Iran has been in the news on a regular basis over the past few weeks and, as such, I would like to take an updated look at Iran's significance on the world's oil markets, particularly in light of the fact that the end of economic sanctions against Iran could mean that Western oil companies are once again free to operate within its borders.
Iran is a founding member of OPEC. According to OPEC's website, Iran has the third largest oil reserves among the 12 nations that comprise the cartel as shown here:
OPEC's oil reserves of make up almost 81 percent of the world's total oil reserves. Among OPEC nations, Venezuela has the largest reserves totaling 298.4 billion barrels and Saudi Arabia has the second largest at 265.8 billion barrels. With reserves of 157.8 billion barrels, Iran comes in third place with13 percent of OPEC's crude oil reserves and 10 percent of the world's total conventional crude reserves.
Here is a graph showing how Iran's proven conventional oil reserves have grown over the past 35 years:
Iran is one of the world's leading producers of both natural gas and oil; in 2014, it was OPEC's second largest oil producer as shown on this table:
In 2014, Iran produced an average of 3.121 million BOPD, roughly 10 percent of OPEC's output when production from Iraq is included. One of the big factors that has impacted Iran's oil industry is the imposition of sanctions; this resulted in a dramatic drop in oil production as you can see on this graph:
According to the Energy Information Administration, Iran's oil production in 2013 was 3.113 million BOPD, down from 4.054 million BOPD in 2011.
As shown on this graph, in 2013, Iran consumed 1.87 million BOPD of its own production:
Domestic consumption of Iran's oil is rising as the population grows since most of the domestic consumption is related to the use of both diesel and gasoline.
Now, let's combine Iran's oil production and consumption data. Here is a graph showing how net exports of Iranian crude have changed over the past four years:
Note the significant impact of sanctions on total oil production (in blue).
Just prior to the Iranian Revolution, Iran's oil production was in the 6 million BOPD range. Imposition of international sanctions and a high rate of decline in Iran's oil fields pushed daily oil production down to approximately 1.5 million BOPD by the early 1980s. This had risen to around 4 million BOPD after the turn of the new millennium but, as I noted above, sanctions have had a significant negative impact on the nation's oil output. As well, natural declines in Iran's aging oil fields are an ever-present problem; an estimated 400,000 to 700,000 BOPD are lost to natural declines on an annual basis. To combat this, Iran's oil fields require massive infrastructure investment including enhanced oil techniques using injection of the nation's massive natural gas resources to repressurize reservoirs.
Let's look at some of the details of the geographic distribution of oil in Iran. Here is a map showing Iran's main oil and gas fields and its pipeline infrastructure:
Iran has 40 producing oil fields, 27 onshore and 13 offshore with medium sulphur content crude and gravities ranging from 28 to 35 degrees API. Onshore fields comprise just over 70 percent of Iran's total oil reserves with over 50 percent of the nation's reserves confined to just six supergiant fields including its largest field, Ahvaz. The vast majority of the fields are located onshore in the northwestern part of the country adjacent to the Iran-Iraq border. According to BP's annual Statistical Review of World Energy, at current production rates, if no additional oil was ever discovered in Iran, the country's reserves would last for more than a century.
One of the issues facing Iran is a lack of oil infrastructure required to bring new discoveries on stream. Iran has not had a new oil field enter production since 2007, largely because Western companies have halted activity in Iran. Chinese and Russian companies have taken over when Western companies have departed, however, there is a general lack of expertise and investment which has resulted in the cancellation of several key projects. Here is a partial list of key new upstream oil projects in Iran:
When the Azadegan field was discovered in 1999, it was Iran's largest discovery in three decades. It contains between 6.0 and 7.0 billion barrels of recoverable oil, however, it is very complex geologically which makes exploitation difficult. China, through its China National Petroleum Corporation (CNPC), is developing the north portion of the field. Japan's INPEX had signed an agreement to develop the southern portion in 2004, however, it pulled out of the project in October 2010 due to international pressures. Guess who stepped in? You're right – a subsidiary of CNPC! China had agreed to invest $8.4 billion over the next 10 years. In February 2014, the National Iranian Oil Company (NIOC) tore up the agreement with CNPC because of persistent delays in the project and has taken over drilling operations. As well, China's Sinopec has signed on to develop another promising field, Yadavarn, which should be producing up to 185,000 BOPD by 2016. Overall, according to FACTS Global Energy, Iran's discoveries of crude oil and condensate totalled 10.7 billion barrels of oil in 2010 alone.
From this posting, you can see that Iran is most certainly key to the world’s overall conventional oil picture. It will be interesting to see how long it takes before economic sanctions are removed and Western oil companies are allowed to develop Iran's massive oil reserves. Right now, the only thing that could stand in their way is China's supply of capital and its willingness to deal with the resource-rich pariah nations of the world no matter whether they are trying to develop a nuclear weapon or not.
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