The end of nuclear-related sanctions on Iran could mark the start of an extended period of low-price oils that will present challenges for Irans government, Middle East oil companies and global investors in oil and gas, according to a report published on 1 September by AT Kearney.
Sanctions relief for Iran, and the resulting increase in hydrocarbon supply, reinforces the conclusion that we are – as in the 1980s – at the beginning of a potentially long stretch of cheap oil years, the report says.
It says that sanctions constrained Irans technology imports and led to a deterioration in upstream facilities.
In addition, the EU extension of the ban on tankers insurance imposed a major limitation on Irans export capacity, the report says. The net result was significant loss of oil production primarily due to unplanned shutdowns, with a total loss of 18-20 per cent of potential output since sanctions were instituted in 2011.
AT Kearney says sanctions led to a 800,000 barrel a day (b/d) cut in Iranian oil production. It says that the International Energy Agency (IEA) estimates Iran has sustainable spare oil production capacity of about 800,000 b/d. This is second only to Saudi Arabias. On the other hand, the US Energy Information Administration (EIA) estimates that Iran will only be able to increase oil output by an annual average of 300,000 b/d in 2016.
AT Kearney says even if Iranian oil returns to pre-2012 levels, the impact on world prices in 2016 will be modest.
Brent crude prices in 2016 will most likely continue to be in the $45-65 per barrel range, which is consistent with the price band already observed throughout 2015, it says.
The longer-term impact, however, could be more significant as Iran seeks to exploit its reserves and raise finance to support increased public spending.
Our estimates suggest that new investments can increase Irans upstream production capacity by (about) 6 per cent year-on-year on average for the next five years, AT Kearney says.
Irans production ramp up, added to Iraqs already growing output and a foreseeable increase in Libya once the political situation stabilises is likely to reinforce and prolong todays cheap oil scenario, it says.