Iran says it’ll soon pump an ad­di­tional 1 mil­lion bar­rels of oil a day. Not ev­ery­one may want it

Bloomberg Businessweek (North America) - - Contents -

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

ex­ec­u­tive of con­sul­tant Qa­mar En­ergy who worked on projects in Iran as a ge­ol­o­gist for Shell.

The head of the In­ter­na­tional En­ergy Agency is more op­ti­mistic. “Iran’s older oil fields are in good shape,” says Fatih Birol. “With­out mak­ing any in­vest­ments, Iran can eas­ily lift pro­duc­tion by 300,000 bar­rels a day within two months.”

Forced to im­pro­vise dur­ing years of iso­la­tion, Iran’s oil in­dus­try grew stronger, says Mostafa Khoei, man­ag­ing di­rec­tor of Dana En­ergy, a big en­gi­neer­ing com­pany in Tehran. Ex­plo­ration and de­vel­op­ment never stopped, though they slowed and grew more ex­pen­sive. Lo­cal com­pa­nies filled the void left by for­eign con­trac­tors, while equip­ment pur­chases shifted from Europe to China. Iran now has at least four pri­vate com­pa­nies with ex­pe­ri­ence de­vel­op­ing fields, and eight drilling com­pa­nies. Be­fore the sanc­tions, all off­shore plat­forms were im­ported. Now, all of Iran’s new plat­forms are home­made.

Sanc­tions cut Iran’s ex­ports to 1.4 mil­lion bar­rels a day on av­er­age in 2014, from 2.6 mil­lion bar­rels daily in 2011, ac­cord­ing to the U.S. En­ergy In­for­ma­tion Ad­min­is­tra­tion. To re­gain its No. 2 spot in OPEC and sur­pass Iraq, Iran even­tu­ally needs to add more than 1.7 mil­lion bar­rels of daily out­put. Saudi Ara­bia, OPEC’S top pro­ducer, pumped 10.3 mil­lion bar­rels a day in De­cem­ber.

Prepa­ra­tions for the 500,000-bar­rel-aday in­crease in­clude des­ig­nat­ing which of the coun­try’s tankers will carry the oil and trans­port­ing the crude from the fields to load­ing ter­mi­nals, Amir Hos­sein Za­maninia, deputy oil min­is­ter for in­ter­na­tional and com­merce affairs, said in an in­ter­view in Tehran. State-run Na­tional Ira­nian Tanker is still work­ing with Euro­pean in­sur­ers to set up cov­er­age for the coun­try’s ex­ports, says Nas­rol­lah Sar­dashti, the com­pany’s com­mer­cial affairs di­rec­tor.

Iran will be sell­ing into a mar­ket that might not want all its oil. Za­maninia says ex­ports will hap­pen in a “man­aged way to min­i­mize the neg­a­tive im­pact” on prices. He did not de­tail how the coun­try would achieve that. At Davos, Ira­nian Pres­i­dent Has­san Rouhani’s chief of staff, Mo­ham­mad Na­ha­van­dian, told re­porters who raised the same is­sue, “I think you’ll have to wait and see.” �An­thony Dipaola, Hashem Kalan­tari, Peter Wald­man, and Matthew Philips

The bot­tom line Iran wants to re­cover its place as OPEC’S No. 2 pro­ducer, but first it has to make sure it can meet am­bi­tious pro­duc­tion goals.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.