Transcript IRAN: Ways and Means to Achieve Capacity Increase by 2010

IRAN:
Ways and Means to Achieve
Capacity Increase by 2010
East Meets West
CERA Energy Conference
June 2005,Istanbul
Abbas Maleki
Basic Fact Sheet











Population: 68.5 million, 2005
Area: 1,648, million sq kilometers, 17th largest country
in the world
Literacy Rate: 85%, 2004
Urbanization: 66%
Oil Reserves: 130 billion barrels, 2nd in the world after
Saudi Arabia
Natural Gas Reserves: 27.57 tcm. 2nd in the world after
Russia
Oil Production Capacity: 4.17 mmbbl/day
Gas Refinery Capacity: 368 mcm/day
Oil Refining Capacity: 1.34 mmbbl/day
Oil Export Capacity: 2.7 mmbbl/day, 2nd largest OPEC
exporter
Total pipeline network (oil & gas): 26,000 km
2
Historical Milestone of Iran’s Oil Trend








1873: Granting of an oil concession, the first in the Middle East,
to Reuter
1902: Granting of a 60-year concession to William Knox Darcy
1909: Formation of the Anglo-Persian Oil Company (APOC)
1933: Granting of a new 60-year concession and changing the
name of the enterprise to the Anglo-Iranian Oil Company
(AIOC)
1951: Nationalization of the AIOC and the formation of the
National Iranian Oil Company (NIOC). NIOC takes over the
operations of the AIOC
1954: Formation of the ‘Consortium’, a grouping of 17 Western
oil companies to take over the operations of the AIOC.
Amalgamation of the NIOC and IOCs and Iranian production
peaks at 6 m b/d
1979: The Islamic revolution.
1998: Opening the upstream sector of Iran’s oil and gas industry
to foreign participation. The industry emerges from a 20-year
isolation period.
2004:Ratification of Iran’s 20-Year Perspective Document and
Fourth Five-Year Plan.
3
IRAN has
1% of the world’s population,
 7% of the world’s natural reserves
including
-10% of the global proven oil reserves
-16% of the world’s natural gas resources.

130 b barrel oil (17 billion tons)
27 trillion cm gas
which means $3000 billions

Oil revenues comprise 70% of the
country’s hard currency revenues and half
of the state budget.
4
Counties with Oil Reserves >
1 bill. t and Strategic Ellipse
5
World Oil Reserves
Distribution of proved oil reserves
BP Statistical Review of World Energy 2004
© BP
6
Iran’s Hydrocarbon Reserves by
Different Sources
7
What would be Iran after 20
Years?
Iran’s 20-Year Perspective Document Says:
 The first country in the region at economic,
scientific and technology levels
 line of thinking, i.e. the prioritization of
becoming an “economic and technological
power” over other policy areas, is very evident in
Iran’s 20-Year Perspective Document which has
produced the first ever official long-term macro
strategy of the Islamic Republic.
8
Iran and its Subregions





Middle East
Persian Gulf
South West Asia
Central Asia,
Caucasus, and
Afghanistan
Caspian Basin
9
Desired Iranian Society
Desired Iranian Society, for the year 2025:
 Secure, independent and powerful
 Progressive
 Knowledge-based
 Economic growth based on a large portion
of social capital
 Growth of social capital through education
 Society capable of steady economic
capacity building
10
3 Scenarios for Iran’s Future
Expansionism,
 Isolationism,
 Pro Development,
The 20-Year Perspective calls for Iran to
become an “economic and technological
power”, underscores the Islamic
Republic’s desire to give economic
development priority over other policy
areas.

11
Five-Year Plans Foci

While the document outlines the various
policies in the fields of culture, sociopolitical developments, foreign policy,
defense, economy and environment, it also
determines the foci of the five-year plans
(2005-2010) that will be drafted in the 20year period.
12
Orientations of the four upcoming
five-year plans
-Realization of fast-pace and sustainable growth;
-Generation of sustainable employment opportunities and reduction of unemployment figures;
-Creation of a competitive market environment and facilitation of Iran’s competitiveness on an international scale;
-Promotion of efficiency growth, especially the efficiency of Total Factor Production (energy, capital, human resources,
water etc.)
-Proactive interaction with the rest of the world in all fields and mutual
interrelationship between the global economy and the Iranian economy;
-Promotion of entrepreneurship as well as innovative initiatives and technological and research capacity building;
-Provision of food security through self-sufficiency in agricultural production;
-Development of a diverse, knowledge-based economy driven by human capital and modern technologies;
-Active presence in regional and international markets and participation in the
international division of labor;
-Generation of incentives for non-oil exports and promotion of all products that are internationally competitive;
-Creation of a market environment that attracts the domestic and
international business community as well as entrepreneurs focusing on
security, sustainability and respect for material and intellectual property
rights;
-Focus on Iran’s competitive and comparative advantages and the creation of new advantages;
-Containment of inflation and promotion of growing purchasing power for the lower and medium income classes;
-Promotion of the role of the cooperative sector through facilitation of this sector’s access to market intelligence,
technology and facilitation of greater interaction between various cooperatives;
-Promotion of the role of the private and cooperative sectors in all economic activities by limiting the government role
to presence in the key sectors mentioned in Article 44 of the Constitution and by making the regulatory role of the13
government as efficient as possible.
General Policies of Five Year Plan
in Oil & Gas
14
The Main Targets of the Fourth
Five-Year Plan (2005-2010)






