IRAN’S oil industry is making a new effort to rebuild its war-damaged facilities and redress years of under-investment. Its plans to restore nearly 85 per cent of pre-revolution capacity by the year 2000 are partly dependent on foreign help and may have to be stretched out if outside finance is not forthcoming.
The Oil Ministry is talking about an investment of $6,000 million in hard currency over the next five years, with most of the funds going to offshore oil and gas field development, including renovation of existing facilities. Another $900 million is to be spent on exploration.
Plans for new fields are mostly based offshore in the Gulf, with some exploration work also taking place in the Caspian Sea. Onshore, where foreign financing prospects are limited, work is concentrated on maintaining and restoring mature fields.
Oil export facilities will not require expansion for the foreseeable future, but there is a big programme for gas exports, which will be costly and unlikely to produce financial returns until the next century.
In mid-1995, the Oil Ministry allowed outside observers a rare look at some of the facilities of OPEC’s second biggest producer – listing its resources and laying out its plans for the second five-year plan ending in March 2000:
Oil and gas reserves: Latest oil reserve estimates are 93,000 million barrels with up to 5,000 million barrels offshore in the Gulf. Expected discoveries over the next five years are 1,000 -2,000 million barrels. With new technology another 20,000 million barrels may be recoverable from onshore and offshore reservoirs, according to Seyyed Mehdi Hossaini, director for exploration and international agreements.
Newly discovered reservoirs include the onshore Shour (1,500 million barrels) and Darkhovin (3,000 million barrels). Drilling in the Caspian Sea is continuing despite poor results so far.
About one-third of natural gas reserves are offshore. They account for 15 percent of the world’s total and are estimated at 21 million cubic metres, 50 per cent up on the 1970s estimates. The new gas reserves will provide 3,000-4,000 million barrels of condensates.
Production, capacity and cost: Oil production in the mid-1990s has been running at Iran’s OPEC quota of 3.6 million barrels a day (b/d). Some 1-1.2 million b/d is consumed domestically. The level of sustainable production capacity is officially put at 4.1 million b/d, with nearly 500,000 b/d coming from offshore fields.
The cost of producing one barrel of crude onshore is estimated at $0.66 plus IR 1,000, and, offshore, at $1.8 plus IR 2,800.
Gas production is about 56,000 million cubic metres a year. Three quarters of output is used domestically and about 12,000 million cubic metres a year of associated gas is flared. The production target for the year 2000 is 82,000 million cubic metres.
Export level and facilities: Crude exports are averaging 2.4 -2.6 million b/d. Nearly all exports go through the main Kharg island terminal which was rebuilt after the war and now has a capacity of 8 million b/d, 60 per cent of pre-war capacity. No expansion is planned for the foreseeable future. Two 1-million-barrel storage tanks now being completed by a local company will raise storage capacity to 15.5 million barrels.
Kharg facilities consist of the T-jetty, which has six berths, and the Sea Island, whose three berths can accommodate very large crude carriers.
Expansion plans: Oil Minister Gholamreza Aqazadeh says crude output capacity is being increased by about 1 million b/d over the next five years. If achieved, this would give Iran a maximum capacity of nearly 5.5 million b/d, with a sustainable production level of about 5.2 million b/d by the year 2000. Some 4.1 million b/d of the sustainable level would be onshore and the balance offshore (see Tables).
Offshore, capacity is due to rise by about 140,000 b/d to about 600,000 b/d in early 1996. This seems an achievable goal. However, the planned 400,000-500,000 b/d increase thereafter depends partly on foreign involvement and finance, particularly for the Sirri A and E fields. If outside help is not forthcoming, the minister says Iran will carry out the projects on its own, probably delaying the target date by a few years.
Onshore, the picture is more difficult for outside observers to judge. Many of the ageing fields have suffered damage and secondary recovery schemes, costed at $1.2 a barrel recovered, are behind schedule. The most productive wells are at Karanj averaging about 27,000 b/d. Other wells, such as at Gachsaran and Marun, are averaging about 5,000 b/d, down by 3,000 b/d since 1992.
