). 

The first phase of drilling ended in March 2019 with the completion of 9 out of a total 11 wells.

“Finishing acidizing and cleaning of wells located in 14B has enabled us to increase gas recovery from this platform” the official said.

Tavasolipour said 6 short wells, four long wells and one appraisal wells had been drilled. He said the drilling totaled 45,750 meters.

Noting that Platform 14B had become operational when Iran was under tough sanctions, he said: “This block is one of the four gas recovery locations in South Pars, lying 105 kilometers from Kangan. With 11 wells, it has a platform with a capacity of 500 mcf/d.”

Petchem Firm to Increase Hard Currency Income

CEO of Middle East Kimiaye Pars Co. (MEKPCO) Abbas Dolatizadeh said the plant is trying to increase output for the export market.

“The total capacity of the complex is 1.65 million tonnes per year. But due to the lack of oxygen feedstock, we are now working at 70% capacity,” Dolatizadeh said.

The plan is to boost daily production to 5,000 tonnes and as total output is for export the target is to earn $1 million a day, he added.

“We exported our first cargo in June, and the next shipment will be exported soon,” he noted.

Natural gas and oxygen are used as feedstock in the plant to produce methanol, a primary liquid petrochemical.

With sustainable production, the company is expected to increase the methanol output.

Located in the Pars Special Economic Energy Zone in Assaluyeh, Bushehr Province, MEKPCO came online earlier this year.

To produce 1.65 million tons of methanol a year, the plant needs 1.5 bcm of natural gas and 744 mcm of oxygen.

Petroleum Products Exports Excellent

Iran’s Minister of Petroleum Bijan Zangeneh said the country was faring very well in exporting petroleum products.

He said the achievement was made due to gas production and supply in the country.

“Due to the necessity of securing national interests, I cannot mention any figures, but the figures are really excellent and the country has had income,” he added.

“Activities in the petroleum industry are continuing in full force despite sanctions imposed two years ago,” said Zangeneh.

“Two years and three months has passed since tough sanctions were imposed on Iran. No petroleum industry project has been stopped during this time. We have even started new projects and we continue the same trend this year forcefully and we will prepare the ground for next year too,” he said.

Zangeneh also said more than 32,000 villages were connected to the natural gas network, adding: “Currently 88% of rural population and 95% of national population are under the coverage of natural gas network.”

He said the target for connection to natural gas network was 95%, adding that the real figure would be higher when the current administration would have bowed out.

Highlighting the role of the giant offshore South Pars gas field in gas supply to villages, Zangeneh said: “In 2013, we were faced with gas shortage, and liquid fuel consumption was high. In that year, power plants consumed 27 billion liters of liquid fuel. Over recent years, the liquid fuel consumption of power plants has been cut to one-third, which would be reduced further.”

The minister said Iran’s gas exports increased 90% as South Pars boosted its output. “Iran is currently exporting on average 75 mcm/d of gas now,” he added.

Zangeneh said South Pars was producing 280 mcm/d of gas in 2013, whose output has now reached 750 mcm/d.

He said South Pars was supplying 39% of Iran’s gas needs in 2012, but it is now accounting for 66% of Iran’s gas supply.

Azar Field Processing Facility Operational

CEO of Oil Industries Engineering and Construction Company (OIEC) Gholam-Reza Manouchehri said the central processing facility (CPF) of the Azar oil field had become operational.

He said that Azar’s development would soon come online.

“Oil production from the Azar field has started through CPF,” he said, adding that the liquefied natural gas (LNG) facility of this project had not become operational unit.

Touching on the Ramshir and Mansouri oil fields administered by National Iranian South Oil Company (NISOC) in Khuzestan Province, he said: “An OIEC task force is discussing contractual and credit issues of the project with the client.”

He said the Kian petrochemical project, as the largest petrochemical project in Iran, was being operated by OIEC.

“Some of tenders related to this petrochemical megaproject have been held by OIEC and domestically-manufactured commodities and equipment are expected to be used in this project,” he added.

Manouchehri said Changouleh oil field would soon be assigned to OIEC for development.

“The contract for the development of this oil field in the Anaran block would be signed with OIEC within the framework of Iran Petroleum Contract (IPC) soon,” he said, adding that OIEC would use its experience in the Azar development to develop Changouleh.

ICOFC Starts 4 Joint Research Projects with Universities

Iranian Central Oil Fields Company (ICOFC) has started four research projects in collaboration with the country’s major universities and research institutions.

The said projects are aimed at optimizing and increasing the productivity and recovery factor of various oil and gas fields operated by the company and helping to solve ICOFC’s production and operational challenges.

According to the head of ICOFC Research and Development Department Seyed Abbas Ziaei, the above-mentioned projects have been awarded to the research units of AmirKabir University of Technology, Razi University, and the Research Institute of Petroleum Industry (RIPI), and will be implemented under the supervision of the ICOFC Research and Development Department.

He noted that awarding these projects has been carried out in a precise process and based on scientific and technical standards.

The best academic research units have been selected from among the bidders for these projects, the official added.

Ziaei said a research project on the gas-wetness of condensate storage tanks for increasing production, as well as offering scientific and economical solutions using chemical stimulation and changing the wettability of rock reservoirs in some gas fields was being handled by Amir Kabir University of Technology.

Investment in Gas Industry Hits IRR 1,360tn

CEO of National Iranian Gas Company (NIGC) Hassan Montazer Torbati has said that the company’s investment would reach IRR 1,360 trillion for an eight-year period up to 2021.

“Natural gas has a 75% share in the fuel mix of the country and there are 24 million customers,” he said.

“Despite all problems, more than 900 villages are ready to be connected to the natural gas network,” he said, adding that 2,000 more villages would be next in the line to receive gas.

“By 2013, gas production has been falling every year while consumption has been high. The power plants were running on liquid fuel and up to 27 bcm of liquid fuel was consumed at power plants with 26 bcm of natural gas. Now, natural gas consumption has reached 28 bcm and that of liquid fuel is at 9 bcm,” he said.

Montazer Torbati said 1,048 cities out of a total 1,239 cities would be connected to the natural gas network, adding that eight cities could not be connected to the gas grid. The remaining cities are mainly in Sistan and Baluchestan, Kerman and Hormuzgan provinces.

He said 32,197 villages would have been connected to natural gas soon and only 9,527 villages would remain in the line for next year.

Montazer Torbati said 3,000 villages would be connected to the gas network by the end of the current calendar year. He, however, said, gas supply in the three provinces of Sistan and Baluchestan,

Petchem Exports Set to Grow 80%

CEO of National Petrochemical Company (NPC) Behzad Mohammadi has said the inauguration of 17 new projects in the current Iranian calendar year (ends on March 20, 2021) is going to increase the revenues of this sector by 80 percent.

The petrochemical sector is currently the country’s leading industry and the top source of revenues, which is constantly growing and excelling, he said.

Mohammadi said that the Petroleum Ministry and NPC were taking required measures to improve the petrochemical industry’s output, both in terms of quality and quantity.

“By increasing the production capacity of high-quality products such as propylene and, by identifying market needs, petrochemical incomes will be guaranteed,” he noted.

He noted that the global market for petrochemical products is constantly evolving, so most of the plans and programs in this industry should be short or mid-term plans.

“Unfortunately, for long, we have been over-focusing on some sectors of the industry, while completely neglecting other areas and this is not a proper approach.”

“In the development of the industry, we moved from resources to development and did not pay attention to the market needs,” he said.

Mentioning propylene as an example for the neglected sectors of the industry,

Synthetic Oil Delivery to Oil Refineries

A deputy CEO of National Iranian Oil Company (NIOC) has said that the project for delivering synthetic oil to refineries has been completed.

“The success of the project for the delivery of synthetic oil as feedstock to Isfahan and Abadan refineries is the outcome of cooperation between NIOC, National Iranian Oil Refining and Distribution Company (NIORDC) and South Pars Gas Complex,” Farrokh Alikhani said.

He said that 20,000 b/d of synthetic oil would be fed into the Abadan oil refinery.

“The bulk of gas production in the country is in South Pars, where gas condensate is produced. Gas condensate is used in some refineries and petrochemical plants, particularly Persian Gulf Star refinery, but its surplus production has to be managed so that sustainable gas production would be spared any harm,” he added.

Alikhani said synthetic oil production was a way of using surplus condensate. Synthetic oil is a combination of extra-heavy crude oil and gas condensate for feeding refineries. 

He said that synthetic oil would be moved from Bahregan by National Iranian South Oil Company pipeline to Omidieh pumping station before being dispatched to the Isfahan refinery.

“Since there was no pipeline for carrying synthetic oil to the Abadan refinery, the closest points were identified and the Aghajari Oil and Gas Production Company laid out a pipeline in 16 days and the operation started at the rate of 20,000 b/d,” he said.

Alikhani said: “Depending on the feedstock capacity of refineries, it would be possible to increase the synthetic oil flow. Currently, 50,000 b/d is sent to the Isfahan refinery and 20,000 b/d to Abadan. After receiving feedback from the Abadan refinery we would be delivering 80,000 to 90,000 b/d of synthetic oil to the two refineries.”

Regarding synthetic oil delivery to other refineries, he said: “Delivery of synthetic oil to the Isfahan refinery means delivering feedstock to the ring of refineries in northern Iran, including the Tehran and Tabriz refineries.”

He said that even if more buyers emerge for gas condensate in coming years, synthetic oil would be only an option for flexibility and diversity.

Alikhani said that synthetic oil would be seen as new feedstock for refineries.

Darquain-3, Bangestan Reservoir Need Development

West Karoun is now known to Iranians. This border area is expected to form Iran’s oil civilization. According to the plans made, Iran intends to increase output from the 11 oil fields located in West Karoun by 1 mb/d within four years. The Darquain field will have a 200,000 b/d share in the above figure. Darquain which lies in Khuzestan Province is 45 kilometers north of the city of Khorramshahr and 100 kilometers south of the oil-rich city of Ahvaz. The field is expected to see its output exceed 220,000 b/d once phase 3 development is fulfilled.

Darquain is one of the 49 oil fields introduced for investment under the Iran Petroleum Contract (IPC) model.

Darquain which was discovered in 1964 following drilling one exploration well, holds over 5 billion barrels of oil in place, 1.3 billion barrels of which is recoverable. Darquain’s oil is light with an API gravity of 39. The oil produced at this field is delivered to the Ahvaz-Abadan oil pipeline.

According to estimates, the investment required for the development of Darquain-3 amounts to $1.5 billion. Darquain-3 envisages operating the Ilam and Sarvak reservoirs, as well as the untapped part of Fahlyan. To that end, water and gas would be injected into the Sarvak reservoir and gas into the Fahlyan reservoir.