To achieve surplus oil production of 1 million bpd by
2010
Replacement of additional capacity to annual depletion
rates (350 000 b/d)
As well as a daily gas production of 250 mcm by 2010.
Reducing domestic consumption, so that more crude can
be opened up for export.
To maintains the Oil Stabilization Fund (OSF).
In pursuit of long term goals, oil recovery factor is due to
increase to 27% by 2010.
15
The Main Targets of the Fifth
Five-Year Plan (2010-2015)






Reaching a crude oil production capacity of 5.5 mmb/d by
2010 and 7 by 2015
Producing 900 mcm per day of natural gas by 2015
Producing annually $20 billion petrochemicals
Concentration on energy-intensive industries (with the aim of
them consuming a minimal 100 mcm per day of gas), so as to
promote added-value production.
Attracting foreign investment and resources and providing
them with the support necessary to achieve the needed $100
billion investments in the petroleum sector by 2015.
Increasing refining capacity by about 1 million bpd, with a
concentration on gas condensates and very heavy crude, with
the ultimate goal of reaching 2.3 million bpd of refining
capacity
16
Iran’s Economic Performance
17
A Look at Iran’s Economic
Realities




In the past, the country’s economic performance has suffered
from extreme internal and external irritants, but there are
growing signs that a period of sustained growth is emerging in
Iran;
Due to its demography, the economy needs to produce some
800,000 new jobs each year for the next decade. While the main
job-creating sectors would be services, agriculture and industry,
the oil and gas wealth would have to drive the economic effort
in this decade;
A new and more technocratic approach to managing Iran’s
wealth will pave the way for an improved and a more balanced
economy which needs to be integrated in the world economy,
both because of its own drive for exports, but also because of
the country’s need for investment and technology;
Socio-economic phenomena such as unemployment,
underemployment and subsidies will remain the key irritants for
the next few years, but none of them will pose a major threat to
the sustainability of economic development in the country.
18
Legal Aspects of the Fourth Plan
relating to the E&P Sector (1)



Maintaining and exercising government's
ownership over the oil and gas resources of the
country;
Requiring no government, CBI or governmental
bank guarantees assuring the undertakings by the
government;
Paying the original investment, interest, risks and
expenses associated with finance and all other
related expenses for carrying out the project from
the sale of the products of the fields based on
market prices at the time of sale of the products;
19
Legal Aspects of the Fourth Plan
relating to the E&P Sector (2)





Contractors accepting the risks associated with
not reaching the goals of the contract, noncommerciality of the field, or insufficiency of the
products for remunerating contractors;
Determining the rate of return for contractors
based on the conditions of each project and with
purpose of creating incentives for utilization of
superior methods for exploration, development,
and exploitation;
Guaranteeing preservation of oil and gas reserves
for the duration of the contract;
Complying with local content laws of Iran;
Observing and complying with environmental
laws and regulations
20
Projected petrochemical Production
Capacity (million tons per annum)
21
The Ways for Increasing Capacity
Since early 2004, NIOC has started a
process which will eventually lead to the
tendering of 100 oil exploration blocks
through international tenders.
 From an economic point of view,
successful exploration projects will
increase the country’s total reserves and in
turn promote its international status.

22
Investments needed in the oil
upstream sector until 2010
23
Needed Investments in the Gas
Sector until 2010
24
Needed Investments in the
Energy Sector until 2015
25
Expectations from IOCs






Technology transfer and training;
Management skills (especially project
management);
Financing solutions (though the country is in a
better position today, many of the Iranian oil
companies lack the basic knowledge to secure
financing);
Partnership with Iranian companies and gradual
transfer of knowledge and technology to them;
Acceptance of buy-back as the contractual
framework;
Maximization of local content.
26
What is Buy-back






Foreign investors will not own any part of the relevant oil
or gas reserves.
Retention by NIOC of a negotiable percentage of gross
production (typically around 40%).
Allocation of the portion of the remaining production to
the contractor sufficient to cover recovery of the
contractors allowable costs (taxes and import duties paid
plus interest charges) and a negotiable remuneration fee
calculated to yield an agreed rate of return on the
contractors investment.
Retention by NIOC of any remaining percentage.
Operatorship is handed over to NIOC on the
commencement of the commercial production.
Cost recovery and remuneration are spread over a
number of years from commencement of commercial
production, i.e. a period in which the investor can recoup
his investment and agreed rate of return.
27
Selected Buy-Back Projects
awarded to IOCs
28
Strengths and Weaknesses of
Buy-Back
Strength
 A fixed rate of return on each project which has, to date,
been in the 15-18% range.
 This rate is independent of the oil price, and is attractive
at times of oil price uncertainty.
 There is low or no geological risk associated with each
project as the fields under negotiation are generally well
defined.
Weaknesses
 There is no incentive to complete the project below the
agreed budget.
 The fact that NIOC will manage the projects from the
beginning could limit operating efficiency.
 The limited life of each project may become a potential
problem particularly for the very large projects such as
the Azadegan field development.
29
Projects owned by Iranian
Companies











