Iran getting ready to return to world oil & gas market after nuclear deal reached

Global powers and Iran have today in Vienna reached what has been described as a historic deal, where Iran agreed it would scale down its nuclear program, in return for the crippling economic sanctions being eased and eventually lifted against the oil and gas rich Middle Eastern nation.

According to a statement by the White House, the deal between the P5+1 group (Russia, China, France, Britain, the US and Germany) and Iran, removes the key elements needed for Iran to create a nuclear bomb quickly.

Without a deal, Iran would need only 2-3 months to make a nuclear weapon, but now, with the arrangement reached, it would take no less than 1 year. (Click here for full details on what Iran needs to do when it comes to scaling down its nuclear activity.)

“Importantly, Iran won’t garner any new sanctions relief until the the International Atomic Energy Agency (IAEA) confirms that Iran has followed through with its end of the deal. And should Iran violate any aspect of this deal, the U.N., U.S., and E.U. can snap the sanctions that have crippled Iran’s economy back into place,” a statement by the White House reads.

“As Iran takes steps to implement this deal, it will receive relief from the sanctions that we put in place because of Iran’s nuclear program, both America’s own sanctions and the sanctions imposed by the UN Security Council,” U.S. President Barack Obama said.

Responding to the news that a deal has been struck on Iran’s nuclear program, Dr Siavush Randjbar-Daemi, an expert on Iranian 20th Century Political History at The University of Manchester, said: “The deal struck in Vienna marks a return to the spirit of 1988, when many of the figures involved in the present negotiations decided, despite much internal opposition, to bring the war against Iraq to an end and accept the UN Resolution 598. International mediation has once again been successful to deliver détente between Iran and the West, with major benefits, particularly economic, for both.”


Maximizing crude exports?

Lifting of the sanctions that halved Iran’s oil production is expected to be gradual, subject to Iran’s implementation of the deal.

When it comes to the energy sector, depending on the progress, the world powers have agreed to lift the sanctions on dealing with Iranian energy and shipping sector, on importing Iranian crude and refined oil, on the export of key equipment for the oil, gas and petrochemical sectors. They will  also cease efforts to reduce Iran’s crude oil sales, including limitations on the quantities of Iranian crude oil sold and the nations that can purchase Iranian crude oil.

Iranian news agency Shana, has quoted an Iranian deputy minister of petroleum who said Iran would return to the global market with full capacity once the sanctions are lifted.

Mohsen Qamsari, director of international affairs at National Iranian Oil Company, said Iran, which has the third largest oil and gas reserves in the World, behind Russia and Venezuela and ahead of USA and Saudi Arabia, views the Asian market as a top priority for selling its crude oil because of its proximity and geography, Shana further reports.

He also said: “We will try to maximize our crude export capacity to Europe and restore 42 to 43% share in the European market before the sanctions were imposed.”


Fitch bets on Iranian gas


As if predicting the outcome of the talks global ratings agency Fitch Ratings, Friday focused on Iranian energy sector, saying that Iran has the long-term potential to become one of the world’s top gas producers, thanks to its 34 trillion cubic meters (tcm) of natural gas reserves, or around 18% of the world’s total.

But, Fitch Ratings added, even if international sanctions on the country are lifted, it will take at least five years to ramp up production and build the pipelines necessary to become a large gas exporter. The higher cost and complexity of liquefied natural gas (LNG) projects means significant LNG exports would take a decade or longer to materialize.


Gas projects under development


Talking about Iran’s gas projects Fitch Ratings said:

“Several significant gas projects in Iran are in different stages of implementation. Iran’s share in estimated proven reserves of the giant South Pars gas field is about 14 tcm, while its current production capacity is only about 107 bcm. The IEA expects 67 bcm of additional capacity to be commissioned at South Pars before the end of this decade. Another major project is the North Pars field with estimated reserves of 1.3 tcm. In 2006, the China National Offshore Oil Corporation signed a $16bn deal to develop North Pars and build a 20 million tons per annum LNG plant. We understand that because of the international sanctions these and other export-oriented projects are experiencing substantial delays as most foreign oil companies have stopped dealing with Iran.”


Key source of world oil supply?


Wood Mackenzie, an energy intelligence group, earlier this month said that with the third largest remaining reserves in the world, Iran could become a key source of global oil supply after 2020.

Also, late in June, Wood Mackenzie provided its analysis of the Iranian energy market, assuming that a nuclear deal was reached, leading to a phased process with sanctions fully lifted by mid-2016.

In its analysis the organisation said Iran could add crude oil production to global supply of 600,000 barrels a day (b/d) by end 2017, incrementally on an annual average basis of: 120kb/d by end 2015 and another 260 kb/d end 2016.

“This gradual rate of growth is not expected to have a significant downward effect on oil prices, we expect total crude production capacity to rise from 2,700 kb/d in 2015 to 3,400 kb/d in 2020 – and could reach as much as 4.4 million b/d by 2025 with foreign direct investment in the upstream sector,” Wood Mackenzie said in its analysis in June.


Golden opportunity for IOCs


Wood Mackenzie also highlighted the fact that Iran has the second largest gas reserves in the world but its market share of the global gas trade is less than one percent.

“Gas production and export potential is enormous but more in the longer term. We expect gas production to increase sharply – we’re forecasting sales gas plus re-injection to increase from 19.3 billion cubic feet a day (bcfd) in 2014 to 24 bcfd in 2017, representing a 24% increase,” Wood Mackenzie predicted.

The energy intelligence group then turned to the opportunities for the international oil majors: “Iran’s oil and gas industry is in need of significant external investment – a golden opportunity for International Oil Companies (IOCs) and National Oil Companies (NOCs). There are likely to be multiple upstream avenues (early life developments, EOR, gas and exploration) as well as downstream opportunities.”

But, in order to attract the foreign majors to invest, Iran will have to offer competitive fiscal terms, Wood Mackenzie said, because there are many other countries courting the IOCs and their investment budgets.


Offshore Energy Today Staff