Attracting foreign and domestic investments to develop oil and gas fields is among main priorities of the National Iranian Oil Company, as it will secure energy supply in the future, the oil minister said.
“Lack of investment in the key sector is very likely to have a wide array of dire consequences, one of which is forcing NIOC to import oil derivatives instead of exporting them,” Javad Owji was also quoted as saying by ISNA.
As per the 25-year strategic cooperation agreement Iran signed with China in 2021, Chinese firms are expected to invest at least $20 billion in hydrocarbon development projects over the next eight years to ensure a sustainable energy supply for both Iran and China.
“The same amount of money will be invested in similar plans by domestic banks and holding companies. The investment will be primarily used for developing shared oil and gas fields,” he said.
“NIOC is willing to resume cooperation with Chinese oil giants, including Sinopec and China National Petroleum Corporation, as they are familiar with Iran’s hydrocarbon reserves.”
Sinopec has already participated in the development of Iran’s Yadavaran Oilfield in Khuzestan Province near Iran’s border with Iraq. It also signed a deal worth $1 billion to develop Abadan Oil Refinery, Iran's oldest crude processing facility in the southern oil-rich Khuzestan Province.
Long-Awaited Impetus
Oil experts believe that the economy will struggle if the oil industry, the engine of economic growth, does not get the long-awaited impetus after years of underinvestment.
Owji cautioned that collaboration with multinational firms should not be translated as relying on foreign expertise and workforce because domestic manufacturers and contractors will get the lion's share of work in the new energy projects.
"The oil industry is gearing up for a big leap forward," he said, adding that local contractors' capacity "is incomparable with the past", which will help them play a key role alongside multinationals in oil and gas projects.
China has always opposed unilateral US sanctions against oil producers and continues to buy crude, especially from Iran.
Iran’s oil sales to China remain its key revenue stream.
In the past three years, China has been Iran’s top crude oil customer despite American sanctions on Iranian oil exports that were imposed on Iran in 2018 after the US withdrew from the nuclear deal Iran had signed with six world powers in 2015.
CNPC has already participated in the development of Iran’s North Azadegan Oilfield, the first phase of which became operational in 2016.
China was also Iran’s biggest trade partner over the last two years, as the East Asian country was responsible for almost a fourth of imports and exports registered by Iranian customs offices.
According to the oil minister, NIOC is also making efforts to join hands with Russian firms to expand Iran’s oil and gas infrastructures.
Owji stressed that attracting much-needed investment is critical, otherwise there will be no way to guarantee the country’s energy supply in the future.
Beleaguered Oil Industry
Lack of investment has started taking a heavy toll on the beleaguered oil industry and has severely impaired NIOC’s ability to process crude, he said.
Failure to capitalize on the private sector’s experience, absence of rehabilitation plans and the focus on the sale of low value-added products have reduced oil processing capacity by 231,000 barrels per day since 2013.
As long as investment is not attracted and advanced technology is not transferred to the country, projects will be postponed and “we will continue to lag behind”, he added.
According to the minister, Iranian experts have the knowhow to develop energy projects, but financial constraints pose a big impediment.
Referring to the giant South Pars Gas Field, he noted that despite peak production in the field off the Persian Gulf, pressure reduction has emerged gradually.
“The installation of offshore compressor stations in the field is the only long-term option to control gas pressure reduction and that means investing $80 billion in the massive field,” he said.
“Contrary to popular belief, the field will not be able to produce 700 million cubic meters of gas per day [the current output] forever and this clean resource should be used as prudently as possible.”
Owji noted that by 2024, the pressure is expected to decline by 28 mcm per year unless special platforms and compressors are installed, for which each phase will need approximately $1 billion.
South Pars accounts for 80% of Iran’s gas need and a decline in SP output could create problems for consumers.
“Pressure reduction will anyway take place. However, other gas fields in the Persian Gulf, including Kish, Ferdowsi and Golshan, might help compensate for the output reduction [but not for long]," he said.
“Reservoir pressure in SP was higher when the first contract for the development of the giant field was signed in 2009.”
Qatar's excessive gas extraction from the field has reduced the pressure to a great extent and a further lowering of pressure will affect production from the operating platforms in the near future.
Iran has close to 34 trillion cubic meters of natural gas reserves – about 18% of the total global gas reserves.
South Pars is the world’s largest gas field, shared between Iran and Qatar, covering an area of 3,700 square kilometers of Iran’s territorial waters in the Persian Gulf. It adjoins Qatar’s North Field that measures 6,000 square kilometers.
