Although India and Iran in 1993 signed an MOU on an overland natural gas pipeline, a variety of economic and political issues to date have blocked completion of a feasibility study. Meanwhile, in February 2002, Iran and Pakistan signed an MOU on a pre-feasibility study for a possible 1,600-mile, $3-$4 billion gas pipeline from southern Iran to southeastern Pakistan and on to India. Australias Broken Hill Proprietary (BHP) is the main foreign backer of the idea. Iran is offering to cover 60 percent of the construction costs of the pipeline. Pakistan could earn about $200-$500 million annually in transit fees from the pipeline and also would be able to purchase gas from the pipeline.
Given a thaw in India-Pakistan relations over the past couple of years, the pipeline idea is again gaining interest. Indian officials have stated that the plan could be considered if Pakistan can provide security guarantees for the $3 billion project. Two other options would be a pipeline serving only Pakistan, or separate pipelines for Pakistan and India. Gas piped from Iran to India reportedly would cost around $2.10-$2.49 per million Btu at the Indian border. There also has been discussion of extending the pipeline to China. In September 2005, India and Pakistan agreed to seek third-party verification of Irans natural gas reserves before proceeding with the pipeline project.
With its enormous natural gas reserves, Iran is looking to export large volumes of gas. Besides Turkey (see below), potential customers for Iranian gas exports include: Ukraine, Europe, India, Pakistan, Armenia, Azerbaijan, Georgia (interested in receiving Iranian gas via Armenia), Taiwan, South Korea, and even China. Exports could be via pipeline and/or LNG tanker, with possible LNG export terminals at Asaluyeh or Kish Island. As of February 2005, BG and NIOC reportedly remained interested in developing a $2.2 billion LNG plant at Bandar Tombak on the Persian Gulf coast. The plant is to comprise two LNG trains, with capacity of at least 4 million tons per year each, and with possible completion in 2008.
According to the Oil and Gas Journal, Iran contains an estimated 940 trillion cubic feet (Tcf) in proven natural gas reserves - the worlds second largest and surpassed only by Russia. Around 62 percent of Iranian natural gas reserves are located in non-associated fields, and have not been developed, meaning that Iran has great potential for future gas development. Major non-associated gas fields include: South Pars (280-500 Tcf of gas reserves), North Pars (50 Tcf), Kangan (29 Tcf), Nar (13 Tcf), and Khangiran (11 Tcf). Despite the fact that domestic natural gas demand (for consumption, enhanced oil recovery, petrochemicals, etc.) is growing rapidly, Iran has the potential to become a significant natural gas exporter due to its enormous reserves. In 2002, Iran produced about 4.3 Tcf (gross) of natural gas. Of this, around 1.1 Tcf was reinjected (in large part for enhanced oil recovery efforts), and 0.3 Tcf vented or flared. Natural gas treatment and processing plants include Kangan-Nar, Aghar-Dalan, Ahwaz, Marun-4, Bid Boland, and Asaluyeh. In March 2004, Iran signed a $1.2 billion contract with a consortium of two foreign and two domestic companies to gather associated gas, previously flared or re-injected, from the Nowruz, Soroush, Hendijan and Behregansar fields.
Currently, natural gas accounts for nearly half of Irans total energy consumption, and the government plans billions of dollars worth of further investment in coming years to increase this share. The price of natural gas to consumers is state-controlled at extremely low prices, encouraging rapid consumption growth and replacement of fuel oil, kerosene and LPG demand. Iran has been involved in a border dispute with Kuwait and Saudi Arabia over demarcation of the border through the northern Gulf continental shelf. This region contains the 7-13-Tcf Dorra natural gas field, which Iran had begun drilling in early 2000 but stopped after complaints by Kuwait. Saudi Arabia and Kuwait (which do not recognize Irans claims to Dorra) signed a bilateral agreement in July 2000 on dividing up the field equally between the two countries.
The dual Aghar-Dalan field development has been one of National Iranian Gas Companys recent successful natural gas utilization projects. Since coming online in mid-1995, the Aghar and Dalan fields have produced approximately 600 Mmcf/d and 800 Mmcf/d, respectively. Natural gas from both fields is processed at a $300 million facility at the Dalan field, which is also the location of a 40-MW, natural-gas-fired power plant. Most of the treated natural gas from the Dalan processing plant is carried through a 212-mile pipeline for re-injection in the Marun field and other oil fields in Khuzestan province.
The Doroud 1&2, Salman, Abuzar, Foroozan, and Sirri fields comprise the bulk of Irans offshore oil output. Iran plans extensive development of existing offshore fields and hopes to raise its offshore production capacity significantly. In early October 2003, Iran re-launched a tender for eight exploration blocks in the Persian Gulf after receiving little interest from a January 2003 announcement (Iran may launch a second licensing round in the next few months). One area considered to have potential is located near the Strait of Hormuz. Another interesting area is offshore near Bushehr, where Iran claimed in July 2003 to have discovered three fields with potentially huge - 38 billion barrels oil reserves. In May 2004, Brazils Petrobras signed a 3-year, $32-$34 million deal to develop the Tousan fields of the Persian Gulf.
