Special report# Oil & gas: Iran - Middle East Economic Digest, July 20
Activity in Iran's oil sector was sluggish in the first half of the year. Awards on several major contracts were delayed, becoming embroiled in bureaucracy and domestic politics in the run-up to the June presidential elections. However, with President Khatami winning a landslide and a new cabinet to be appointed in August, hopes are rising that Tehran's ambitious plans for its oil and gas sector will get back on track in the autumn.
Iran's long-term goal is to more than double oil capacity to 8 million barrels a day (b/d) over the next 20 years, through the addition of 1 million b/d every five years. The increase is urgently required, given that rising domestic energy demand will eat into exports. In addition, the government recognises that a rise in spare capacity is essential if Iran is to increase its influence within OPEC.
The future direction of the oil and gas sector will also depend on whether the Iran Libya Sanctions Act (ILSA), which comes up for renewal in August, is extended.
Another key issue for the local energy sector is the ongoing row about buy-back deals. Last year the majlis (parliament) demanded the amendment of the existing buy-back formula to include a risk element for foreign oil companies. The new formula has been heavily criticised by international oil companies as not offering enough incentives to investors, given that companies are obliged to take on more risk without more control.
The ongoing discussions about the new buy-back formulas delayed the award of several buy-back contracts. However, in early July, the impasse was broken when Italy's Eni signed up for the Darkhovin oil field development. The onshore field, located in the southern Khuzestan province, is one of Iran's more recent discoveries and has reserves of about 3,000 million barrels of crude in place. Eni plans to develop the field in two phases, with first-phase production set at 50,000 b/d.
A raft of other buy-back agreements are expected to be signed in the coming months. A contract award for the development of the offshore Azadegan field is imminent, with a Japanese consortium including Tomen Corporation, Indonesian Petroleum (Inpex) and Japan Petroleum Exploration Company (Japex) expected to team up with the Royal Dutch/Shell Group for the deal. Japanese companies have been given priority access to the oil field following the extension of a $3,000 million finance line from a group of six Japanese trading houses earlier this year. The field has estimated reserves at 26,000 million barrels of crude, of which 6,000 million barrels are deemed recoverable.
Buy-back deals for the development of several other onshore blocks are pending. These include a contract to double output capacity at Cheshmeh Khosh and the development of the Bangestan block. Spain's Cepsa is poised to win the deal to increase capacity to above 80,000 b/d at Cheshmeh Khosh, which has been in production for 20 years. Bangestan, which consists of three fields, will require more than $2,500 million in investment over the next eight years. Bidders include TotalFinaElf, Shell and BP, but a decision is likely to be delayed until 2002 since the National Iranian Oil Company (NIOC) has yet to decide whether to develop it as a standalone or unified project. |