South Pars Phase 1 with Petropars
South Pars Phases 6-8 with PetroPars and Statoil
South Pars Phases 9&10 (LG Construction 40%, OIEC
37%, IOEC9 23%). This contract is not a buy back
contract but is a Finance & EPC type of contract.
Salman with PEDCO.
Nosrat & Farzam with PEDCO.
Esfandiar & Foroozan with PEDCO.
Masjed Soleyman with Naftgaran.
Rag Sefid with QEOID10 Co (a subsidiary of OIEC).
Ahvaz-Bangestan with PEDCO.
South Pars Oil Layer with PEDCO.
South Pars Phase 15&16 with Norwegian led Consortium
(Aker Kvaerner).
30
Buy-Back Projects owned by
Iranian Companies
31
Legal Issues pertaining to the presence
of IOCs in the Iranian market
Buy Back Tender Requirements and
NIOC Transactions Regulations
 Authority over Upstream Activity in
Iran
-NIOC's Exercise of Ownership Rights
 Arbitration Issues Under the Buy Back
 Local Content Considerations
 Pre-emption Rights of Consortium
Members

32
Energy resource
periphery
Energy demand
heartland
33
Iran’s Foreign Relations:
Conceptual Challenges to 2010








Iran-US Relations
Iran-EU Relations
Oil price
Treaty of Friendship between Iran and Iraq (1975)
Iran’s share of Hirmand river
3 Iranian Islands in Persian Gulf
Regional Crises
Caspian legal regime
34
Models for-US Iran Ties
Leadership
 Isolation
 Engagement
 Sticks and Carrots
 Sticks
 Attack

35
US military in Asia
36
Iran and Europe



Member ship of each central or Eastern Europe
countries to EU means a new demand for
Energy.
Europe is surrounded by the sea of gas, most
important of them: Russia, Iran and Qatar.
In the Cold War era, with political motivation,
Europe preferred to follow the Soviet gas
pipeline instead of the cheap and costless
Iranian gas.
37
Iran and Europe (2)
Now again, because of US extraterritorial
rules like ILSA, the oil and gas companies
can not invest more than 20 million dollars
in Iran's energy industries.
 The gas pipeline from Central Asia to Iran
then Europe is a key project in trilateral
cooperation among three regions. The
physibility study of the two routes from
Iran to Europe via Turkey and Ukraine had
been done.

38
Iran and Europe (3)
-An expanded pipeline consortium with
governments participation in the Caspian
-Kazakhstan, Turkmenistan and Iran (KTI) is one
option (TotalFinaElf Project)
-Azerbaijan, Iran (Tabriz), Turkey (Ceyhan).
 Dialogue on Human Rights
 Collective Security in Iran’s Subregions:
-Persian Gulf
-Caucasus
-The Roof of the World

39
World Energy Security (1)



-A perception is World should be concerned
about its energy security given recent
developments in the Middle East.
-Reality is that despite a war in the Middle East,
World has not faced problems with its energy
supplies.
-Over these past months, there were never any
disruption of oil supplies from the Persian Gulf
beyond Iraq and what’s more.
40
World Energy Security (2)




Saudi Arabia and other Persian Gulf OPEC
producers significantly increased production to
fill the gap.
-Reality is that the market remains well-supplied.
-The Persian Gulf continues to be the home of
the most easily exploited and cost-effective
petroleum reserves in the world.
Persian Gulf natural resources are undergirding
the phenomenal economic rise of India and
China.
41
Neka-Ray Old and New Pipeline (370 000 b/d)
42
Caspian Oil Terminals and Neka
43
Conclusion (1)
Iran wants to



Increase the regime’s legitimacy among the
Iranian society through improved economic
conditions and higher efficiency;
Consolidate Iran’s regional and international
position by projecting a greater significance both
as an engine of regional economic stability, and
also as one of the key suppliers of energy in a
tense global energy market;
Secure the international respect that has been
missing in Iran’s international relations.
44
Conclusions (2)
Iran’s position in OPEC as well as its
international positioning strongly depend
on its crude production capacity.
 Iran’s Foreign policy is facing serious
challenges during Iran’s 20-Year
Perspective.
 Energy demand and supply equilibrium
has dramatic impacts on Iran.
 United States different approaches to Iran
will change Iran’s destiny.
 Looking to East is one option for Iran

45
Conclusion (3)




Considering the volume of oil and gas reserves in
Iran, there is no doubt that hydrocarbons will be
the main engine of economic growth in Iran.
With more than 70 percent of Iran’s oil and gas
prospects still untapped, the Iranian government
is pursuing ambitious plans to assign these
unexplored projects to domestic and foreign
companies.
This provides opportunities for IOCs but the
risks of such projects are naturally higher than
others.
There is still a huge potential for the companies
to launch independent gas exploration operations
46
Thank You
[email protected]
47