Furthermore, 31 oil well, 6 gas injection wells, crude oil processing facilities including line pipes, processing installations, gas compressors, infrastructure including crude oil storage tanks and roads are among other activities under way at Darquain-3.

Darquain-1 and Darquain-2 were developed by Italy’s Eni under buyback deals. A state-of-the-art technology – simultaneous oil and associated gas injection – is being used there.

In August 2011, an agreement was signed with an Iranian consortium for the Darquain-3 development after Eni quit cooperating with Iran due to international sanctions. But the Iranian consortium failed to handle the project and the project remains open to international investment.

In phases 1 and 2, oil was recovered from Fahlyan formation. In phase 3, oil recovery from the Ilam and Sarvak layers will be done as well.

Darquain-1 came online in 2005. Darquain-2 required $1.3 billion in investment and demining 7.5 million square meters. Darquain-2 came online in February 2011.

Darquain-3 was expected to become operational within five years. Three years have since passed and the field is still far from startup. According to plans, in the first stage, 14,000 b/d of light crude and in the second stage, 46,000 b/d of heavy crude will be extracted from the Ilam and Sarvak layers.

Darquain-3 targets the heavy crude layers of Ilam and Sarvak and the undeveloped part of Fahlyan. Eni completed feasibility studies on this project and submitted its results.

The findings of Eni studies indicate that the heavy crude in the Ilam and Sarvak layers were recoverable. Due to the heavy crude oil content, the third phase is totally different from the first and second phases.

Therefore, with a view to developing Darquain-3, National Iranian Oil Company (NIOC) held talks with foreign companies for partnership after Iran’s nuclear deal with six world powers came into effect in 2016.

Jahangir Pourhang, CEO of Arvandan Oil and Gas Production Company (AOGPC), announced in February that Darquain’s output capacity had increased 20,000 b/d over the past year. He said that a tender bid had been held for workover on five wells in this oil field.

Bangestan Awaiting Technology

One of the largest oil reservoirs in Iran in such conditions is Ahvaz-Bangestan. Currently, 26 downhole pumps are extracting oil from the field.

Known by some experts as the world’s 9th largest reservoir, Ahvaz-Bangestan is currently producing at a low recovery rate. So far, only 1.2 billion barrels of oil has been recovered from the field which still contains 37 billion barrels of recoverable oil.

Petrorian Development Company (PEDCO) was awarded the development of the Ahvaz-Bangestan field in early 2005, but one year later the company announced it could not handle the project. Talks then got under way with Pars Tat, held jointly by "Mostazafan Foundation" and a Russian company. The talks failed though. Finally, National Iranian South Oil Company (NISOC) was assigned to implement the project. Now with the conclusion of comprehensive studies of this field, the most significant measure would be to enhance recovery from this field to bring its production from the current 180,000 b/d to 231,000 b/d.

The Ahvaz field’s Bangestan reservoir was among projects offered for development by international firms under the newly developed IPC model of oil contract.

Due to being located beneath the city of Ahvaz and drilling challenges, this reservoir must be developed by horizontal drilling. Enhancing the recovery rate will not necessarily lead to output hike. Enhanced production may even lead to a decline in the recovery rate. Therefore, the priority in this project would be to boost the rate of recovery from this reservoir.

The reservoir has currently three production units with a rated capacity of 275,000 b/d, three desalination units with a rated capacity of 220,000 b/d and three compressors with a nominal capacity of 177 mcf/d.

NISOC officials say enhanced output would not be the only objective sought in the Ahvaz-Bangestan development project, because it would be significant to apply new technologies to enhance the current recovery rate of 10%. The outstanding features of the reservoir include its carbonated nature and the expansion of rock and fluid and as the mechanism of production. Such reservoirs all across the world are of low recovery rate.

Enhanced oil recovery (EOR) has become a key issue for Iran’s petroleum industry.  Being mostly more than five decades old, Iranian oil and gas fields’ recovery rate need to increase. That requires highly expensive cutting edge technologies.

IPC contracts envision remuneration for oil companies offering EOR technology. The long-term nature of contracts also would automatically motivate investors to brace for such projects.

The issue of technical knowhow transfer and upgrading petroleum industry management are key issues requiring joint cooperation.

Sumar, Dey, Sefid Zakhour Up for Investment

Sumar oil field, which was discovered in 2009 in the western province of Kermanshah, is jointly owned by Iran and Iraq. Being located in the east of  Naftshahr oil field, Sumar holds 475 million barrels of crude oil in place, 70 million barrels of which is recoverable. Whereas it is a joint oil field, Iran plans to develop this field based on the new model of oil contracts: the IPC. According to the estimates made over the past years, $ 25 million in investment is required to develop the field. Based on the planning made, in two phases, Sumar oil field output level reaches 15,000 b/d.

Given the preliminary assessment of Sumar oil field in Asmari formation, it has been envisaged that in phase one, at most 5,000 b/d oil containing 10% water could be recovered from four wells: one existing well and 3 new wells to be drilled. At the moment the recovered liquid from well No. 1 of Sumar is being transmitted to Naftshahr through a 23-km pipeline to be processed at Naftshahr production and desalination unit.

In the study conducted for the transmission of oil from Sumar oil field to Naftshahr production and desalination unit, installation of multiphase pumps, and a single-phase transmission system including a separator, pump and compressor fitted with OLGA and PIPESIM were envisaged.

According to the initial study conducted, in the current situation, if salt oil is produced from the beginning of production of Somar field, it is possible to process a maximum of 5,000 b/d of salt oil in the oil exploitation and desalination unit, but until non-salt oil is produced, processing the whole recovered oil from this field is possible in the old unit. Therefore, it is necessary to connect the oil pipeline to the old unit, too. The construction of a system for collecting and boosting the pressure and gas transmission of the Sumar field will be also considered in the second phase of the development of the Sumar field after considering the production status in phase 1 and completing the reservoir engineering studies in phase 2 of Sumar oil field development. According to studies conducted, the "Asmari" reservoir of this field is capable of producing up to 3,800 b/d of oil.

$500mn Envisaged in Dey, Sefid Zakhour

The Dey and Sefid Zakhour fields in Iran are among newly discovered gas reservoirs. The close distance between the two fields has led officials to consider their development together. The duo currently needs investment and state-of-the-art technology. Iran has offered Dey and Sefid Zakhour for investment.

The Sefid Zakhour anticline is located north of the Dey anticline, 150 kilometers southwest of the southern city of Shiraz.

Dey and Sefid Zakhour are estimated to hold 6.2 tcf and 6.5 tcf of gas in place, respectively. The two fields were discovered in 2005 and were said to contain a 11.4 tcf of gas. With a recovery rate of 75%, 8.5 tcf of gas may be recovered from them.

In order to complete exploration data in this field, 2D seismic testing was conducted in 2003 and the results were analyzed and interpreted. The Sefid Zakhour anticline was said to have potential for production. Drilling operations started and the first exploration well was spudded at a depth of 5,271 meters.

The Exploration Directorate of the National Iranian Oil Company (NIOC) explored sweet gas in different layers of Kangan Dalan.

Sefid Zakhour is estimated to hold 205 million barrels of condensate in place with a recovery rate of 35%.

According to the NIOC Exploration Directorate forecasts, if 17 wells are drilled 30 mcm/d of gas may be recovered.

The Sefid Zakhour anticline is located around 30 kilometers south of the city of Qir.

The planned development of Dey and Sefid Zakhour fields in Fars Province is expected to provide 15.1 mcm of gas and 10,000 barrels of condensate.

Wellhead equipment, stream pipelines, green space and processing unit are envisaged in the development projects.

Establishment of a center for gathering and separation, laying out pipelines, installations for Farashband processing unit and drilling projects are among activities considered for this project.

The next objective sought by these projects is to develop the Farashband refinery to create a gas processing capacity of 21 mcm/d. The refinery processing capacity is planned to increase 5 mcm/d, while the produced gas would be injected into the Iran Gas Trunkline 2 (IGAT2). Meantime, gas condensate will be transferred to the Shiraz refinery.

A refinery is envisaged for the two fields in two phases under engineering, procurement, construction (EPC) framework. Phase 1 is already complete and Phase 2 is under way.

Acquisition of land for laying out pipelines and drilling wells, completing the existing two wells, drilling and completion of 11 new fields, purchase of commodities and activating wellhead installations, laying out wellhead pipelines, setting up a gas and condensate separation center, installation of two pumps to transfer condensate from Sefid Zakhour, purchase and installation of pigging system, installation of line break valves, establishment of logistics camps, power supply, acquisition of land for the refinery, development of Farashband refinery including dehydration and gas condensate stability units, hydrocarbon dew point regulation unit, low-pressure gas recovery compressors, and installation of pumps to carry liquids from the refinery to Taheri Port are among the most important equipment needed in the upstream and downstream sectors of this project.

According to initial estimates, Dey and Sefid Zakhour would need IRR 8615.4 billion plus $519.5 million in investment.

Due to the decline in the flow of feedstock into Fajr Jam refinery and the plan to get feedstock from neighboring fields, delivery of gas produced in Sefid Zakhour to Fajr Jam refinery is among the most important plans for domestic gas supply.

Iran Awards Domestic Quality Certificate

Iran has awarded first-ever quality certificate to petroleum industry equipment and commodities. Minister of Petroleum Bijan Zangeneh and the head of Iran National Standards Organization Nayereh Pirouzbakht were in attendance at the ceremony which saw the establishment of the Iranian Petroleum Institute Quality Certificate Agency.

Zangeneh said formation of the agency did not mean Iran would shun cooperation with the world. Rather, he added, the establishment of this body would provide infrastructure for international cooperation.

The quality certificate covers downhole equipment and processes for well completion and production from wells, surface safety valve and blockers, wellhead equipment and associated equipment, oil and gas pipeline, rotary pumps for the oil, gas and petrochemical industries.

The agency is the first of its kind in Iran to receive Certificate 17065.

Zangeneh said: “Currently, our communications with the world are weak, but as soon as communications are established this agency should get in touch with international agencies and its certificates should be internationally recognized.”

He said the agency was a key and influential step in the development of national technology in the petroleum industry.

“With this agency, not only can we issue certificates for petroleum industry equipment and commodities at the international level, but also this certificate can be used at the international level,” he added.

Standards a Must

Zangeneh said a key pillar of supporting domestic manufacturing and developing national technology would be to create a reliable procedure for the issuance of quality certificates for domestically-manufactured commodities and technical equipment. 

He said that Iranian exporters received quality certificate although they had to endure difficulties.

