Iran to move up to deserved status in energy market

Biggest achievement of President Hassan Rouhani's first term in office was, undoubtedly, the outstanding Joint Comprehensive Plan of Action (JCPOA), signed with six world powers, including EU states, which promised an end to sanctions on Iran.

Iran's petroleum industry, which was the main target of sanctions, benefited from the post-JCPOA atmosphere. In addition to helping Iran raise its oil output and exports and regain its OPEC quota, the nuclear deal prepared the ground for major oil companies' return to Iran. The agreement signed with a consortium led by France's energy giant Total for the development of Phase 11 of South Par is a case in point.

Here is the full text of the interview Zamannia gave to 'Iran Petroleum':

Q: The government of President Rouhani, the11th administration, ended its term with great international achievements like the JCPOA. Would you please explain the track record of Petroleum Ministry in Post-JCPOA?

A: Oil has always been the major driver of Iranian economy. That is why since the very start of the imposition of sanctions by US government, i.e. when the US Embassy in Tehran was taken over, Iran's petroleum industry was directly targeted with a view to undermining Iran. The significance of this industry for Iran is no secret to anybody. In recent years, this industry has been through major problems and challenges. The current state of our production capacity, in a country sitting atop the largest oil and gas reserves together, indicate the clear imbalance of our reserves to our production capacity, and the magnitude of problems and challenges created for it. Our current output stands close to 3.9 mb/d. That is why the main points in the Resilient Economy instruction by the Supreme Leader [Ayatollah Ali Khamenei] focuses on oil output hike.

In early 2013, when the JCPOA had not been signed and implemented, Iran's oil exports had fallen to below 800,000 b/d. Furthermore, 'we had become importer of many petroleum' products. But after the implementation of the JCPOA, our crude oil production and exports doubled and 'we managed to regain our lost markets'.

We have 28 common oil and gas fields we share with our neighbors. In many of these cross-border fields, our neighbors are ahead of us in terms of hydrocarbon production. That means significant loss of income for our people. In post-JCPOA, oil minister (Zanganeh) and the hard working people of the oil and gas industry were able to increase production from the biggest common field of South Pars to a level equaling to that of Qatar’s production.

To compensate for the losses of the past, increasing our production to a level that our oil industry deserves, primarily from the cross border fields and enhance our recovery factor from our brown fields, the collective wisdom within the industry developed a new model contract to draw in IOC’s capital and technology. This major step coincided with the transition of government from President Ahmadi Nejad to President Rouhani, when the differences among political parties and groups had been amplified. As Iran is a pluralistic society in nature, compounded with post-Ahmadi Nejad amplified domestic politics, the new model contract in oil industry became subject of a major public debate at national level. The consensus-building on this model contract took much longer than reasonably expected. This long and slow process delayed, by nearly a year, our negotiations for development of upstream projects in post-JCPOA. However, it was done and over within early 2017.

The first contract on the basis of the new model contract was finalized and concluded in July on the development of Phase 11 of South Pars with the oil giants Total and CNPC.

Q: Now that the ground is prepared for attracting foreign investment and technology, has any planning been made for that purpose over the coming four years?

Foreign investment can be secured only if significant domestic investment is made. We require about 200 Billion dollars of investment in oil, gas and petrochemical industry for the next five years. Out of this figure if we cannot secure at least 70-80 Billion dollars from domestic sources, we will face formidable challenges to raising 120 Billion dollars from foreign capital market. We are positively encouraged to be able to secure the required capital both from the domestic and foreign capital markets.

The process for the petroleum industry to reach the status it deserves requires a stable economic and political environment. The government of Dr. Rouhani has made significant progress on both grounds during its first term of office. All indications point to the same direction in his second term of presidency.

The Petroleum Ministry plans to increase its crude production capacity by over one million barrel per day over the next five years. By 2042, we are confident we will have renovated Tehran, Tabriz, Isfahan and Bandar Abbas refineries with a total of 14 Billion dollars foreign investment to generate value-added production.

We also plan to have about 365 million cubic meters per day of spare production capacity by 2021. This would allow us to enter the gas market in the region and beyond both by gas pipeline and LNG.

Q: Some in the country believe that crude oil exports would mean selling raw materials and losing national wealth. What do you think?

A: Oil producing nations, including big producers like Russia and Saudi Arabia, compete to gain a bigger share of the world crude market. Crude oil export does not mean selling just raw materials. It entails economic and political cohesion and stability. Oil is not just a simple commodity. Therefore, we have to create some sort of balance in our share of world energy market between our crude oil and petroleum products exports. With renovation of our old refineries and construction of Siraf and Persian Gulf Star refineries, the Petroleum Ministry has planned to increase its crude oil production capacity, as well as its capacity to produce value added products.

Q: You spoke about the necessity of domestic investment and infrastructure before attracting foreign investment. But petroleum industry projects need huge capital which domestic companies may not be able to afford.

A: Based on the new model of oil contracts, foreign companies are required to have a domestic partner for activity in Iran's petroleum industry. The domestic partner is required to provide a portion of initial capital needed for the project. For instance, in the development of Phase 11 of South Pars, which has been awarded to a consortium of Iranian and foreign firms, Petropars is required to provide more than $ 1 billion of the $ 4.8 billion (needed for the project). Therefore, claiming that petroleum industry does not need foreign investment and domestic investment is sufficient is groundless and unfounded.

