How Iran might win the Middle East oil game

[Rostam]

How Iran might win the Middle East oil game

By Daniel J. Graeber, October 8, 2013
© The Christian Science Monitor

With much of the Middle East and North Africa in a static state of upheaval, Iran could be the unlikely winner of the post-Arab Spring energy prize, Graeber writes.

An Iranian oil technician checks the oil separator facilities in Azadegan oil field, near Ahvaz, Iran.
Vahid Salemi/AP/File


Instability in Libya and other parts of North Africa may be giving international investors the jitters. In August, U.S. energy explorer Apache Corp. said it had enough of the political upheaval in Egypt and sold a portion of its assets there to its Chinese counterpart, Sinopec. In neighboring Libya, Exxon and Royal Dutch Shell said they'd had enough of the unrest, though Italy's Eni and Spain's Repsol weren’t so squeamish. To the west, in Algeria, while BP and Statoil remained resilient, BG Group and ConocoPhillips said they'd take their business elsewhere. With much of the region in a static state of upheaval, Iran could be the unlikely winner of the post-Arab Spring energy prize.

Apache Corp. in August said it was handing over some of its oil and gas business in Egypt to Sinopec. One revolution and two years of political instability later and the U.S. energy explorer said it was focusing its efforts on North America, where business is booming. Though oil production is on the road to recovery in Libya, that may be too little too late for Exxon and Royal Dutch Shell, who said the national security situation in the post-revolutionary climate made it tough to justify the effort. Meanwhile, Norwegian major Statoil said it was resolved to continue work in Algeria despite the January attacks on the Ain Amenas natural facility. That attack was attributed to militants who spilled over from Libya, giving some of Statoil's European counterparts cause for concern.

Few of the companies, however, have given up hope. Apache said its gross production was about 213,000 barrels of oil and 900 million cubic feet per day in Egypt. Most of its operations there are in remote areas, meaning it's shielded from much of the political violence. Libya's oil minister said last week production should recover soon to its peak of 1.6 million bpd. In Algeria, the scenario is no different. Energy Minister Youcef Yousfi said oil and natural gas production should double within the next decade.

Iran, meanwhile, has been sitting patiently on the eastern border of the revolutionary crises gripping much of the Middle East and North Africa since it all began in 2011. With high-ranking officials in tow, President Hassan Rouhani made the rounds of the U.N. General Assembly in September, launching a charm offensive that resulted in the first direct engagement with Washington since Iran's own revolution nearly 40 years ago. When he took office this year, he directed the oil ministry to take action to reverse years of damaged inflicted by international sanctions and the National Iranian Oil Co. said there could be "new options" for Iran in the oil markets if the conditions are right. During Friday prayers last week, Iranian cleric Kazem Sedighi, an opponent of former President Mahmoud Ahmadinejad, said it may be time for the United States and Iran to "join hands" in an effort to do away with sanctions.

While Iran's charm offensive should be taken with a grain of salt, the Islamic republic has shown to be savvy when it comes to diplomacy. In terms of oil, the country boasts 154 billion barrels of oil reserves and manages to out produce Libya and Algeria, its OPEC counterparts. Iran's national oil company said it has good quality oil to offer to international refineries. While developments may be slow for Iran and its potential customers, patience for Iran is a virtue that may finally pay off.


How Iran might win the Middle East oil game - CSMonitor.com

 

[Surenas]

Related:

Iranian Crude may be Vital as Global Producers Fail to Meet Targets

There has been considerable comment this week over the telephone call between President Obama and the President Rouhani of Iran. Certainly the election of a new President in Iran gives the opportunity for a fresh start, particularly given the belligerent attitudes of his predecessor. However the cynical side of me does wonder if there is more driving this than simply the change of personalities.

There are two points that need to be considered, as a possible new relationship between the two countries might slowly coalesce out of the mists of diplomatic effort. Firstly the major driver seen in moving Iran toward a more positive position is said to be the increasing bite that sanctions, and particularly oil sanctions, are having on their economy. As sanctions have tightened, so Iranian oil production has fallen, with reports suggesting that oil exports have fallen from 2.2 mbd to May’s value of 0.7 mbd. The reduction in income that this has had on the Iranian economy is significant, with the currency officially devalued to half, though the effect has been more of an 80% fall from peak, as inflation has reached 42%.

Easing sanctions to allow more oil flow would significantly improve the situation, although there is concern, expressed for example at CNN, that the increase in oil flow would weaken the positions of the Kingdom of Saudi Arabia and Iraq. They suggest that the advent of Iranian oil (presuming that they can bring 1.5 mbd to the market relatively quickly) is foreseen as having a potential impact on the United States in that it may, at least transiently, produce a glut in the market. That would drive down prices, until such time as KSA could drop production and bring the supply and demand back into balance, raising prices back to around $100.

