1 COUNTRY PROMISE: MILLION BARRELS A DAY
▶▶Now free to sell oil, Iran has set itself a huge goal. But are its oil fields in condition to reach it? ▶▶“Valves get rusty.▶... It’s not just like turning the spigot from off to on”
Along the main road skirting the oil and gas hub in the Persian Gulf town of Assaluyeh, signboards still bear the names of foreign companies like Eni, Italy’s biggest oil producer. But Eni hasn’t started a project or made investments in Iran for more than five years because of international sanctions. Now that those restrictions have been lifted, the country wants overseas expertise and investment to return to help ramp up oil production and exports. But how well have the oil fields been maintained by Iran? That is a “huge unknown,” according to Mike Wittner, Société Générale’s head of oil market research, because most oil companies haven’t had access to those fields for years.
Once OPEC’s second-biggest producer, Iran says it’s ready to sell 1 million more barrels of oil a day this year. The deal Iran implemented with the U.S. and five other global powers on Jan. 16 opens the market for its crude. Oil Minister Bijan Zanganeh says the country can boost production by half a million barrels immediately by reopening fields the state oil company shut when sanctions kicked in. Iran will add another 500,000 barrels a day within months, he says. The specter of more oil helped spook a market already flooded with cheap crude. On Jan. 20 the price for West Texas Intermediate dropped 6.7 percent, to $26.55 a barrel. Stock markets tumbled in response.
Analysts are skeptical Iran can achieve such an increase. Oil fields depend on pressure inside a reservoir to help force crude out. As more oil is pumped, pressure eases and production declines. That’s why oil companies need to continually find deposits, drill more wells, and work to maintain already operating fields.
“Simple things like valves get rusty or air gets into the well,” says Nariman Behravesh, chief economist at energy consultant IHS. “These are not trivial matters, and it takes not just time but investment to revamp their production system. It’s not just like turning the spigot from off to on.” Restarting the same fields that were shut following sanctions will yield only 800,000 barrels a day at most in the next year, says Robin Mills, the Dubai-based chief