Iran's new oil minister
The Iranian president, Mahmoud Ahmadinejad, appears finally to have resolved the matter of appointing a suitable oil minister after a four-month stand-off with the Majlis (parliament). His latest nominee for one of the most important jobs in the Iranian government is Kazem Vaziri-Hamaneh, a former deputy oil minister who has been acting as caretaker since the end of August.
Although some MPs have objected to Mr Ahmadinejad's continued refusal to consult with the Majlis over senior appointments, it is likely that Mr Vaziri-Hamaneh's appointment will be approved when it is put to the vote on December 11th. Unlike the previous three nominees, who were all rejected on the grounds of inexperience, Mr Vaziri-Hamaneh has an intimate knowledge of the Iranian oil and gas industry, having worked in the sector for the past 30 years. His lack of political weight may mean that he will be unable to prevent Mr Ahmadinejad taking effective control of oil policy, but the appointment of a minister will at least allow for new projects to go ahead in the oil and gas industry after a prolonged and damaging period of stagnation--major contracts, which require ministerial sign-off, have lain dormant for several months.
New terms
Mr Vaziri-Hamaneh has already indicated that one of his priorities, should he be confirmed as minister, will be to address the issue of the structure of Iran's relations with foreign oil companies. He said that the current buy-back regime was unsatisfactory, but he has so far held back from making any concrete suggestions about replacing it. Under buy-back deals, foreign companies invest in the development of oil and gas fields and are reimbursed, with an agreed profit margin, from the proceeds of subsequent sales. The foreign firm hands over operational management of the field to the Iranian government once production has started.
The principal demands from foreign companies are for more involvement in the field's operation and maintenance and for an extension of the contract period. If the government were to modify the buy-back model along these lines, it would be likely to attract much higher levels of foreign investment in the oil and gas industry. Another option being discussed in Tehran would be to revert to a service contract model and to make use of the recent oil export surpluses to finance such projects. This approach would have the advantage of simplicity, but would be unlikely to induce international oil companies to deploy their most advanced technology.
US$165bn needed
Whatever model is chosen, it is clear that Iran must increase the level of investment in its oil and gas industry or else face the prospect of diminishing returns. In recent months Iran has had difficulty in fulfilling its OPEC quota of 4.1m barrels/day (b/d). The International Energy Agency (IEA) has calculated in its recently published World Energy Outlook that, with sufficient investment, Iran could lift its crude oil production to 6.8m barrels/day by 2030 through a combination of investment in enhanced recovery in its existing fields and through the development of some 2.8m b/d in capacity in new fields. The total cost would be US$80bn, and oil exports would rise from 2.7m b/d to 4.4m b/d. Should investment fail to come up to the required level, the IEA estimates that oil production would rise only marginally to 4.9m b/d, while exports would remain flat.
In the IEA’s reference scenario, investment of US$85bn would be needed to achieve sufficient growth in gas output to support significant net exports--at present Iran is a net importer of gas, to the tune of 2.3bn cu metres/y. With the required investment, production of marketed gas (as opposed to reinjected) would rise from about 80bn cu metres/y to 240bn cu metres/y by 2030, with exports to Europe and Asia reaching 60bn cu metres/y. In the deferred investment scenario, Iran’s gas exports would only reach half that level.
The IEA report makes clear the potential of the Iranian oil and gas sector, but it also highlights the urgency of creating the right conditions for investment. The IEA concludes that “attracting foreign capital, access to modern technology and effective project management will be critical to expanding oil production in Iran”. As long as the oil ministry remains in limbo the chances of achieving this goal will be compromised.
SOURCE: ViewsWire Middle East
Although some MPs have objected to Mr Ahmadinejad's continued refusal to consult with the Majlis over senior appointments, it is likely that Mr Vaziri-Hamaneh's appointment will be approved when it is put to the vote on December 11th. Unlike the previous three nominees, who were all rejected on the grounds of inexperience, Mr Vaziri-Hamaneh has an intimate knowledge of the Iranian oil and gas industry, having worked in the sector for the past 30 years. His lack of political weight may mean that he will be unable to prevent Mr Ahmadinejad taking effective control of oil policy, but the appointment of a minister will at least allow for new projects to go ahead in the oil and gas industry after a prolonged and damaging period of stagnation--major contracts, which require ministerial sign-off, have lain dormant for several months.
New terms
Mr Vaziri-Hamaneh has already indicated that one of his priorities, should he be confirmed as minister, will be to address the issue of the structure of Iran's relations with foreign oil companies. He said that the current buy-back regime was unsatisfactory, but he has so far held back from making any concrete suggestions about replacing it. Under buy-back deals, foreign companies invest in the development of oil and gas fields and are reimbursed, with an agreed profit margin, from the proceeds of subsequent sales. The foreign firm hands over operational management of the field to the Iranian government once production has started.
The principal demands from foreign companies are for more involvement in the field's operation and maintenance and for an extension of the contract period. If the government were to modify the buy-back model along these lines, it would be likely to attract much higher levels of foreign investment in the oil and gas industry. Another option being discussed in Tehran would be to revert to a service contract model and to make use of the recent oil export surpluses to finance such projects. This approach would have the advantage of simplicity, but would be unlikely to induce international oil companies to deploy their most advanced technology.
US$165bn needed
Whatever model is chosen, it is clear that Iran must increase the level of investment in its oil and gas industry or else face the prospect of diminishing returns. In recent months Iran has had difficulty in fulfilling its OPEC quota of 4.1m barrels/day (b/d). The International Energy Agency (IEA) has calculated in its recently published World Energy Outlook that, with sufficient investment, Iran could lift its crude oil production to 6.8m barrels/day by 2030 through a combination of investment in enhanced recovery in its existing fields and through the development of some 2.8m b/d in capacity in new fields. The total cost would be US$80bn, and oil exports would rise from 2.7m b/d to 4.4m b/d. Should investment fail to come up to the required level, the IEA estimates that oil production would rise only marginally to 4.9m b/d, while exports would remain flat.
In the IEA’s reference scenario, investment of US$85bn would be needed to achieve sufficient growth in gas output to support significant net exports--at present Iran is a net importer of gas, to the tune of 2.3bn cu metres/y. With the required investment, production of marketed gas (as opposed to reinjected) would rise from about 80bn cu metres/y to 240bn cu metres/y by 2030, with exports to Europe and Asia reaching 60bn cu metres/y. In the deferred investment scenario, Iran’s gas exports would only reach half that level.
The IEA report makes clear the potential of the Iranian oil and gas sector, but it also highlights the urgency of creating the right conditions for investment. The IEA concludes that “attracting foreign capital, access to modern technology and effective project management will be critical to expanding oil production in Iran”. As long as the oil ministry remains in limbo the chances of achieving this goal will be compromised.
SOURCE: ViewsWire Middle East
posted by Marko at 12/07/2005 11:29:00 AM
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