The Return of Iran to the Western Oil Markets

July 21, 2015

By Per Magnus Nysveen, Head of Analysis, Rystad Energy

Depending on the speed and depth of reversing the sanctions, we expect Iran will recover 400-500 kbbld of its potential overcapacity of 700 kbbld within two years. This additional oil will primarily come from the old giant oilfields Agha Jari, Awhaz Asmari, Gachsaran and Marun. The quality of the added oil is moderately heavy and sour with about 32 degrees API density and 2% sulphur content.

Iran ramped up rapidly to 6 MMbbld under the Shah in the 60s and early 70s. However, after the revolution and during the Iran-Iraq War, the fields deteriorated and even with the support of European IOCs and Chinese companies, they never recovered to reach more than 4 MMbbld between 2005 and 2011. The oil embargo imposed by the US in 2011 and halt of exports to Europe in 2012 caused a shortfall of 900 kbbld of production over 12 months, of which 200 kbbld has by today already returned to the wellheads.


Condensate from the giant South Pars offshore field has a potential to increase exports by an additional 500 kbbld from now, but with a lead time of 10-15 years due to complex and slow developments. Petropars has successfully implemented Phases 6-8, 12, 15-16 and 17-18 and these platforms should add more than 300 kbbld of condensate over the coming years. Less optimism is seen in the South Pars phase 11 LNG project, where there is potential of producing 2 bcf/d gas and 80 kbbld condensate. Here, the two previous operators, initially Total, later Petrochina, have been replaced by Petropars as the taxation scheme proved inadequate to incentivize such developments by foreign companies. Ten years after Total was awarded the project, there has still been no development on this mega-project.

So we believe Iran desperately needs major oil companies to grow its oil production beyond 3.5 MMbbld and massive investments are required for every barrel above this level.

We consider there has been significant overreaction by oil traders on the news flow from the Iran-US negotiations. For comparison, Petrobras just lowered their production target for 2020 by 1.4 MMbbld, and in the US, drillers have slashed to zero the potential of adding up to 2 MMbbld this year if all idled rigs were still drilling on the best shale fields. All this should be compared with expected oil demand growth of 1 MMbbld per year up to 2020 and production decline of 3-4 MMbbld per year for mature fields in the same period.

The current oversupply of crude oil will be effectively cured by low oil prices thanks to a massive shortfall of development drilling globally, both offshore and onshore. So we believe OPEC is able to retake 2 MMbbld in sustained market share from non-OPEC suppliers. And Saudi Arabia will gain most of this new market share, despite the recent US agreements with Iran.


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Contacts

Contact: Per Magnus Nysveen, Head of Analysis
Phone: +47 24 00 42 00
per@rystadenergy.com

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Phone: +47 24 00 42 90
Mobile: +47 48 29 87 61
julia.weiss@rystadenergy.com

 

About Rystad Energy

Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.

Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in Norway (Stavanger), the UK (London), USA (New York & Houston), Russia (Moscow), Africa as well as South East Asia.