Iran oil production falls further in 2013

01 August 2013

New president Hassan Rouhani faces tough task of reviving Iran’s most important sector

When Hassan Rouhani is appointed as the new president of Iran on 3 August, he has a lot of work on his hands to revive the country’s most important sector.

The oil industry, which accounts for more than 60 per cent of Iran’s export revenues even in its current weak state, must be central to any strategy the president-elect has to revive Iran’s economy.

Iran’s oil production has continued to drop this year after a collapse of production and exports in 2012 caused by the fallout of US-backed sanctions against Tehran, according to global energy consultancy Wood MacKenzie.

Current crude production stands at 2.7 million barrels a day (b/d) with an average of 2.8 million b/d produced during the first half of 2013, according to the latest estimates by Wood MacKenzie.

This compares with an average output of 3.8 million b/d produced in the period between 2003 and 2010. Exports are estimated to have dropped to 1.1 million b/d in the first half of 2013, compared with 2 million b/d in the seven-year period to 2010.

Iran, which has been the second largest oil producer in the region (after Saudi Arabia) since the 1970s, is now behind its neighbour Iraq and is slipping below the Gulf’s other major oil exporters Kuwait and Saudi Arabia.

“Production wells have been shut-in because of restricted access to export markets,” says Wood MacKenzie in its Iran Upstream Insight. “Some of Iran’s largest fields are also in natural decline in the absence of investment and technology required to maintain production and extend field life.”

Iran is estimated to have the world’s fourth largest crude reserves on top of the world’s biggest reserves of natural gas. This gives it, under different circumstances, huge capacity for growth.

The application of modern enhanced oil recovery techniques could boost production at Iran’s maturing fields, while there are many undeveloped discoveries and large under-explored areas of Khuzetan, the Caspian Sea and Persian Gulf with significant reserves potential.

“If this potential is to be realised, it will need capital investment that will run into many hundreds of billions of dollars,” the reports says. “In the near future at least, this is way beyond Iran’s means and will require significant investment and partnerships with international companies.”

At the moment, the only foreign companies jointly developing Iranian fields under ‘buy-back’ contracts are Chinese groups Sinopec and China National Petroleum Company, with Western international oil companies having long pulled out of Iran’s oil sector.

Several of the major packages on the development of Iran’s huge offshore gas project, South Pars, have also stalled with Iran’s failing to reach terms with foreign developers.

Rouhani has his work cut out in attempting to revive the country’s ailing oil and gas sector. Even if he found a resolution with the US over sanctions, the setbacks to Iran’s oil infrastructure developments will take years to overcome.

In the nearer term, Rouhani could focus on improving the terms for potential development partners from China, India or other major buyers of Iranian crude.

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