Petroleum industry projects need huge capital and technology. Therefore, domestic investment alone is not sufficient. During years of sanctions when we executed some oil and gas projects alone without foreign partnership we learnt that despite the fact that we gained priceless experience, working under normal conditions where foreign capital and new technology is accessible, execution of a major project saves us billions of dollars in terms of lower cost and faster completion of the project.

Q: The contract for the development of Phase 11 of South Pars gas field was signed under the 11th administration.

Are any similar agreements planned this year or the following years?

A: More than 20 parallel negotiations are underway. These negotiations are very tedious. They relate primarily to cross border fields. Time is of the essence, no one better than the oil industry executives understand this. We expect to make progress in these negotiations as quickly as practicable. They cannot be rushed unduly though. I expect to finalize a few of them in the current Iranian year.

Q: How will you handle marketing and selling Iran's oil to old and new buyers under the 12th administration?

A: Iranian crude oil global market share is managed by a very professional team under the head of international department of NIOC. This department has had unprecedented achievements; gaining our lost market during the sanctions and securing new markets. We need to do more nevertheless. Relying on our hydrocarbon reserves, we need to develop a more creative approach beyond our borders where for the foreseeable future demand for fossil fuel continues to be high. In addition to increasing our current markets, we are planning to create liquidity and self-generating assets in big markets of South America, Africa, and Asia.

Q: Is Iran's oil production capacity not in contrast with OPEC plan to keep its production ceiling unchanged?

A: Not at all. We support the understanding within the OPEC and continue to encourage OPEC to stay the course to try to bring a balance to global oil market. At the same time, we will not cease to increase our production capacity.

Q: You attended the World Petroleum Congress (WPC) gathering recently. Would you please explain about this Congress and its agenda?

A: World Petroleum Council (WPC) is a reputable organization with consultative status at the United Nations. It is a forum for energy dialogue between producing and consuming countries. Its goal and programs focusses on promotion of sustainable management and use of the world’s oil and gas resources for the benefit of all. It therefore, shares knowledge of technological developments and scientific research to address challenges facing energy industry, environmental protection and multi-sectorial co-operation with the aim of sustainable development.

WPC’s 65 member countries represent over 96% of the world’s oil and gas production and consumption. Therefore, one can picture that anybody who is somebody in the oil and gas industry is likely to participate in WPC. The 22nd World Petroleum Congress was held in Istanbul under the theme of “Bridges to Our Energy Future.”

Petroleum Ministry encourages private and public representatives of Iranian oil and gas industry to actively participate in such international gatherings to enhance the profile of Iranian oil industry on the one hand, and to promote the great potentials that exist in this industry in Iran, on the other.

It is against this backdrop that I headed a delegation to the 22nd WPC in Istanbul. The contribution of Iranian delegation to the Congress was outstanding, in my view. The Iranian Youth Committee was very dynamic and active both in organizational and scientific capacities. They ranked third in terms of scientific papers accepted by WPC. Iranian delegation held a ministerial meeting where five presentations were made about different potentials of the oil and gas and oil tanker shipping services available in Iran. Upstream projects and gas potentials of Iran for the world energy market were presented to a packed hall of interested international audience. I also made a statement in a plenary panel shared with BP CEO and the executive of US Energy Agency, under the theme of “Responsible leadership of oil industry'. Issues addressed in this plenary meeting included: environmental protection, anti-corruption initiatives and transparency considerations in oil business.

The organization of the 22nd WPC was exceptional for which I congratulate the Turkish organizers. We managed to have a good number of bilateral meetings with heads of international oil and gas organizations, our current foreign partners and potential partners.

Q: As you know Iran's petroleum industry has long been focused upon by foreign companies and investors. You recently held talks with Linde and other foreign companies. What were the achievements?

A: Linde is going through a merger with an American company. Along with H.E. Ms. Shahdaei, we had a meeting with executives of Linde to explore and facilitate Linde’s interest for partnership in the Iranian petrochemical industry while the company remains in compliance. We had constructive discussions and they will be followed up.

Q: Can Iran transfer money like it did before the sanctions were imposed?

A: NIOC has no problem receiving payment for its oil sales. The challenge is somewhere else. Major European and Asian banks are somewhat reluctant to establish banking relations with Iranian banks for reasons that are not legal but merely political. According to a report recently released by the Financial Times, these banks have so far paid $ 150 billion in penalties to the US Treasury for supposedly circumventing US Treasury Departments’ sanctions against many countries, including Iran. However, medium-sized banks are working with Iran's banks and petroleum industry. We feel no major challenge in this respect.

Q: Does the agreement with Total encourage foreign banks and companies to cooperate with Iran?

A: Like in conduct of international relations where the image one has of its interlocutors is very critical, in the oil industry also the same is true. The image can be built or ruined. JCPOA was a major achievement as an instrument to countering the efforts of those trying to ruin Iran’s image. The contract on phase 11 of South Pars was also a small step in the right direction to build the image of oil industry in Iran. This agreement will definitely have positive effects on the general environment of doing business in Iran and not just in the oil industry.

Q: Doesn't Iran face any problems with regard to selling oil?

A: We do have problems. We do not have as much oil as demanded by our customers.

Q: There was recently speculation about Iran's crude oil exports to Russia. Is that true?

A: Iran-Russia cooperation is much wider and the recently-finalized contract for a Russian company to lift 100 thousands of Iranian crude per day is part of a broader understanding between the Presidents of both countries. We look forward to having this contract implemented. I expect our crude will be lifted by the Russian company in September or October. Technical discussions are underway. This contract and its dividends will constitute seed money to enhance further cooperation between Iran and Russia in all industrial fields and not just the energy.

Source: Iran Petroleum

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