15 August 2023 - 21:39
  • News ID: 477031
Iran, potential key player in oil market

Petroleum industry is a key sector in the Iranian economy. Iran has been trying its best to benefit from its giant hydrocarbon resources to realize its objectives set out in its development plans. Along with sustainable oil and gas production, Iran been instrumental in global energy supply. It may not be eliminated from global energy trading as it continues to play an effective role in this sector.

Once the 13th administration took office, most plans and projects pertaining to Iran’s petroleum industry were reconsidered. First and foremost, the Ministry of Petroleum enhanced the oil production capacity to reach levels acceptable under sanctions imposed on Iran.

Minister of Petroleum Javad Owji recently announced that Iran had set records in the production and export of crude oil, gas condensate as well as refined petroleum and petrochemical products.

He said $12 billion worth of incomplete oil projects had come online in one year, adding they were directly involved in enhancing the country’s production capacity.

“We’re self-sufficient almost in all petroleum industry sectors. In parallel with this output hike, we have increased our exports level. Despite the tightening of unjust sanctions, crude oil and gas condensate exports have doubled since the 13th administration took office,” he said.

Owji said Iran’s oil output has exceeded 3 mb/d and gas production rate reached 1 bcm/d, adding that oil exports had doubled. He said during the calendar year to March, 83 mb/d more oil was exported year-on-year, adding that a new record is expected to be set in oil exports in the current calendar year (started on 21 March 2023).

CEO of National Iranian Oil Company (NIOC) Mohsen Khojasteh-Mehr has said that Iran’s oil production capacity reached 4.038 mb/d by March 2023. It is indicative of NIOC’s initiative for implementing oil output hike plans. The output hike is the result of enhanced recovery from low-yielding wells, development of new fields and implementation of enhanced recovery methods. 

According to the NIOC chief, Iran is able to raise its oil production to 5.7 mb/d within eight years.

He reaffirmed that crude oil and gas condensate exports had doubled under the 13th administration. It implies that Kharg terminal has been fully used for oil exports by providing metering and docking services and transport facilities.

Revenue hike

Khojasteh-Mehr said income from oil, condensate, gas and petroleum products sales last calendar year (ended on 20 March 2023) had grown 40% year-on-year. In the gas condensate sector, more than 70 million barrels was sold.

In its 2023 Oil Report, the International Energy Agency (IEA) put it as follows: “Iran remains a wildcard for world oil markets. If it is released from sanctions, production could ramp up gradually by roughly 900 tb/d to reach capacity of 3.8 mb/d.”

“Despite tough financial restrictions, Iran managed to increase crude oil output by about 130 tb/d in 2022 to an average 2.5 mb/d,” it wrote. “Tehran appears to be keeping up brisk oil sales to China that have been running at an estimated 1 mb/d since the third quarter of last year.”

“Higher exports and domestic throughput have pushed Iranian crude production up to around 2.9 mb/d in May 2023 and we have maintained that level throughout the remainder of the forecast period. We are of the opinion that Iran is still able to maintain its sprawling oil network, enabling it to ramp up relatively swiftly if and when sanctions are eased.”

It added: “Lower wellhead production most likely led the National Iranian Oil Co to shut in wells at its high-cost offshore fields, and perform maintenance at its mature oil fields. Shutting in output may be helpful for ageing oil fields, as it will allow pressure to rebuild and make it easier for operations to restart.”

The report said: “As for capacity building, Iran’s efforts in this respect have largely stalled given the impediments posed by the collapse of exports since the end of 2018 and the lack of foreign investment due to sanctions. The previous round of international sanctions had already left the oil sector in urgent need of foreign cash and technology, particularly in enhanced oil recovery methods to sustain and raise output at older oil fields.”

“Tehran is looking to the core West Karun oil fields of North and South Azadegan, Yaran and Yadavaran to drive future growth with a 1 mb/d boost. Undeterred by sanctions, Iran expects in 2023 to double capacity to 320 tb/d at its southern Azadegan field, which straddles the border with Iraq,” concluded.

Energy trade with neighbors

In its latest estimate, OPEC put Iran’s proven oil reserves at 208.6 billion barrels in 2021, placing Iran in the third position among oil owners in the world. Iran is also the second largest holder of gas reserves in the world with 1,203 tcf of gas in place. Iran saw it gas reserves grow 3 tcf in 2021 year-on-year. Iran accounts for 17% of the world’s gas reserves.

Given its giant hydrocarbon reserves, Iran is planning to acquire an acceptable share of energy trading with neighboring nations.

Minister Owji said energy diplomacy was a major policy pursued under the 13th administration, praising efforts undertaken by ministries of petroleum and foreign affairs. He said that Iran’s share of gas trading in the region was on the rise, adding that the Ministry of Petroleum had relevant plans under way.

Overseas refineries

Along with boosting oil production and export capacity and gas swap operations, the Ministry of Petroleum has for the first time moved towards refineries overseas, which is the first of kind since the 1979 Islamic Revolution.

