Iran Oil Poised to Hit World Markets

 Iran’s petroleum industry has experienced tough time following the US’s unilateral withdrawal from the Iran nuclear deal in 2018. However, many international analysts believe that Iran kept exporting oil during the period of transition and nothing could stop its oil industry activities. This was true even in 2020 against the backdrop of the coronavirus pandemic that struck the world economy. Some experts had forecast Iran to be eliminated from the oil market gradually as the US toughened its sanctions against Iran’s petroleum industry. Annika Folkeson of the Center for Conflict Analysis and Prevention at the US Institute of Peace wrote in an article that Iran’s oil was irreplaceable because Iran held the largest oil and gas reserves together. However, the key point is that these resources should be monetized and create value-added as soon as possible, as oil continues to play a key role in the world economy.

Since mid-1960s and concurrently with Iran’s economic blossoming, oil has grown into an effective tool in supplying Iran’s financial needs. Iran’s politics and economic lifeline are tied to oil more than ever. That marks the start of combination of the two concepts of energy and economy in Iran, which gave rise to “oil-dependent economy”. Therefore, the oil and gas industry became the most strategic industry in Iran and governments have spent big sums on development and upgrade of this fundamental industry.

Undoubtedly, in addition to economy, politics is intertwined with oil. The international politics vis-à-vis Iran largely results from Iran’s oil-rich status and that is a factual reality with Iran’s petroleum industry.

The issue of sustained production and exports is of high significance in the world oil markets. Over recent years, Iran’s petroleum industry has been faced with unilateral Western sanctions; however, it has sought to remain ready for a comeback once sanctions have been lifted.

During the sanctions period which slashed Iran’s oil sales, the Petroleum Ministry implemented some development projects which would become effective after Iran’s return to the oil market. As Iranian officials have said, Iran is able to return to the oil market in the shortest possible time.

Hormuz Strait, Iran Bargaining Chip

A report released by the US’s Energy Information Administration (EIA) highlighted a key fact about Iran’s significant role in the global oil and gas trading. It said Strait of Hormuz and Iran’s oil were two inseparable principles, and that the future of global energy supply largely depends on Iran. In the EIA report, it has been noted that on average more than 17 mb/d of oil had been transited via the Strait of Hormuz to various points across the globe over one decade. That figure accounts for about 35% of oil traded at sea or 20% of total oil trade.

Prosperity despite Sanctions

Although it seemed that Iran’s petroleum industry would face numerous problems because of sanctions and the outbreak of the coronavirus disease, National Iranian Oil Company (NIOC) saw prosperity. Thirteen agreements were signed in August 2020 with two NIOC subsidiaries and 14 Iranian companies for enhanced oil recovery. The agreements were worth totally €1.5 billion. Back in October 2018, the first agreement for enhanced oil recovery in the Siri project (Sivand and Esfand fields) was signed, to be followed by 9 other agreements in February 2019.

Another key issue was to prevent any fall in the production from oil fields. To that effect, NIOC decided to develop 28 reservoirs to increase production. In this project, 283 wells would be drilled while more than 1,000 km of pipes would be laid. Furthermore, more than 100 projects worth $350 million would be implemented. Of these 27 packages, agreements for 6 packages were struck in early 2019.

Well No. 6 of the Kaboud field in the Bangestan reservoir was the first well drilled in the framework of enhanced recovery project. It started production in April 2020 at a rate of 1,000 b/d.

Enhanced oil recovery is the largest development project since the 1979 Islamic Revolution in oil-rich areas in southern Iran, covering five southwestern provinces. Iran's Petroleum Ministry and NIOC have specifically prioritized this project which is aimed at reaching an output of 341,000 b/d.

SP11 Development

France’s energy giant Total, China’s CNPC and Iran’s Petropars teamed up to sign a Total-led agreement with NIOC for the development of Phase 11 of the massive offshore South Pars gas field. Alas, Total and CNPC pulled out after Donald Trump took office in the US and restored sanctions on Iran. Finally, Petropars decided to go it alone.

The SP11 development project recorded satisfactory progress in 2020. The wellhead jacket of Platform 11B started officially in the first step for the SP11 development. Operations for the installation of the jacket of the first platform of SP11 started on the location of Block B through the message of President Hassan Rouhani via videoconference. The overhaul of platform of SP11 ended, its flare was rebuilt totally and acidizing of wells in the platform of SP8 started.

Drilling for the first well in the SP11 development project was officially launched following installation of the offshore MD-1 rig in SPD11B location.

Yaran, Azadegan Development

Last calendar year (to 21March 2021) also saw signing of agreements for development of the Yaran and Azadegan fields. The IPC model agreement for Yaran was signed between NIOC and Persia Oil and Gas Industry Development Company. The objective is to recover 39.5 million barrels over 10 years. The CAPEX estimated for this project stands at $227 million, while operation costs would be around $236 million.

The agreement for developing the South Azadegan oil field and constructing a central treatment export plant (CTEP) was signed between Petroleum Engineering and Development Company (PEDEC) and Petropars. Expected to increase output capacity to 320,000 b/d over 30 months, the agreement is worth $961 million plus IRR 11,830 billion. Furthermore, a $300 million agreement was signed for building CTEP (with treatment capacity of 320,000 b/d). It is the largest oil and gas processing unit in the country, planned to be built over 30 months.

Azar Field Operational

Last calendar year (to 21March 2021)  ended while development of the Azar oil field, as one of the most complicated oil fields in Iran, was inaugurated with a production capacity of 65,000 b/d. Addressing the virtual inaugural ceremony of this field, President Rouhani had told that previously Iran had made no recovery from this joint field.

In light of the government’s policy of prioritizing joint oil and gas fields and the Petroleum Ministry’s commitment to finalize the case of all joint fields, all fields have reached production or contractors have agreed to develop them – all that despite sanctions.

Top Exploration Rank

Consultancy group Wood Mackenzie said in its 2019 report that NIOC discovered 4,973 billion barrels of recoverable liquid hydrocarbon. That would make NIOC the top explorer among both NOCs and IOCs. Iran discovered Eram and Namavaran fields in 2019.

The second rank went to Russia’s Gazprom with about 3 billion barrels of discovery. Then came respectively Britain’s BP, American ExxonMobil and China National Offshore Oil Corporation (CNOOC).

About 20 billion barrels of oil equivalent was discovered across the world in 2019. Iran accounts for about 5 billion barrels.

Iran continues to claim the top spot in terms of hydrocarbon reserves in the world. In light of discoveries of the past two years, it has known that Iran would remain a major source of hydrocarbon supply.

Iran is starting a new calendar year while all eyes are turned to the country’s return to the oil market. Based on NIOC measures over this time, Iran would return to the oil market in the shortest possible time, as promised by Minister of Petroleum Bijan Zangeneh.