“Now with the imposition of unfair sanctions, we have been denied this possibility,” he added.

Zangeneh said: “Following imposition of the sanctions we wonder what should be done while manufacturers are no longer able to receive the API standard hologram and we have no internal agency to issue certificates. Could we ignore standards? Who would use commodities and equipment that have not been evaluated, and do not conform to standards?”

Highlighting high risks in the petroleum industry, he said: “Every single error in the petroleum industry could cause major damage. Using substandard equipment or negligence in the application of standards would trigger a catastrophe not only at the local and regional, but at the national level. Therefore, nobody could be exempted from conforming to standards.”

National Standard a First Step

Zangeneh said national standard did not mean ignoring international standards; rather it means conformity with objectives.”

“For the establishment of such a professional and independent body to be relied upon by both manufacturer and buyer, the first step taken was to revive the [Iranian] Petroleum Institute,” he said.

Zangeneh said IPI was one of the oldest industrial associations in Iran that had become state-run following the 1979 Islamic Revolution and was not very influential.

“Huge efforts were made so that this association would turn into a public entity. Large numbers of specialists, ranging from manufacturers to contractors and consultants undertook efforts to restructure the institute. It was hard work, but it was done,” he said.

Zangeneh said the most significant task assigned to IPI after its restructuring was to provide required software and hardware infrastructure for the issuance of quality certificate for the petroleum industry commodities and equipment.

“At this stage, our relationship with the National Standard Organization was established and it was emphasized that assessment had to be free of any influence,” he said.

Zangeneh said trust in domestic manufacturing had always been a priority of the petroleum industry, adding that tens of thousands of commodities had been manufactured in the country.

“Currently, more than 70% of purchases are made from domestic manufacturers in the form of EPC and EPD contracts. We have provided a detailed list of commodities that must be purchased domestically,” he added.

Zangeneh said one of the major objectives of the new oil contract format was to support domestic manufacturing and potential.

“Our domestic potential comprises contractors, drillers and our factories building systems and equipment,” he added.

Management Mentality in Big Companies

Zangeneh said Iran’s petroleum and energy sectors were proud of actions that have been undertaken with a management mentality.

“MAPNA, Farab, Petropars and OTC are sources of honor for Iran. They have all been formed with the mentality of domestic manufacturing and boosting the number of Iranian manufacturers without slogans and populist methods. Populists methods survive several months and they finally become ineffective,” he added.

Zangeneh said all such companies had taken shape under the aegis of huge efforts. “Massive efforts have also been made for E&P companies and such efforts should continue so that this idea would become fully operational,” he added.

The minister said: “Mankind is by nature resistive to new words and ideas. Of course whatever presented as new is not necessarily new. We need to use thinking and reasoning. Mankind should feel obligated to use reason and new words and experience.”

Certificate Issuance in 90 Days

Mohammad Iravani, head of the certificate agency, said: “After examining documents and conducting verifications, the general process for the issuance of a certificate would need 90 days. Currently 9 groups of a total 10 groups of domestically manufactured commodities for the petroleum industry have been qualified.”

He said an automated system would be launched to boost efficiency and increase rapidity in world.

“This system has been designed based on comparative studies so that certificates would be issued in a short period of time,” said Iravani.

“As of today we are ready to issue 45 quality certificates for four groups of petroleum industry commodities. More groups would be added next year,” he said.

Rapid Assessment

Majid Mohammadpour, Chairman of Society of Iranian Petroleum Industry Equipment Manufacturers (SIPIEM), said: “Major work has been done regarding the issuance of quality certificate at SIPIEM and it is noteworthy that in the IPI standardization, we have reached 80% self-sufficiency in manufacturing.”

He said an advantage with the quality certificates issued at SIPIEM was that they would facilitate moving towards exports.

“A mechanism has to be set up throughout the process of quality assessment so that assessments would be done faster towards objectives,” he added.

Good Chance for Showing off Domestic Potential

Amir-Abbas Ekhteraei, member of SIPIEM for south oil-rich regions, said: “Undoubtedly, quality certificate for the petroleum industry commodities and equipment would present a good chance for the domestic manufacturers of petroleum industry equipment to show off their potential.”

“We must have clear criteria in granting quality certificates to the petroleum industry commodities,” said Ekhteraei.

“There are problems of sanctions, but we can overcome challenges through planning and making right decisions,” he said.

Ahmad Mohammadi, CEO of National Iranian South Oil Company (NISOC), said: “In light of what has been done and the positive attitude of the Petroleum Ministry vis-à-vis domestic manufacturing, the petroleum industry is headed towards branding. So far, more than 15,000 items of commodities have been manufactured domestically by NISOC.”

Pirouzbakht also said that upgrading the quality of oil equipment, saving hard currency, creating jobs and countering sanctions were among the advantages of domestically issued quality certificates.

She called on the quality certificate agency to remain independent and neutral.

JCPOA Impacts on Iran Oil Industry

Nadi Saboori

In July 2015, Iran and six world powers reached a historic agreement, dubbed the Joint Comprehensive Plan of Action (JCPOA). The implementation of the JCPOA in early 2016 lifted sanctions imposed on Iran’s petroleum industry, thereby letting Iran lift its oil exports. But that was not the only outcome. In this report, we review other impacts of the JCPOA, including the end of Iranophobia and restoration of commercial respect and dignity, unlocking of strategic projects, paving the ground for attracting investment and technology, improving Iran’s status in OPEC, and fundamental changes in oil tanker insurance coverage among other achievements.

Iranophobia Ended

Iran’s petroleum industry has more international interaction than other sectors of the economy. That is why any change in the behavior of governments and the private sector of various nations vis-à-vis Iran is felt sooner in the petroleum industry than in other sectors. Once the JCPOA was implemented, Iran’s petroleum industry was seen differently. For instance, in March 2017, Hamid Reza Araqi, then CEO of National Iranian Gas Company (NIGC), said: “During the imposed war, despite all hardships, all parties looked at us as a resistant party. We faced many obstacles at that time, but we were respected. However, during sanctions we were not respected.”

Therefore, the end of the Iranophobia atmosphere dominating talks with oil buyers was considered as an achievement of the JCPOA, which has not even been harmed after the United States withdrew from the deal.

This issue took up added significance in the private sector. In 2016, Farzan Golchin, then chairman of the Iranian Oil, Gas and Petrochemical Products Exporters’ Union (OPEX), said the JCPOA brought “increased commercial dignity” to Iran’s private sector in its interaction with foreign companies. He said that the shift in the bases of relationship between Iranian and foreign companies, from maximum benefit for foreign companies to equal benefits for both parties was a key result of the nuclear deal.

In 2017, Reza Padidar, then head of Society of Iranian Petroleum Industry Equipment Manufacturers (SIPIEM), wrote in a note for the Iran Chamber of Commerce: “The main result of the JCPOA was increased hope in the Iranian and foreign economic actors. In fact, the most significant reflection of the JCPOA was psychological...The economy is directly related to mental and psychological demands of economic actors. That is why economic actors stepped into cooperation on a much more positive platform.”

Commodity Purchase

The petroleum industry needs to purchase many products in order to push ahead with its projects. Most technologies used in industrial units like refineries are monopolized and therefore lack of access to them may delay projects. That may happen when strategic plans are likely to change the rules of the game.

The JCPOA created positive impacts in this regard particularly in the refining and petrochemical sector. It was of particular significance mainly in strategic and national gasoline production projects. The JCPOA allowed for the operation of the Bandar Abbas gas condensate refinery, known commonly as the Persian Gulf Star refinery. Abbas Kazemi, former CEO of National Iranian Oil Refining and Distribution Company (NIORDC), had said that compressors and other major equipment for the project were imported in October 2016 to be installed at the facility.

The condensate refinery is currently producing nearly 47 ml/d of gasoline, without which Iran would remain dependent on gasoline imports.

President Hassan Rouhani said in May last year that the Persian Gulf Star refinery was “built by the JCPOA” , citing contractors.

“Without the JCPOA, its construction might have lasted 10 or 20 more years,” he said.  

Many other oil projects were grappling with commodity purchase during years of sanctions. For instance, NIGC needed some equipment for sustained gas flow in the cities of Ilam and Kermanshah, which were imported from Canada, thanks to the JCPOA.

The JCPOA facilitated the procedure for the purchase of commodities.

Araqi said intermediaries were eliminated, which saved Iran 4-5% of costs, adding that the originality of commodities was convincing.  

Kazemi also said after the JCPOA, Iran managed to buy high-quality catalyst at one-fourth of the price it had to pay for low-quality catalyst imported during sanctions years.

Investment and Technology

In May 2016, Minister of Petroleum Bijan Zangeneh said at Tehran Oil Show inauguration ceremony in May 2016 that Iran’s petroleum industry would need $200 billion in investment. He said the JCPOA led to the signature of important contracts while the ground was paved for the attraction of investment and technology transfer to help Iran find a more precise estimate of its oil reserves.   

An important agreement was the deal signed for the development of Phase 11 of the giant South Pars gas field between National Iranian Oil Company (NIOC) and a consortium led by France’s energy giant Total. The agreement, which also involved China’s CNPCI and Iran’s Petropars, was described by Minister Zangeneh as a product of the JCPOA. However, Total and CNPCI had to leave the project due to US sanctions.

Thanks to the JCPOA, further ground

was paved for the attraction of investment. Various memorandums of understanding were signed with foreign companies in the oil, gas, petrochemical and refining sectors. Most of these MOUs did not turn into agreements; however, they provided a boarder perspective for decision-makers to make more realistic decisions about Iran’s energy reserves. For instance, feasibility studies on the giant South Azadegan oil field were assigned to Japan’s Inpex, Total, Royal Dutch Shell and Malaysia’s Petronas alongside their Iranian partner. The head of the Petroleum Engineering and Development Company (PEDEC) in early 2017 said Inpex had concluded its feasibility studies on Phase 1 of the South Azadegan field.

Willingness for investment was also seen in the refining sector. Japan and South Korea expressed their willingness to convert fuel oil produced at Iranian refineries to gasoline.

In the post-JCPOA period some sectors like petrochemicals that were faced with technological challenges, had a better opportunity for absorbing necessary technologies. It was announced, in March 2017, that eight MOUS had been signed between Iran’s National Petrochemical Company (NPC) and companies from South Korea, India, Indonesia, France, Germany and Japan.

In light of increased hope for the transfer of technology that was required in the new model of oil contracts (IPC), establishment of Iranian E&P companies started.

Oil, Petchem Exports

In the final months leading to the 2013 nuclear talks, Iran was faced with serious threats. Iran’s oil exports had fallen below 1 mb/d and oil buyers were planning to cut 20% from their Iranian oil imports. However, thanks to the JCPOA, Iran raised its crude oil exports to 2.3 mb/d.