The Marun field’s output was doubled to 600,000 b/d in 1991 with the completion of gas reinjection facilities by Italy’s Saipem. Ahwaz-1, the oldest production unit at the Ahwaz complex, is now producing 320,000 b/d from 225 wells after complete renovation, compared with 1.4 million b/d in the 1970s. Re-injection facilities at the Parsi field will be ready in 1997, say officials, allowing resumption of flow at 200,000 b/d. A 1997 date is also set for facilities at Bibi Hakimeh and Binak.
Reinjection is also due to nearly double Karanj’s output to 225,000 b/d and raise capacity at Gachsaran by 100,000 b/d to 750,000 b/d, though dates are not available.
NGL plants in various stages of construction include NGL-1200 (Gachsaran), NGL-1300 (Bibi Hakimeh) and NGL-1500 (Karanj), engineered by the local Sazeh Consultants.
Exploration: The National Iranian Drilling Company (NIDC) has 40 rigs, including two jack-up rigs in the Gulf, according to NIDC’s acting general manager M. Madani. Another jack-up rig is being built with Finnish help in the Caspian Sea, and will start work in six months. Thirty-four rigs were active in mid-1995, six in exploration work and the rest in development, says Madani, adding that development drilling may be increased.
About one million metres of wells were drilled during the first plan, three times more than in the previous 50 years. Some 80 wells were drilled last year and the programme for the year started on 21 March is 100 wells.
In the early 1990s, drilling operations were boosted by 12 rigs, in a $200 million deal with Triton International of Canada. Dogged by controversy, the deal was terminated about two years ago and Triton shipped out two rigs, apparently leased from Serbia, in 1995. The status of the remaining 10 rigs is said to be under dispute, but Madani says, as far as NIDC is concerned, they belong to Triton and ‘they can come and take them away anytime.’
NIDC put out fires at 20 wells in Kuwait after the 1991 Gulf war, and Madani says the company is now seeking drilling work abroad. ‘Iranians are among the best drillers in the world.’ At least one of the rigs, the Shahid Rajai jack-up rig, is now doing horizontal drilling at the Nosrat field, off Sirri island.
Maintenance and equipment: Assistant Managing Director for onshore operations, Nosratollah Espiari, says his department is spending about $50 million a year on maintenance for the fields. Efforts to reduce hard currency costs for spares have been stepped up in the past two years. The National Iranian Oil Company has set up an exhibition of needed spares near Ahwaz, inviting local manufacturers to inspect and bid for supply contracts. About 60 per cent of the value of spares used by the company is now locally made, says Espiari.
The planned increase in overall crude production capacity does not mean that Iran either wants to or will raise actual outputs, says Aqazadeh. The main aim is to create spare capacity, consolidate Iran’s position as OPEC’s second biggest producer and strengthen the Iranian case for a higher quota if OPEC raises its ceiling.
Aqazadeh and his senior aides concede plans depend partly on buy-back deals, which are allowed specifically for off- shore fields. The abortive buy-back deal of March with Conoco of the US for the Sirri A and E fields will serve as a model for negotiations with other foreign companies, says the minister.
Speaking in May, Aqazadeh predicted a new agreement soon on the Sirri fields, as well as the South Pars gas field, adding that if foreign companies show reluctance, Iran has the technical capacity to undertake the projects on its own. But shortage of finance would delay the expansion plans by up to five years. Small projects such as Balal (40,000 b/d) may be started by local companies within a year or so, if negotiations now taking place fail. At South Pars, the local Petroleum Development & Engineering Company (Pedec) has already started work on the first phase; talks with Royal Dutch/Shell and others are continuing. The North Pars gas field, where a 1992 agreement, with a consortium led by Italy’s TPL, was cancelled the following year because of financing problems, has since been dropped from the list of priority projects and will not be developed until the next century.