Owji said benefiting from the capacity of overseas refineries would be closely pursued by the Ministry of Petroleum. He said Iran’s oil was already being processed in some of overseas refineries. That would help Iran avoid selling crude oil, and rather than that would empower Iran to generate higher value.

Analysts say refined petroleum products are unsanctionable due to global demand for them. That would provide countries sitting atop hydrocarbon deposits with a golden opportunity.

Gas exports to Iraq quadruple

Iran is a leading exporter of gas. It is pumping gas to Turkey, Iraq, Azerbaijan and Armenia. The country also plans to expand its markets with minimum investment. Owing to its massive recoverable gas, Iran is trying to transform Assaluyeh into a gas hub in cooperation with Russia, Turkmenistan and Qatar. Minister Owji said required arrangements had been made for this purpose. Gas represents Iran’s bargaining chip in economic exchanges. Relying on its gas capacity, Iran is trying to improve its ties with regional nations.

Iraq’s Electricity Ministry spokesman said last October that his country had settled its debt vis-à-vis Iran. He said Iraq would need to import more gas from Iran. To that end, high-level talks have been under way between Iranian and Iraqi officials.

The gas agreement signed with Baghdad expires in the current calendar year. The agreement is expected to be renewed and relevant negotiations have already started. As both sides are in favor of renewal, the agreement is highly likely to be extended. The agreement for gas delivery to Basra is also expiring within two years, which would then be subject to renewal.

Iraq needs 55-60 mcm/d of gas with Iran having voiced its readiness to supply 45 mcm/d.

Turkey also needs Iran’s gas. Iran’s 25-year gas export deal with Turkey expires in 2026 and Tehran is seeking to renew deal under better terms and conditions. It is the first long-term gas deal Iran signed after the Islamic Revolution. Under this agreement, Iran could supply up to 10 bcm/y of gas to Turkey, but it may be increased to 13 bcm/y. Renewal of the gas deal is acceptable to both sides; however, possible scenarios about the volume of gas and mechanism of gas delivery are being discussed by the two countries. Iran’s natural gas exports to Turkey is estimated to have reached 3.3 bcm during the first five months of 2023.

Higher share

As soon as the 13th administration took office, the Ministry of Petroleum focused upon revival of ties with Turkmenistan. Turkmenistan was the first destination of Minister Owji. Efforts made by the current administration for a thaw in the ice between Iran and Turkmenistan came to fruition very soon. Owji’s talks in Turkmenistan came to fruition several months later when Iran, Turkmenistan and Azerbaijan signed a trilateral gas swap agreement on the sidelines of an Economic Cooperation Organization (ECO) gathering. The agreement was implemented in January 2022, which was instrumental in the gas network stability, particularly in northern and northeastern Iran.

It did not end at this point. In early June that year, Minister Owji travelled to the Republic of Azerbaijan where he signed an MOU to double the volume of Turkmenistan’s gas delivery to Azerbaijan via Iran.

Under the trilateral agreement, Turkmenistan is required to deliver 10 mcm/d of natural gas to Azerbaijan. Iran-Turkmenistan ties were not bound to these agreements; rather, they inked protocols for exporting technical and engineering services as well as refined petroleum products, which resulted in the reopening of Turkmenistan’s border terminals.  

Majid Chegeni, CEO of National Iranian Gas Company (NIGC), said the volume of Iran’s gas swap increased 358% in 2022 year-on-year. He added that the figure was expected to grow 70% in 2023 year-on-year.

This agreement was a major initiative by the Ministry of Petroleum in enhancing Iran’s share of global energy trading with neighboring nations, which would be a win-win deal. A major advantage for Iran is that the deal would prevent it from being eliminated from global energy interactions and would instead help Iran boost its share of global natural gas trading. Turkmenistan is the world’s fourth largest gas holder, and Iran can receive 40-50 mcm/d of gas from this country to be delivered to other nations. NIGC signed a deal in 1995 with Turkmenistan for the latter to supply 14 bcm a year of gas to Iran. In 2017, the deal was suspended over financial issues.

Complete chain

Improving political, economic and commercial ties between Iran and Turkmenistan, preventing Iran from being eliminated from energy exchanges in the region, empowering Iran to become an energy hub, bolstering Iran’s share of global natural gas trading, stability in gas network in northern and northeastern Iran, secure fuel supply to power plants and industries in northern and northeastern provinces and reducing gas transmission costs from south to north are among advantages of the agreement. It has also been instrumental in offsetting Iran’s gas imbalance as it would push Iran closer to becoming an energy hub in the region.

The agreement is also important for Turkmenistan which is looking for secure routes to transmit its gas. In Turkmenistan’s gas export roadmap, Iran is considered the most attractive route.

In addition to significant gas reserves, Iran has necessary infrastructure including compressor stations, gas transmission centers and pipelines, covering a full chain of production, supply and distribution of gas, which is a key issue in gas exports.

Iran Petroleum

News ID 477031


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