Petrochemical exports also experienced growth. According to NPC data, petrochemical exports grew to $20 billion post-JCPOA.

OPEC

The oil prices went on a downward trend in mid-2014. Iran’s planned return to the oil market facilitated an agreement between the Organization of the Petroleum Exporting Countries (OPEC) member states to reduce crude oil production. Many worried that Iran would be forced to cut its production in line with the agreement. But OPEC agreed to Iran raising its output to 3.975 mb/d.

That coincided with Saudi Arabia making attempts to cause obstacles to Iran’s return to the oil market. However, the lifting of sanctions and Iran’s return to global oil markets created conditions that forced Saudi Arabia to accept OPEC’s production cut.

Tanker Insurance

The issue of insurance coverage for hydrocarbon cargoes represented a major challenge for Iran’s exports. Iran’s tanker fleet suffered big losses due to those restrictions. The impact of the JCPOA on tankers was crucial.

Shahram Farahbodi, head of insurance and claims at National Iranian Tanker Company (NITC), said in early 2017 that international companies were even afraid of phone contact with NITC which they considered as a “risk”.    

“But at the 60th anniversary of establishment of NITC, which coincided with the JCPOA, hundreds of foreign companies attended and expressed willingness for renewed cooperation,” he said.

Farahbodi enumerated the five JCPOA impacts on NITC’s activities as the removal of obstacles to tanker insurance, obtaining insurance coverage from IGA, return of NITC fleet to European markets, winning classification from the International Association of Classification Societies (IACS) and sailing with appropriate flag.

The JCPOA also allowed Iranian oil tankers to benefit from P&I insurance. It was announced in February 2017 that Japan would make its first naphtha import since 2011, halted due to the impossibility of naphtha insurance through P&I club. A P&I (protection and indemnity) club is a mutual insurance association that provides risk pooling, information and representation for its members. Unlike a marine insurance company, which reports to its shareholders, a P&I club merely reports to its members. Originally, P&I club members were typically ship-owners, ship operators or demise charterers, but more recently freight forwarders and warehouse operators have been able to join. Due to sanctions, Iranian tankers were denied such services.

The JCPOA impacts on the petroleum industry have been both tangible and abstract. However, the important point is that these changes are undeniable.

Even though President Donald Trump unilaterally withdrew from the JCPOA and reinstated sanctions on Iran, the petroleum industry may be divided into pre-JCPOA and post-JCPOA periods.

A Different View of Iran-China Cooperation Deal

Fereydoun Barkeshli

Early this month, news of a draft agreement for cooperation between Iran and China caught attention of people inside Iran and abroad. An 18-page draft emerged, explaining the framework of planned 25-year strategic cooperation between Iran and China. Under the draft agreement, it is proposed that China would invest $400 billion in Iran’s economic, industrial and infrastructure projects. The draft agreement elicited criticisms.

Chinese President Xi Jinping visited Iran in January 2016. During his stay in Tehran, Iran and China discussed the avenues of upgrading their ties to strategic levels.

Since two decades ago, the Chinese have been looking at Iran as a point connecting East and West Asia within the framework of their One Belt, One Road Initiative.

Iran’s Asian strategy first took effect in 1996 when then president Akbar Hashemi Rafsanjani inaugurated the Mashhad-Sarakhs-Tajan railroad at a ceremony attended by the heads of state from the 11 Central Asia and Caucasus republics and representatives of 45 other states. This railroad allowed for Iranian trains to carry their first cargoes to Turkmenistan. Rafsanjani said at the time that the Silk Road was 1,700 years old, through which Iranian merchants travelled from Khorasan to China. He also said that under Iran’s Constitution, economic ties with neighbors was prioritized.

In the following years, due to changes in governments, sanctions, hostile policies of some foreign powers and above all, lack of a stable strategy stalled efforts for following up on Iran’s new Silk Road, as the aforesaid railroad was referred to.

But China devised the One Belt, One Road Initiative. China never denied belief in the force of geography. It views Iran as the western focal point of long-term development strategy of economic and trade ties. Of a total 7 strategic straits in the world, five belong to Iran and China. The Bab-el-Mandeb, Bosporus, Malacca and Hormuz straits are located on the Iran-China route. The strategic ties between Iran and China are completing the link of connections.

Global Policy; Asian Powers Deterrence

Winston Churchill was serving as the First Lord of the Admiralty (Cabinet Minister in charge of the Admiralty and with responsibility for the Royal Navy). It was Churchill who switched from coal to oil for powering the Royal Navy fleet. The measure taken by Churchill more than doubled the speed of vessels. Britain outdid its war rivals. That was when geo-strategy emerged in the political literature. Coalmines were located in Liverpool and Manchester while oil was thousands of kilometers away in the Middle East and the Persian Gulf.

Nazi Germany invaded Russia in a bid to get a hand on Baku’s oil. The Germans tied friendship with Reza Shah of Iran. Mussolini invaded Libya and finally the United States stepped into the region in a bid to have a grip on oil. The Europeans also made efforts. But due to serious damage from World War II, they failed to proceed with their plans. Much later and following a different policy that was based on commercial and economic ties, China stepped into the Middle East and the global oil market.

The US has kept a tab on China’s move towards the Middle East. Wherever China sought ties beyond commercial transactions, the US created insecure conditions. From Libya, South Sudan to Mozambique, Zambia, Zimbabwe and Nigeria, the US has blocked China by spreading Islamic Wahhabism or ethnic unrest. Venezuela and Latin America are new cases in point.

Furthermore, the US has conditioned its stay with NATO on the inclusion of China deterrence in the military alliance’s objectives. That is what the Europeans are afraid of. Europe is not willing to face China. It doesn’t have any interest either. But the US has imposed a sea blockade on China. The US, Britain, Canada, Australia and New Zealand, under 5-I group, are blocking China in the South China Sea.

All southern and eastern neighbors of China are closely allied to the US. The Philippines, Thailand, Vietnam, Laos, Myanmar and India are all allies of the US. Therefore, the only option for China to reach Europe and Eurasia would be through land.

Asianism

The Asian Square concept is now more understandable. China is seeking to create strategic solidarity between Pakistan, Iran and Russia to form a new square of resistance along with China. Turkey is also wiling to join such an alliance, but Ankara’s adventurism in the Middle East is worrying Iran and Russia.

The 19th century was the century of Europe and Britain. The 20th century was the US century. Now the 21st century is the Asian century. That would be seen in the third decade of the century. Many opportunities, and of course many challenges, still lie ahead.

As soon as the Iran-China draft agreement was made public, the US and its allies did not hesitate to react. The internal reaction to the draft agreement was in fact a reaction to the US’s stance rather than the draft itself.

Iran’s key role in this agreement is a reaction to the US maximum pressure campaign against the Islamic Republic. In fact, by pressuring Iran, President Donald Trump has helped the formation of this square. The US’s next concern is the possibility of a similar proposal on the part of the European Union. Europe is likely to try to reach a similar agreement with Iran.

Another issue that has largely worried the US is the fact that with the formation of such relations between Asian and European states, the dollar will be marginalized. Iran, China and Russia have already shown their unwillingness to use the dollar in global transactions.

The pivotal section of US hegemony stems from the dollar’s role in global equations and international currency reserves. In case an alliance takes shape between the remaining nations, particularly Asia, the dollar will be faced with more serious threats. In 2019, the dollar’s share of global transactions was 62%, down from 77% in 1985.

The US owes its hegemony to the dollar. Under the present conditions of dollar evasion in the global economy, the US will be nearing the horrible specter of falling to the second place in terms of global economic ranking.

Iran Interactions with China

Based on what was explained above, close ties between Iran and China would be a routine element in international economy. The draft agreement is yet to be finalized and be put to exchange of views. Most pundits and analysts argue that Iran is showing interest in this agreement while sanctions and oil price slump have undermined Iran’s economy and therefore the agreement would be detrimental to Iran.

That is logical and has to be reflected upon. As it was noted, China needs Iran more than Iran needs China. Therefore, in case any agreement is to be signed, Iran views should be accommodated in it.

Oil/Gas Investment Slump; Impacts, Consequences, Solutions

Shuaib Bahman

Investment in the oil and gas industry, particularly in the upstream sector (exploration and development of oil and gas fields), is highly significant. Compared with other types of investment, this type of investment has specific features such as the larger scale of investment, long period of development, high technical and commercial risks and the complexity of technology used.

Due to the competitive nature of the market and the high volume of investment, any minor change would naturally affect the corporate profitability to a large extent. As currently the outbreak of the coronavirus has brought about an unprecedented economic recession in the world, companies investing in oil and gas have been largely affected.

Figures published by research institute Rystad Energy indicate that sanctioning of global oil and gas projects is expected to total approximately $47 million. This represents a 75% year-on-year decrease on project sanctioning recorded in 2019.

It was initially expected that oil and gas projects would continue the 2019 trend. But the sharp decline in oil and gas prices due to the covid-19 pandemic has blunted big companies’ interest in making big investment. Most of these companies have reduced their exploration and production investment due to covid-19 and they have naturally produced significant losses.

For instance, ExxonMobil and Chevron posted their worst financial loss in a decade in the second quarter of 2020 due to the oil supply glut. These oil giants pocketed big profits in the first decade of the current century, but now they are resorting to job cuts, tough austerity and heavy debts in a bid to pay for shareholders’ dividends and other costs. However, massive job cuts, reduced budget and project cancellations have not been enough to reverse the trend of petroleum industry decline.

The fact is that world energy markets have in recent months been faced with a chain of events whose impacts and consequences would continue, particularly in the investment sector:

The covid-19 pandemic has caused economic stagnation in most parts of the world.
Economic stagnation in various nations has reduced demand for oil and gas.
Lower demand for oil and gas has caused a decline in energy prices in the world markets.
Lower energy prices dissuade big companies from making new investment in the oil and gas sector.
Reduced investment in the oil and gas sector may hinder future production and exports and cut supply on the world markets. Meantime, absence of any fresh investment may impose serious revenue loss on major oil and gas companies and even lead to their bankruptcy or shutdown. The continuation of such a trend may also disable the energy production sector in some nations where oil and gas installations are decrepit.

If oil prices remain low for more than one year, exporters of crude oil and natural gas would have to reconsider their new development projects. The economic damage emanated from the probable second wave of covid-19 has engulfed various countries, thereby dissuading investors from investment.