In a peaceful world such a scenario might have some viability, but consider what is really happening in the world of global supply. Instead of the KSA moving toward a supply of 12.5 mbd (which was only a capacity number in the first place) they have backed this down to 12 mbd and have talked recently as lowering that number further as they hire more and more rigs to help sustain existing production at just under 10 mbd. Iraq, which was promising to rapidly increase production toward a target of 11 mbd, is instead considered by the IEA likely to reach no more than 6 mbd by 2020. Further with the ongoing increase in violence in the country being able to sustain current production at around 3 mbd and increase it beyond 3.5 mbd as the Majnoon field comes on line. However Shell’s target for the field is already below initial estimates for this year, and it is discussing lowering the 2017 target from 1.8 mbd to 1.0 mbd. There has recently been an outbreak of violence in Kurdistan, which might portend that even in this relatively stable part of the country oil production and security is becoming a greater target.

These events suggest that future increases in production from around the region are not as assured as one might hope. At the same time, while there are those who continue to expect the United States to become oil-independent in the next few years, the reality is somewhat different, and further increases in production much above current figures become more difficult to justify. If Russia, similarly, is unlikely to increase production – which it is not – then the questions that should be asked are rather where is the world going to get the additional 1 mbd that it requires every year to balance increasing demand against supply.

Over the course of this year Saudi Arabia has had to increase production from 9.1 to 9.96 mbd to keep supply in balance, and prices stable. At the same time production from Libya, which has run at around 1.6 mbd had fallen to 150 kbd at the beginning of this month. Hopes that this could be increased back up to 700 kbd rely on tribal militias that control strategic parts of the country, and their long term co-operation is dubious, while the fields and pipelines in the east remain shut down. It seems reasonable to anticipate that there will be at least a million barrels a day of Libyan production held off the market for some time.

If one goes around the world one sees that Brazilian promises of production increase are behind schedule, as are promises of production increases from countries such as Veneuela. And suddenly one is left with not much in the way of places left to balance off the current declines in supply and increases in demand.

At this point that 1.5 mbd of potential supply from Iran starts to look a little more promising as an answer. It might allow KSA to ease back on production levels that might be starting to impose a little strain on their infrastructure. It would help to provide balance if production increases around the world fail to show on time. One should recognize that negotiations to bring Iran back into the fold are going to take at least a year or two before it is realistic to anticipate full return to supply, but even the easing of sanctions a little might cause the flow to China, India and Asia to increase to meet the burgeoning demands that they have, and oil is still to some degree fungible.

But in that regard, Iran has also just recently reached 100% output from the first of the nuclear power stations at Bushehr and is about to start construction of the second unit. Nuclear fuel will be provided by Russia, and spent fuel returned to Russia. It is a 1,000-megawatt unit, and since the unit was built under supervision by the International Atomic Energy Agency it is not subject to sanctions.

If the protocols that worked to make this happen can be expanded, then it is possible that, though negotiation, the tension in the region can be eased. This could well have benefits all around, most particularly for ensuring that, for at least a sadly few more years, there will be enough oil on the market to meet demand at a reasonable price.

Iranian Crude may be Vital as Global Producers Fail to Meet Targets

 

[Surenas]

Tapping Iran’s oil and gas vital for world demand, say Shell and Total

Peter Voser, chief executive of Royal Dutch Shell, and Christophe de Margerie, his counterpart at France’s Total, used the Oil & Money conference in London on Tuesday to highlight the potential energy windfall if sanctions preventing international oil companies from dealing with Tehran were lifted.

“Longer term, Iran’s oil and gas resources will have to be developed to meet demand,” Mr Voser said.

He was echoed by Mr de Margerie, who said that he hoped doing business with Iran would again be permitted “as soon as possible, not just for Total but for the world and for Iran. Any country cannot stay out of the system.”

Before the tightening of sanctions against Iran a few years ago, Shell and Total were two of the most active companies doing business with the Islamic republic.

In 1999, Shell defied a US sanctions threat to sign an estimated $800m (£492m) deal with Iran to develop two offshore oil fields in the Persian Gulf known as Soroosh and Nowrooz.

The project was completed in 2005. Until 2009, Total was involved in the drawn-out development of Iran’s vast South Pars natural gas field, also in the Gulf’s waters.

Iran has said it would be willing to offer access to its controversial nuclear programme if the US lifted its economic sanctions. A recent call between US president Barack Obama and his Iranian counterpart Hassan Rouhani — the first such dialogue between the two nations for more than 30 years — has raised hopes that a diplomatic solution can be found which could eventually mean Iran is again accessible to international oil companies.

Shell was reportedly blocked earlier this year from settling a $2.3bn debt with Iran through the supply of grain and medicine.

Since an oil embargo was imposed in July, the European Union has extended sanctions to include gas exports and shipbuilding equipment.

http://www.telegraph.co.uk/finance/...tal-for-world-demand-say-Shell-and-Total.html