In late 2001 and early 2002, Shell brought part of the $800 million Soroush-Nowruz development online, with production reaching 190,000 bbl/d in June 2005. The two fields are located offshore, about 50 miles west of Kharg Island, and contain estimated recoverable reserves of around 1 billion barrels of heavy oil (20° API). The heaviness and high sulfur content (3 percent) of the oil has made marketing Soroush-Nowruz oil difficult; in September 2005, Iran reportedly diverted Soroush-Nowruz production into storage rather than try to sell it at a steep discount. In addition, there were reports in early October 2005 of technical difficulties at the oil fields, reducing production to 100,000 bbl/d for a time.
In March 2004, the Iranian Offshore Oil Company (IOOC) awarded a $1.26 billion contract for recovery of NGLs and natural gas from Soroush, Nowruz, Foroozan, and Abuzar to Japans JGC Corporation. Ethane from the gas will feed an ethylene complex at the Kharg petrochemical complex. Iran reportedly hopes to become a major petrochemicals producer within 10 years.
The Iranian constitution prohibits the granting of petroleum rights on a concessionary basis or direct equity stake. However, the 1987 Petroleum Law permits the establishment of contracts between the Ministry of Petroleum, state companies and "local and foreign national persons and legal entities." Buyback contracts, for instance, are arrangements in which the contractor funds all investments, receives remuneration from NIOC in the form of an allocated production share, then transfers operation of the field to NIOC after the contract is completed.
The buyback system has drawbacks for both sides: by offering a fixed rate of return (usually around 15-18 percent), NIOC bears all the risk of low oil prices. If prices drop, NIOC has to sell more oil or natural gas to meet the compensation figure. At the same time, companies have no guarantee that they will be permitted to develop their discoveries, let alone operate them. Finally, companies do not like the short terms of buyback contracts. In response, Iran has considered revisions to buyback terms (e.g., extending the length of contracts, allowing for continued involvement of oil companies after the field is handed over to NIOC), but these have been controversial and generally have not moved forward. In early December 2005, acting Iranian oil minister, Kazem Vaziri, questioned the future of buyback contracts but emphasized that Iran would continue to seek foreign investors in the energy sector.
The first major project under the buyback investment approach became operational in October 1998, when the offshore Sirri A oil field (operated by Total and Malaysias Petronas) began production at 7,000 bbl/d. The neighboring Sirri E field began production in February 1999, with production at the two fields expected to reach 120,000 bbl/d.
According to the Oil and Gas Journal, Iran held 125.8 billion barrels of proven oil reserves as of January 1, 2005, roughly 10 percent of the worlds total. In July 2004, Irans oil minister noted that the countrys proven oil reserves had increased to 132 billion barrels following discoveries in the Kushk and Hosseineih fields of Khuzestan province. The vast majority of Irans crude oil reserves are located in giant onshore fields in the southwestern Khuzestan region near the Iraqi border (note: in September 2005, several bombs were detonated near oil wells in Khuzestan, raising concerns about unrest amongst ethnic Arabs in the region). Overall, Iran has 40 producing fields-27 onshore and 13 offshore. Irans crude oil is generally medium in sulfur, with gravities mainly in the 28°-35° API range.
During 2005, Iran has been producing about 4.2 million bbl/d of total oil (of which 3.9 million bbl/d is crude oil), up nearly 400,000 bbl/d from 2003. Irans current sustainable crude oil production capacity is estimated at 4.0 million bbl/d, which is around 100,000 bbl/d below Irans latest (July 1, 2005) OPEC production quota of 4.110 million bbl/d. Some analysts believe that Irans capacity is lower, and that it could fall even further until new oilfield developments (Azadegan, Bangestan - see below) come online in a few years. Irans existing oilfields have a natural decline rate estimated at 8-13 percent per year (300,000-500,000 bbl/d). The fields are in need of upgrading, modernization, and enhanced oil recovery efforts (i.e., gas reinjection), with current recovery rates at just 24-27 percent (compared to a world average of 35 percent). Iran also needs to increase its search for new oil, with only a few exploration wells being drilled in 2005.
Irans economy is heavily reliant on oil exports, but the country is attempting to diversify. The country is earning high oil export revenues, but gasoline import costs are also rising rapidly.Iran is OPECs second largest oil producer and holds 10 percent of the worlds proven, conventional world oil reserves. Most oil is located in the southwestern part of Iran, near the Iraqi border and Persian Gulf. Irans oil sector is considered old and inefficient, needing thorough revamping, advanced technology, and foreign investment. Iran currently has crude oil production capacity of around 4.0 million bbl/d, which it would like to increase to 5 million bbl/d by 2010. In order to accomplish this goal, Iran will need billions of dollars in foreign investment, which it will need to attract by making contract terms as attractive as possible. Iran utilizes buyback contracts as a means of involving foreign companies in the countrys oil sector without violating its constitutional prohibitions on concessions or direct equity stakes. Iran plans extensive oil development of its offshore areas, including the Soroush-Nowruz field which came online in late 2001/early 2002.foreign companies in the countrys oil sector without violating its constitutional prohibitions on concessions or direct equity stakes. In exchange, Iran would ship refined products back to Iraq. The country is looking to expand its capacity to refine oil into gasoline and other light products. Iranian natural gas consumption is growing fast, but so is production from the South Pars field and elsewhere, meaning that the country could become a significant gas exporter in coming years. Irans position as a major producer and consumer of fossil fuels has caused numerous environmental problems.