Solutions

A major consequence of reduced demand for oil and gas and subsequently price slump has been a sharp decline in investment in the energy sector. As long as energy prices do not return to a balance point, one cannot expect any improvement in the oil and gas investment conditions. In fact, oil and gas investments would be back to normal when demand grows in the market. Otherwise, investment for higher production would be unreasonable as long as there are not enough customers. Therefore, major oil companies are not happy with the current conditions of stagnation in the global markets and undoubtedly favor a return to previous consumption levels and subsequently a balance in prices.

Under such circumstances, there are two solutions as follows:

The first solution would be the world getting out of an unprecedented recession, which depends mainly on the end of the covid-19 pandemic in various nations. This solution does not seem realistic as long as no vaccine has been discovered for covid-19.

The second solution would be to reduce oil supply so that prices would return to the balance point. This policy is currently pursued by OPEC+ nations, but oil producers cannot cut their output any further because that would cause them economic problems.

Under such circumstances, oil and gas producing nations have no option but to either sell their energy at low prices or cut their output. But major oil companies will also suffer losses. These losses will in the long term affect consumer nations too, because reduced investment in the oil and gas sector would reduce production and supply in the future, which would in turn drive up prices. Therefore, lower investment in the oil and gas sector would in the long term produce losses for producers, consumers and energy companies.

Covid-19; Shale Oil Outlook

Shuaib Bahman

Shale oil production and extraction has, over recent years, largely affected global energy markets, influencing supply and demand and naturally prices. The impact of shale oil, which has received large investment in the United States, has not been limited to economy and energy; rather, the Trump administration has made efforts to use it as a political tool. Amid numerous challenges associated with shale oil, particularly sophisticated technology and high costs, shale oil extraction has in recent months faced another problem: the covid-19 pandemic.

The outbreak of the coronavirus in the world has caused a slump in energy prices, affecting all oil producers. However, shale oil producers have suffered more than others because if traditional producers do not sell oil at high prices they do not pay too much for its production, while shale producers have to sell oil at low prices while they would have to endure relatively high costs of shale oil production. The latest surveys show that the minimum feasible US shale oil price is between $39 and $48 a barrel. In other words, selling shale oil at lower prices would mean that production costs are not covered, and producers would suffer losses.

Meantime, as the covid-19 pandemic has sharply reduced oil prices due to low demand, investment has declined and the number of companies technically unable to pay their debts has risen significantly. Therefore, a decline in income for shale oil producers would mean their bankruptcy because most of these companies have taken loans in recent years to fund their shale oil industry and now if they fail to reimburse their debts, they will face serious challenges.

Over recent years, many companies involved in the US shale oil industry have faced bankruptcy and estimates show that this trend is likely to be extended to other companies over one year.   

Chesapeake Energy, a shale drilling pioneer that helped to turn the United States into a global energy powerhouse, has filed for bankruptcy protection.

The Oklahoma City-based company said it was a necessary decision given its debt. Its debt load is currently nearing $9 billion. It has entered a plan with lenders to cut $7 billion of its debt and said it will continue to operate as usual during the bankruptcy process.

More than 200 oil producers have filed for bankruptcy protection in the past five years, a trend that is expected to continue as a global pandemic saps demand for energy and depresses prices further.

Founded in 1989 with an initial $50,000 investment, Chesapeake focused on drilling in underdeveloped areas of Oklahoma and Texas. It largely abandoned traditional horizontal well drilling, employing instead lateral drilling techniques to free natural gas from unconventional shale formations.

It became a colossus in the energy markets, eventually reaching a market valuation of more than $37 billion. Then, the first in a series of financial shocks hit Chesapeake as the Great Recession sent energy prices into the basement.

Under heavy debt burden, shale oil producers have resorted to job cut. However, it is unlikely that the shale oil companies’ efforts pay off because the bulk of their debts comes from low oil sales and has nothing to do with high production costs. In fact, high production costs have been natural for these companies and what now poses a serious challenge is the low price of oil that has deprived these companies of a serious source of income. Therefore, more oil companies are likely to file for bankruptcy this year.

Shae Oil Future

A reduction in US shale oil supply can help global markets rebound to the balance point. Until recently, the more OPEC+ cut its output, the US increased its shale oil production to compensate for it in global markets. Now, under conditions of low demand in oil markets, OPEC+ has moved to reduce its production. Therefore, a drop in US shale oil production would further balance oil supply and demand and shore up prices. However, such perspective could not continue for a long time because as soon as shale oil producing companies are presented with favorable and economical prices, they would resume their production. If that happens against the backdrop of low demand, the market will once further face increased supply and subsequently low price.

However, if shale oil producer resume or increase their production level when demand is high, one may hope in price fall. In fact, shale oil producing companies must wait for a period of time when on the one hand global energy demand has increased while on the other, their re-entry into global markets would not cut prices.

Despite the bleak outlook awaiting shale oil producing companies and despite damage inflicted on the shale oil industry due to low oil prices, it is noteworthy that eliminating this oil as the most significant element of global oil equations in recent years is not easy, or at least impossible in the short-term. Over the past years, particularly from 2014 to 2016, the US shale oil industry has shown its flexibility to reducing costs and its ability to adapt itself with any conditions to maintain its presence in the global oil market. It is necessary to remember that the cost price for shale oil was much higher than now. However, the US heavily invested in shale oil production and boosted this industry.

Paru Included in Petrobras Cluster Sale

Petrobras has started the non-binding phase of the sale of its full interests in the Alagoas Cluster fields in the state of Alagoas, Brazil.

These comprise seven production concessions and include the Paru field, in a water depth of 24 m (78.7 ft).

Also included as part of the package is the Natural Gas Processing Unit of Alagoas, with a processing capacity of 2 MMcm/d of gas.

Total to Transfer Offshore Gabon Interests

Total’s 58% owned affiliate Total Gabon has agreed to sell its stakes in seven non-operated fields offshore Gabon to Perenco.

The transaction, which includes operatorship of the Cap Lopez oil terminal, is subject to approval by the Gabonese authorities.

Perenco will pay $290-350 million, depending on future Brent prices, with the divested production totaling around 8,000 SEC b/d of oil in 2019.

“This transaction demonstrates our ability to high grade Total E&P’s portfolio by monetizing mature fields with high breakeven point,” said Arnaud Breuillac, president Exploration & Production.

Improvements to UK Offshore Data Access

Britain’s Oil & Gas Authority has provided an update on its program to improve access to information through automation of the National Data Repository (NDR).

Well reports, logs and other digital files held in the NDR are more widely available to the industry thanks to the new Application Programming Interface (API).

This opens up more than 4.8 Tbyte of information, allowing users to connect to certain data types and then download the data from the NDR when it has become available.

So, API users no longer need to search for, download and manage available data, and can have automated delivery of data to their organization’s systems and devices without the need to log into the NDR.

India LNG Spot Prices May Slow Deepwater Gas Activity

Future deepwater gas production offshore India could be impacted by low spot LNG prices, according to Wood Mackenzie.

Although deepwater developments are expected to drive India’s gas production growth – adding more than 1 bcf/d of new supplies by 2023 – only 15%, or 200 MMcf/d, has been contracted currently, the consultant said.

With local market demand affected by COVID-19, and with low spot LNG prices likely to persist at least through 2022, full commercialization of deepwater discoveries may be at risk.

16 wells in Prospect at Australia’s Dorado

Carnarvon Petroleum has provided details of planned facilities for the Dorado oil and gas field development in the Bedout basin offshore Western Australia, operated by Santos.

The field was discovered in July 2018, 160 km (99.4 mi) north of Port Hedland, with various successful well tests following.

During 2Q 2020 the project entered the pre-FEED phase. According to Carnarvon, the focus of the preferred initial development concept is on extracting the liquids (oil and condensate), with gas and LPGs re-injected initially before potentially being produced under a second-stage development.

Exxon Posts Second Straight Quarterly Loss

 Exxon Mobil Corp reported a $1.1 billion second-quarter loss on sharply lower energy demand and prices from the COVID-19 pandemic, and confirmed plans to make “significant” reduction to costs.

It was the first back-to-back quarterly loss for the oil giant in at least 36 years, but was small in comparison to rivals that have written down oil and gas properties by billions of dollars apiece on expectations that prices will remain low. The top U.S. oil producer took no impairments during the quarter, and got a 44 cent a share boost to earnings by reversing inventory valuations.

Chevron Corp, Total, Royal Dutch Shell , and Eni each wrote down billions of dollars in assets, while BP signaled an up to $17.5 billion hit.

The COVID-19 pandemic slashed oil prices, sending Exxon’s oil and gas production business to a loss. Its refining businesses was hit by a fall in demand, but an improvement in inventory valuations pushed overall refining profits into the black by nearly $1 billion.

The U.S. oil major reported a loss of $1.08 billion, or 26 cents per share, in the three months ended June 30, compared with a profit of $3.13 billion, or 73 cents per share, a year earlier.

An adjusted loss of 70 cents per share missed Wall Street’s estimate of 61 cents, according to Refinitiv.

Oil and gas output fell 7% from a year earlier to 3.6 million barrels per day in the quarter as it curtailed output due to the oil price crash and threat that global oil storage would fill in May.

The pandemic “significantly impacted our second quarter financial results with lower prices, margins, and sales volumes,” said Chief Executive Darren Woods.

OPEC July Oil Output Surges

OPEC oil output has risen by over 1 million barrels per day (bpd) in July as Saudi Arabia and other Persian Gulf members ended their voluntary extra supply curbs on top of an OPEC-led deal, and other members made limited progress on compliance.

The 13-member Organization of the Petroleum Exporting Countries pumped 23.32 million bpd on average in June, the survey found, up 970,000 bpd from June’s revised figure, which was the lowest since 1991.

OPEC and allies agreed in April to a record output cut as the coronavirus crisis hammered demand.

An easing of lockdowns and lower supply have helped oil climb above $40 from April’s 21-year low of below $16 a barrel, although concerns of a second wave are keeping a lid on gains.

“Upside potential will continue to be in short supply so long as the COVID hangover lingers,” said Stephen Brennock of oil broker PVM.

OPEC, Russia and other producers, a group known as OPEC+, agreed to cuts of 9.7 million bpd, or 10% of global output, from May 1. OPEC’s share, to be made by 10 members from October 2018 levels in the case of most countries, is 6.084 million bpd.

In July, they delivered 5.743 million bpd of the pledged reduction, equal to 94% compliance, the survey found. Compliance in June was revised up to 111%.

July’s increase is the biggest since April, when OPEC briefly pumped at will before the latest supply cut was agreed.

To further support the market, Saudi Arabia, Kuwait and the United Arab Emirates had pledged to cut by an extra 1.18 million bpd in June only.

Asian LNG Prices Rise on Delay in Gorgon Restart

Asian spot liquefied natural gas (LNG) prices rose to a four-month high, supported by an extended shutdown of one of the production lines at Australia’s Gorgon plant following maintenance works.

The average LNG price for September delivery into northeast Asia LNG-AS was estimated at around $2.70 per million British thermal units (mmBtu), $0.25 per mmBtu above previous levels.

The maintenance on Train 2 of the giant Gorgon project began on May 23 and a restart was initially planned on July 11 but has been delayed until early September.

Gorgon is carrying out the repair work after a routine inspection of the train’s propane heat exchangers during planned maintenance found weld quality issues, a spokesman for Chevron that operates the plant said.

Refiner Phillips 66 Post Smaller-Than-Expected Loss

Phillips 66 posted a smaller-than-expected loss as the refiner’s retail marketing business, which buys and resells petroleum products, benefited from a decline in prices following the coronavirus crisis.

The unit buys refined products from others and resells them, pocketing the difference and benefiting from improved margins when prices are down. The unit also sells other specialty products, including lubricants.

Credit Suisse analyst Manav Gupta said the marketing segment’s earnings before interest and taxes of $293 million beat the brokerage’s estimate of $220 million.

 Petrobras Posts $500mn Loss

Brazilian state-run oil firm Petroleo Brasileiro SA posted a loss of 2.7 billion reais ($524 million) in the second quarter, hurt by tumbling oil prices despite record export volumes to China.

The result, down from a record quarterly profit of 18.9 billion reais a year ago, came as the company pursued an aggressive volume-over-cents strategy to drive sales as crude prices slumped, hitting multi-decade lows in April.

In a securities filing, Petrobras, as the firm is known, said its cash generation, or EBITDA, was 24.99 billion reais in the April to June quarter.

This was ahead of a Refinitiv consensus estimate of 20.9 billion reais,

ConocoPhillips to Reverse Most Output Cuts

ConocoPhillips said it expects production curtailments in the current quarter to be roughly half as much as last quarter and will restore most of its output by the end of September, after the oil and gas producer slashed about a third of its output in April as oil prices plunged 41%.

The company restored part of its curtailed volumes earlier in June, as crude prices recovered some of the historic losses they took when lockdowns imposed to curb the spread of the coronavirus sapped fuel demand.

ConocoPhillips’ total production, excluding Libya, was down 24% in the second quarter ended June 30.

The Houston-based company posted an adjusted loss of 92 cents per share, much bigger than analysts’ average expectation of 58 cents. Its shares fell 5.7%,

Europe Oil Majors Shield Q2 Results

The trading units of European oil and gas majors have shielded their second-quarter results from the full force of the corona-induced collapse in demand for fuel, but big writedowns showed the scale of the challenge ahead, results showed.

France’s Total and Anglo-Dutch Royal Dutch Shell scraped out small profits against expectations of losses with the help of the trading units which can exploit market gyrations even when prices fall.

“These results are driven in particular by the outperformance of trading activities, once again demonstrating the relevance of Total’s integrated model,” Total Chief Executive Patrick Pouyanne said in a statement.

Shell Chief Financial Officer Jessica Uhl said the company had “stellar” trading results due to “solid, good market conditions,” in particular high volatility in oil prices which allows nimble traders to take advantage of small changes in order to buy, store or sell fuels.

Earnings of $1.5 billion at Shell’s trading unit in the quarter was about 30 times higher than a year ago. This mirrored Equinor’s results, where trading helped the Norwegian company avoid an operating loss.

Oil prices plunged below $16 a barrel in April from above $60 at the start of the year, as daily global crude consumption plunged by as much as a third. Prices have regained some ground since then to trade above $40.

Eni’s refining and marketing unit’s second-quarter profit shot up by 76% to $139 million compared with a year ago, although the company overall still swung to a loss, it said.

Trump Allows Keystone Pipeline to Ship More Canadian Oil

U.S. President Donald Trump has approved the existing Keystone pipeline to ship 29% more Canadian crude into the U.S. Midwest and Gulf Coast after TC Energy Corp’s decade-old expansion project was stalled again this month by legal hurdles.

Trump issued a new presidential permit for the base Keystone line, allowing TC to boost capacity by 170,000 barrels per day (bpd) to 761,000 bpd, TC spokesman Terry Cunha said. The first 50,000 bpd increment begins flowing next year.

The additional Canadian crude oil on the line will help meet growing U.S. refinery demand, Chief Executive Russ Girling said on a conference call.

When Trump came to office, he revived TC’s proposed Keystone XL pipeline, which has been delayed by opposition from landowners, environmental groups and tribes. It would give Canada expanded access to its top oil market after its existing pipelines ran full in recent years.

The U.S. Supreme Court reinforced this month a lower court ruling that blocked a key environmental permit, blocking substantial U.S. construction.

TC expects Keystone XL to enter service in 2023. Construction is underway in Canada, and TC is working on a revised 2020 U.S. work plan focusing on areas that have all permits and approvals, Girling said.

TC posted a 6% fall in second-quarter comparable profit, partly hurt by a modest drop in uncontracted Keystone volumes.

Steep declines in oil and gas production have hurt pipeline operators.

Japan Eyes 10GW Offshore Wind Capacity by 2030

The Japan Wind Power Association said it aims to expand the country’s offshore wind power installed capacity to 10 gigawatts (GW) in 2030 and 30-45 GW in 2040.

Offshore wind power currently provides only a tiny fraction of Japan’s electricity supply but is set to grow after a law, the Offshore Wind Promotion Act, came into force last year to spur development.

“Japan has huge potential for building large-scale offshore wind farms, 128 GW potential for fixed-bottom and 424 GW for floating,” Jin Kato, president of the JWPA, told a news conference.

“Nuclear power plants have been struggling to restart while Japan has decided to fade out ageing coal-fired power plants, renewable energy is the only solution to cover a shortfall from these power sources,” Kato said.

Kato said the Japanese government should map out ambitious long-term goals for offshore wind power generation, which can help to attract investments, including foreign manufacturers of wind turbines and blades to build local supply chains.

The government also needs to improve grid network, he added.

If the government’s wind power efforts are successful, Japan’s offshore power generation cost could fall to as low as 8 yen ($0.076) per kilowatt-hour (kWh) in early 2030s, close to the current cost of 5-6 yen/kWh in Europe, Kato said.

Japan’s feed-in tariffs (FIT) and newly extended offshore-wind-power licences are drawing big names into Japan’s wind power sector.

Canada's Husky Energy Can Lift Q3 Output

Canada’s Husky Energy Inc said it had the capacity to ramp up production in the third quarter as about 30,000 barrels of its crude oil remained curtailed per day in Western Canada and the United States.

Alberta, the main oil-producing province in Canada, curtailed some 1 million barrels per day (bpd) this spring as coronavirus-led lockdowns to curb the spread of the virus crushed demand for products like gasoline and jet fuel.

The comments come a week after bigger rival Suncor Energy Inc said Western Canadian oil companies are moving to restore all of the production that they shut-in.

Producers in the United States have also voluntarily cut output after U.S. oil prices plunged below $0 in April for the first time ever.

Husky, which posted a smaller-than-expected quarterly loss, helped by higher margins, had about 80,000 bpd shut in the start of second-quarter.

The company said it expects full-year spending to be between C$1.6 billion and C$1.8 billion, and could reduce its 2021 spending to a range of C$1.2 billion to C$1.4 billion.

Shares of the company were down 4.2% as oil prices fell over fears that fuel demand recovery could be capped by a resurgence in coronavirus infections.

Excluding items, Husky lost 30 Canadian cents per share, below Street estimates of a loss of 53 Canadian cents due to higher margins at the company’s oilsands, Western Canadian and U.S. refining operations.

Falling Industry Makes OPEC Job to Save Oil Market More Obvious

abbas haji hashemi

Members of the Organization of the Petroleum Exporting Countries (OPEC) could be preparing for hard days as expectations rise for prolonged demand destruction caused by the pandemic. But will the group be able to save the dwindling oil industry as majors report historic losses?

In 2019, the world consumed 99.7 million barrels per day (bpd) of crude oil - and OPEC was forecasting a rise to 101 million bpd in 2020.

But in the year, the coronavirus crisis triggered a long-anticipated tipping point in the oil demand by destroying global thirst for fossil fuels. 

Global lockdowns this year that grounded planes and took traffic off the streets, prompted OPEC to slash the 2020 figure to 91 million bpd, with 2021 demand still seen below 2019 levels.

Downward revisions to demand forecasts are prompted by the rise of electric vehicles and a shift to renewable energy sources as the pandemic has driven down crude consumption by as much as a third in 2020.

OPEC has been scaling back expectations. In 2007, it forecast world demand would hit 118 million bpd in 2030. By last year, its 2030 forecast had dropped to 108.3 million bpd, Reuters reported.

On the other hand, Exxon Mobil Corp. posted a quarterly loss for the second straight quarter for the first time this century on Friday, reporting a loss of $1.1 billion, compared with a profit of $3.1 billion a year ago, Wall Street Journal reported. Exxon, the largest U.S. oil company, hadn’t reported back-to-back losses for at least 22 years, according to Dow Jones Market Data, whose figures extend to 1998.

To make matters worse, Chevron Corp. said Friday it lost $8.3 billion in the second quarter, down from $4.3 billion in profits during the same period last year, its largest loss since at least 1998. It wrote down $5.7 billion in oil-and-gas properties, including $2.6 billion in Venezuela. Chevron also said it lowered its internal estimates for future commodity prices, WSJ reported.

Moreover, the historic price slump in the oil market which sent oil below $16 a barrel and brought US oil to below zero for the first time in history in April, was caused by slashed demand in the wake of the deadly coronavirus pandemic which has claimed the lives of at least 679,000 worldwide since it broke out late last year.

Now OPEC officials ask all this would herald a lasting shift in consumption habits if oil peak has been put behind and the age of oil is drawing to a close.

An industry source close to OPEC, who preferred to remain anonymous, said key players were beginning to appreciate a new reality in the industry that consumption might be hard to recover, but were also preparing the organization to play its role as a market leader in such hard times to save participants as before.

OPEC is no stranger to difficult time. It did save the industry back in the 80s and 90s and the 2000s. however things were different at those times. The grouping would undergo internal clashes and infighting to save the market and keep shares in the market. But this time, as it turns out, it has acted more civilized than ever to attract the support of not only members unanimously to save the market, but also non-members including major producers like Russia. 

Just to remember, oil was traded above $145/barrel back in 2008 amid soaring demand.

Major producers including OPEC, which includes Saudi Arabia, Russia and the US, among many others, now have to find a way to hammer out strategies to weather falling prices in the coming months, and ensure revenue generation as consumption seems to have entered a long-term decline with aviation falling dramatically and motorists staying home in fear of contracting the virus.

For its part, OPEC, whose members sit on 80% of the world’s proven oil reserves, has put behind its classic infighting in favor of winning more market share and saving prices by joining long-time market rivals like Russia in a bid to dilute the supply glut in a market awash with costly shell supplies from US producers.

As a result, OPEC with Russia and other allies, a grouping known as OPEC+, agreed record output cuts of 9.7 million bpd, the equivalent of 10% of global supplies. Those deep cuts run to the end of July.

Despite losing the lion’s share of the global oil market to non-members, OPEC’s role to steer the market and prevent falling prices is more crucial than ever as the 13-memebr group has brought together 10 non-members including Russia for the first time in the industry’s history to close ranks to tackle a dwindling industry.

NIDC Chief:

200 Wells Drilled at Oil/Gas Fields

CEO of National Iranian Drilling Company (NIDC) Abdollah Mousavi has said this company has so far spudded 200 wells in oil and gas fields across Iran. He maintains that drilling rigs need to remain active in order to guarantee sustained oil and gas production.

NIDC drilled 31 wells in the first quarter of the current calendar year (started on 20 March 2020) in both offshore and onshore areas.

Established in 1979, NIDC owns one of the largest oil and gas drilling fleets in Iran. It is currently operating 72 onshore and offshore rigs, 3 of which are offshore. According to NIDC officials, the company is currently offering 30 categories of technical services.

Over recent years, Iran’s private sector has won a bigger toehold in the drilling industry. Drilling contractors have managed to win a 505 share of the drilling market. The remaining shares belong to state-owned NIDC.

Mohsen Paknezhad, deputy minister of petroleum for supervision on hydrocarbon reserves, said last January that NIDC was among the top Middle Eastern drilling companies, due to its large onshore and offshore facilities and benefitting from more than 16,000 specialists. 

He said that over the past four decades, NIDC had drilled 4,600 wells, as well as 168,000 cases of drilling services.

Mousavi said NIDC had drilled 200 wells in West Karoun oil field cluster (North Azadegan, South Azadegan, Yaran and Yadavaran), Naftshahr, Azar and South Pars gas field.

Drilling Continues

The current calendar year (started on 20 March 2020) began with the Covid-19 outbreak. Minister of Petroleum Bijan Zangeneh, in a report submitted to Vice President Es’haq Jahangiri, said the ministry was convinced since the very beginning that oil and gas production was unstoppable. Any halt in oil and gas production would have affected other production chains.

As the most important sector in the upstream oil industry, the drilling industry is directly intertwined with oil and gas production.

Mousavi said NIDC was operating drilling rigs in 28 reservoirs administered by National Iranian South Oil Company (NISOC).

He said that NIDC drilled and completed a total of 31 oil and gas wells in offshore and onshore areas in the first quarter of the current calendar year. NIDC also plans to drill 10 wells in South Azadegan, six wells in Jofair and Sepehr and six wells in the Balaroud field.

Based on an agreement reached with the private sector, NIDC would operate 15 rigs in field-oriented projects. It has partnership deals with the Pasargad Energy Development Group and its affiliate Pezhvak Energy Engineering Services in the Jofair and Sepehr fields, with NISOC in the Balaroud field and with Persia Oil and Gas Company in the Ramin field for rig supply and technical services.

Higher Productivity

Aside from oil sanctions and the Covid-19 scourge, the Petroleum Ministry is looking for higher productivity and output in the drilling industry. It strongly recommends that drilling companies work in line with international standards.

Although Iran is under tough oil sanctions, making it difficult for the country to have access to modern drilling technologies, Minister Zangeneh lays emphasis on the standardization of activities in the petroleum industry. He, however, calls for tougher supervision on the drilling sector. He recently instructed establishment of a steering committee to study the productivity of NIDC. 

However, higher productivity of drilling rigs depends on modern technologies. Mehran Makvandi, deputy CEO of NIDC for engineering and technical affairs, said: “Currently, 40% of NIDC drilling rigs are equipped with new technology.”

He said that NIDC, after four decades of activity, has shown a brilliant track record.

“We have managed to offer more than 95% of drilling services in integrated form, which is a reliable point,” he said.

Mousavi said NIDC was among leading oil and gas drilling companies offering integrated drilling services.

Most Iranian oil reservoirs are now in the second half of their life cycle, requiring enhanced recovery.

Gholam-Reza Manouchehri, former deputy CEO of National Iranian Oil Company, said drilling was instrumental in enhancing recovery from oil and gas fields.

“Therefore, we have to show quality jump in drilling, while drilling efficiency has also to increase so that we could compete with foreign rivals,” he said.   

Abadan Refinery Products' Quality to Improve

Farzin Savadkoohi

The best decision Iran’s petroleum industry could take for the Abadan oil refinery was to carry out a second phase of development in the oldest refinery of the country. Abadan refinery enjoys a special status in the history of Iran’s petroleum industry, and without exaggeration, Iranian petroleum products were long known under the Abadan refinery brand. Implementing Phase 2 of the comprehensive renovation plan of the Abadan refinery, known as capacity development and stabilization, was on the agenda while this industrial facility was supplying the most traditional petroleum products, using its ageing technology.

Ageing Installations Out of Service

It was initially planned to deactivate old and decrepit installations at the Abadan refinery in order to renovate the facility in compliance with new standards.

Three old distillation units are processing crude oil at the Abadan refinery at high costs and that is no longer economical. That is why the second phase of the refinery renovation is on the agenda.

Refining units in the world are now adjusted to supply a broader spectrum of low-sulfur and more refined products. Therefore, this aging refinery in Iran has to catch up with this trend and supply emerging needs.

Phase 2 is coming close to implementation while the Abadan refinery was not equipped with facilities to refine products and the bulk of the refinery’s output was sent to market without desulfurization. That prompted Iranian oil managers to use a high-volume refining plant instead of three aging distillation units.

Phase 2 is aimed at stabilizing the refinery capacity at high figures; reduce the share of fuel oil production, increase gasoil, kerosene and gasoline production and upgrade controlling systems.

Modern Refining in Old Plant

The modifications planned in the second phase of this refining plant are like building a modern refinery in the heart of an old plant.

A leading Iranian engineering company was assigned to draw the main plan for the distillation and liquefied gas sections at the facility. The fundamental design of the project ended in 2009.

The structure of the Abadan refinery is such that it receives its feedstock from the Omidieh and Ahvaz oil fields in Khuzestan Province. But when Phase 2 comes online, a broader spectrum of crude oil grades would be fed into the plant. That would allow for processing the heavy crude oil supplied by some Iranian refineries to produce high-quality products.

50% in Iranians Hands

The project is 48.76% complete. If financing is provided, 50% of the second phase would be implemented. This phase has had more than 80% progress in engineering, 31.73% in implementation, and 54.51% in commodity and equipment supply.

National Iranian Oil Engineering and Construction Company (NIOEC) experts are pushing ahead with the project in collaboration with the Abadan oil refinery with 50% of manufacturers being Iranian.

According to pundits, Phase 2 is a totally independent refinery. As said earlier, implementation of this project would end heavy costs caused by the maintenance of old and aging units to instead deliver Euro-4 and Euro-5 grade products.

The important point is that all new environmental regulations have been taken into consideration in this project. With this project, the Abadan refinery would be supplying Euro-4 grade gasoline and Euro-5 grade gasoil.

Lucrative Plant

Iran’s Minister of Petroleum Bijan Zangeneh, during a ceremony to break the ground for the project in 2016, had said: “The Abadan refinery’s products are no longer valuable with the current volume and applying old methods. The bulk of valuable crude oil is converted into fuel oil through refining and sold much lower than crude oil.”

“The new refinery would produce high-quality products. Gasoline and jet fuel production will increase while fuel oil production would decline. The Abadan refinery will turn from a loss-producing refinery to a lucrative one and many jobs would be created in the city of Abadan,” he said at the time.

Production under normal conditions at the Abadan refinery is such that more than half of the production capacity is done in three distillation units that are 70 years old now. For Iran’s petroleum industry, under the present circumstances, modernization, quality improvement and compliance with international standards would be a must in such an old refining facility.

Phase 2 focuses on stabilizing the current capacity and boosting the quality of products. Atmospheric and vacuum distillation, gasoline, kerosene and gasoil refining, sulfur production, a second catalytic cracking plant and other facilities are envisaged in this phase.

Saeed Sattari, manager of the Phase 2 project, had already said a catalytic cracking and alkylation facility and butane isomerization facility would be built while the acid unit would be renovated to allow for increasing valuable products like gasoline and decreasing the fuel oil output.

By applying modern refining technologies in Phase 2 development of the Abadan refinery, products will conform with Euro-5 standards, environmental pollution will decline; gasoline, kerosene and gasoil output will increase and above all the refinery will be lucrative while fuel oil production would decline. That would allow Iran to take one more step ahead.

No Extra Costs

Another feature of this project is that its implementation can go ahead without imposing any extra costs on the National Iranian Oil Refining and Distribution Company (NIORDC) or its subsidiaries, not to mention significant job creation.

The agreement for the Abadan development was signed with a consortium comprising Iranian and foreign companies with a view to making the facility lucrative, standardizing products, stabilizing the refinery output and putting old units out of service.

The Covid-19 outbreak has put a brake on oil projects in Iran, like everywhere else in the world. That is why the pace of work at the Abadan project was slowed down last winter. However, the important point is that the project was not halted.

The routine production of the refinery was not affected by the self-imposed slowdown in the project and the delivery of refined products continued.

Ali-Reza Amin, CEO of Abadan Oil Refinery, had said the new project had nothing to do with the operating Abadan refinery.

What’s more is that Phase 2 implementation would renovate Iran’s oil refining industry so that Iran would remain the Middle East’s refining brand.

Oil Staff Display Good Performance in Wushu

Arash Jafari

Hossein Ojaqi is a well-known wushu champion in Iran. He is currently the head coach of Iran’s national wushu team. He has worked with the petroleum industry for many years.

The following is the full text of "Iran Petroleum" exclusive interview with Ojaqi:

First of all, would you please tell us about yourself?

I’m Hossein Ojaqi. I was born in 1975. I grew up in Shahr-e Rey. I’m married. I hold a PhD in sport management from the University of Tehran.

Why did you choose wushu?

Wushu is a military discipline. Persons of various ages – young or old – can do wushu. It is done in two forms – for show and for combat. The combat section includes boxing, karate, taekwondo, judo and wrestling blows. I can say wushu is a perfect combat discipline. That is why many youths are attracted to this discipline. That is why I chose it. I would also like to say that wushu has good structure, making it an ideal sport discipline.

How long have you performed wushu?

I did it professionally for a period of 15 years.

When were you invited to national team and how long did you stay there?

I was invited to the national championship league in 1997 and then to the national team training. I defeated my rivals and took part in the Italian matches in 1997. In my first presence, I overpowered five rivals who were strong and I won gold medal. Then, I did wushu professionally for 15 years before starting to work as the head coach of the national team for eight years now.

What titles or honors have you won in wushu?

If I’m not wrong, I have nearly won 30 medals in domestic and international matches. I won six medals in global matches and five in Asian matches. I took part in five rounds of world matches and I won five medals. I also won one Olympic medal, as well as 15 medals in various tournaments.

Can you detail the medals?

In the world matches, I won six medals, including three gold, two silver and one bronze. In Asian matches, I won four gold and one silver. In world cup matches, I won five gold medals. In Beijing’s Olympics, I won silver medal.

Could you tell us about your best wushu performance?

Busan’s Asian match was the best for me because my country managed to rise several steps among Asian nations.

When did you join the Petroleum Ministry? Which posts have you held?

I joined the ministry in 2009 and started work at the Sport Department. At first, I was senior sport expert and currently I am the head of sport evaluation department at the Petroleum Ministry.

Have you shared your experience with national wushu practitioners?

At the pro league, I shared my experience with the children of local oil staff in areas like the South Pars gas field and I tried to upgrade combat sport.

Tell us about coaching. Is it more difficult in the club or at the national team?

Coaching is very difficult. When you are an athlete you only participate in matches and work for championship. You are responsible individually and you hope to win medals and become champion. But when you serve as the coach you are responsible for the entire team and you are under psychological pressure for everyone else. You are under stress and you try your best to bring medals to the team. Working at the national team and working at the club have their own difficulties. National team matches have global reflection and they are tougher. National team members are often of high technical preparedness level and they need to be reactivated. You have to manage them in order to fare better. You hold a short training session and then you go to matches. But at the club you deal with people of various technical levels. Everyone does not enjoy the same technical level. Therefore, technical work and training is more difficult. Meantime, national team is under higher psychological pressure. But at clubs when working at the league becomes longer it gets tougher.

What titles have you won in coaching?

When I was named head coach I first finished runner-up in the world for three consecutive terms. In 2017, we won the world championship title in Russia. In 2019 in China, we won gold to become champion in a country where wushu was born. The championship in China was very important.

US Role in Thwarting Iran Oil Nationalization

Ali Bahrami

Much has been said about the success of petroleum industry nationalization; however, little has been said about what caused it to fail. Some factors caused division in the nationalization movement through sophisticated political and intellectual activities in social and cultural forms with a view to defeating one of the most significant and most powerful politico-economic movements of the Middle East of that time.

The oil industry nationalization movement and adoption of law in Iran’s parliament on 20 March 1950, brought unprecedented joy to Iran with regional and international spillover.

The oil nationalization movement in Iran gave rise to a political and economic awakening campaign across the Middle East. Egypt’s nationalist hero Gamal Abdel Nasser was influenced by this movement, not to mention other Middle East politicians. Middle East experts have seen Nasserism in Egypt a direct consequence of Iran’s oil nationalization movement, led by then Prime Minister Mohammad Mossadeq.

One researcher says: “Outside Iran, no leader was as much influenced by Mossadeq as Jamal Abdel Nasser, leader of Arab nationalism. Some nine months after Mossadeq’s visit to Cairo, Abdel Nasser along with a number of military officers fomented an uprising on July 23, 1952 against King Farouk, and under the influence of Iran’s oil nationalization, followed up on nationalization of the Suez Canal, which finally paid off as it ended Britain’s 76-year-old dominance in July 1956.”

The oil nationalization movement was celebrated across the country and unified social and political forces. It was racing ahead to mark history in Iran and the region; however, three years later, the emergence of divisions whose aspects remain largely hidden caused failure and the movement floundered. Two major factors may have been involved in this final failure: US media and US politics. The duo drove oil nationalization movement developments towards specific directions, pushing the movement to failure.

US Encouragement

One key point in the history of oil nationalization in Iran was the US’s support for the movement. In rivalry with the British in gaining more profits from Iran’s petroleum industry, the Americans encouraged the Mossadeq government to stand against Britain. The Americans were trying to kill two birds with one stone. In doing so, the Americans could push out their longtime rival and develop amity with a government born out of national vote.

In such context, some Iranian politicians wrongly imagined that the Americans were fighting for Iran’s benefits. Abdorreza Houshang Mahdavi and Ahmad Bani Jamal – both prominent historians – have highlighted some key points to that effect.

Of course what counts is that the Americans were encouraging Mossadeq only up to March 1951. They changed their policy when they found out Britain’s absence would be detrimental to their interests.

“US diplomats and experts repeatedly encouraged Iran to stand against the Anglo-Iranian Oil Company (AIOC) demanding its rights…But as soon as the issue of nationalization of the petroleum industry was accepted by people and the two chambers passed a law to that effect, the Americans sought to halt the national movement because with the nationalization of oil in Iran, their interests in the Middle East were threatened. Almost immediately after the law on oil industry nationalization was adopted and promulgated in the country, the Washington Conference was held while representatives of US and British governments and seven oil majors were in attendance in April 1951. The oil companies agreed with the British and US governments to not accept any profit-sharing above 50-50 with Iran or any other petro-states even if oil nationalization has been approved. The British and the Americans were trying through oil nationalization to reach a formula based on which the British oil company would maintain its presence in Iran and oil revenues be divided equally among parties.”

US Mediation

The Americans had now realized that any absence of Britain in Iran’s economy, despite being their long-time rival in the Middle East, would cost them losing Iranian oil wells. Therefore, they tried to push ahead with their mediation efforts. In the midst of ups and downs and the dispute between the government and the Court and the government’s resort to international forums and tribunals, the Americans had defined a new role for themselves. The main reasons of such mediation efforts may be detected in their win-win policy.

The Americans thought with the public welcome for the oil nationalization movement, they had better create an atmosphere in which Iranian interests would be partly served while oil cartels and concerns operating across the Middle East would not be affected by oil developments in Iran to suffer big financial losses. Western governments had for long overcome any political, cultural, economic and social obstacles in the Middle East to pursue their oil interests and they had paid a heavy price. Abrahamian and Azghandi in their research refer to a William Averell Harriman,millionaire businessman who had gained fame for resolving disputes. This millionaire, once named secretary of commerce in the US, was named US President Roosevelt’s special envoy to Britain and the Soviet Union and also the official spokesman of President Truman in the Marshal project. He had travelled to Tehran to convince Mossadeq on the fact that nationalization would not necessarily mean direct control; rather it meant still running the industry. He was expected to teach Mossadeq about international petroleum law, crude oil pricing in the Gulf of Mexico against the Persian Gulf, technical aspects of oil refining for various purposes, oil tanker shortages, differences between upstream and downstream industries, calculation of margins and modalities of relationship between leading producers and independent producers. In return, Mossadeq was supposed to lead the talks towards the central question of who would control Iran’s oil production and sales. These were just points to learn, but Mossadeq saw them as trickery. The talks ended as Mossadeq did not back down. Mossadeq was convinced he was being tricked. Britain’s UN envoy, later on wrote that Harriman had met with .

US State Department and oil industry representatives before travelling to Tehran, i.e. those who were concerned with a tough policy vis-à-vis Iran. They were worried that the Iran case would give rise to undesired consequences in other oil producing nations including Venezuela.”

In fact, the main reason behind the continued differences stemmed from the interests of some giant oil companies in the Middle East. They were convinced that their interests would be threatened in case the oil issue was resolved based on the Iranian government’s proposal. That is why the variety of proposals offered by the British government to Iran either directly or via the US, bore similar meaning although they differed in words. None of these proposals offered any solution to be compliant with Mossadeq’s understanding of petroleum industry nationalization.

US Blow

The Mossadeq government’s presence in Iran’s political atmosphere allowed various political and social groups and parties to be active. The freedom of action for these parties was such that in Iran’s contemporary history, this period is referred to as “Mossadeq era’s political overture”. This political overture earned Iran great benedictions; however, it let the destructive Tudeh party to penetrate Iran’s politics. Owing to its cohesive structure and ideology, this party had become so active. Once it made efforts to win a toehold among various groups: the labor class, the underprivileged as well as intellectuals and journalists. The Tudeh party officially embarked on its political and social activities in May 1951. The presence of this party in the oil nationalization movement provided the US with pretext to thwart the movement.

Abrahamian says: “By May 1951 when for the first time the government authorized May Day celebrations, the Tudeh party held demonstrations in all major cities. In Tehran, about 35,000 attended rallies. In summer 1951, when Mossadeq was in talks with US officials, the Tudeh party held demonstrations against Harriman, leading to 25 deaths and 250 injuries.”

Some believe that the political influence of the Soviet-inclined Tudeh party and its communist ideology pushed the Americans to target Mossadeq; however, it seems that the Americans pretexted this issue to thwart a movement which was set to drive Westerners out of the country. That is why the Americans became more sensitive. Even if they had some hostilities with the British, the Americans were careful about the threat of Mossadeq and the oil nationalization movement. They rejected Mossadeq’s demand for loan to resolve the petroleum industry challenges after the exit of British experts and technicians.

The nationalization of the petroleum industry caused bottlenecks and problems because British technicians left oil installations in Khuzestan and the British government imposed economic sanctions, thereby banning oil exports from Iran. Mossadeq travelled to the US in the hope of receiving loans to pay service workers and cover maintenance costs, but he returned empty-handed. US oil companies joined the club of imposers of sanctions on Iran’s oil and the US government became more worried about the Communists’ interference with the petroleum industry nationalization movement.

The Americans knew quite well that by mediating between Iran and Britain, their own interests would be threatened. Therefore, they saw the Tudeh party’s open activities as a good pretext to stop mediation and even flex muscles to strike the final blow. This blow led to nothing but the 1953 coup under the leadership of a Republican general from the White House: General Dwight Eisenhower.

In 1951, when the Americans were trying their best to dissuade Britain from military action, the idea was to mediate. Britain was planning to attack Abadan in a bid to restore its rule at the refinery there. To that end, Britain had deployed paratroopers. But the US was sharply opposed to military action, arguing that the Soviet Union would conduct a similar attack on Iran’s northern areas and that was how the attack plan was cancelled. As long as Democrats were in power in the US, such policies were being pursued. But in January 1953, Eisenhower came to power and at the same time British Prime Minister Winston Churchill travelled to the US to discuss the coup, which the Americans agreed to.