Iran's Energy Aspirations

Iran's Energy AspirationsIran's Energy Aspirations

The Iranian New Year (started March 20) has embarked on the back of hopes and promises buoyed by political and economic achievements in the past few months after years of negotiations that culminated in a landmark deal on its nuclear program.

It was the first time in more than a decade that Iranians celebrated a new year unbound by western sanctions, thanks to a monumental detente between Tehran and six world powers in July 2015 and the lifting of most western sanctions on January 16.

The sanctions removal gave Iran's reeling economy, and its underlying energy sector, a vital impetus for growth. The past few months were marked by dozens of energy agreements signed with European and Asian companies and the government’s unwavering pledge to gradually boost oil production capacity to pre-sanctions levels. Financial Tribune takes a look at the highlights of Iran's energy news during its two-week break for Iran's New Year holidays that ended on April 1, picking up where we left off on March 17.


  Raising the Oil Bar

In the typical fashion of government officials in the past few weeks, First Vice President Es’haq Jahangiri unsurprisingly revised up Iran's oil export data.

Iran exported around 1.3 million bpd in February 2015, but the volume “rose to 2.2 million bpd in the two months following the lifting of sanctions” on January 16, he said.

The remark contrasts the most recent reports on oil exports. In a more down-to-earth statement before the new year, Rouhani hoped crude exports “will reach 2 million bpd in the new [Iranian] year”.

Other reports put Iran's oil export at around 1.5 million barrels per day in the first two months of 2015, a remarkable boost from the slightly more than 1 million-bpd shipment under the sanctions regime.

European customers have been the driving force behind the increase in Iran's crude exports. Since January, Tehran has sold more than 11 million barrels to France's Total, 2 million barrels to Spanish refiner Cepsa and 1 million to Litasco, trading arm of Russia’s Lukoil, according to Iranian officials, traders and ship-tracking data.

Some of the cargoes will not arrive in Europe before mid-April.

But Iran—now the third-largest producer of the Organization of Petroleum Exporting Countries—is pressing ahead with plans to pump more barrels. The Islamic Republic has made it abundantly clear that it will not join a pact to freeze oil production at January levels before closing in on 4 million bpd, its production level last seen in 2010.

The freeze deal is sanctioned by Russia and Saudi Arabia, with the former supporting a move to exclude Iran from the agreement that also has the backing of most Persian Gulf oil producing nations.

  P&I Extends Iran's Oil Insurance

Flagship private shipping insurance group, the International P&I Club, raised insurance coverage for tankers transporting Iranian oil to $580 million per ship from $80 million.

Although coverage worth $580 million is still less than 10% of the normal liability coverage, Asian shippers such as China, India, South Korea and some shippers in Europe may find that enough to transport Iranian oil, an official with Japan P&I Club was quoted as saying by Reuters.

The International P&I Club has been unable to extend normal liability coverage of $7.8 billion per ship to vessels transporting Iranian oil because the US Treasury Department has left sanctions in place pertaining to insurance. That has prevented US insurers from providing coverage.

The organization protects more than 90% of the world’s crude carriers against risks, which include spills. Iran has been largely using Kish P&I, backed in part by the government, for shipping insurance.


  Power Deals With Pakistan

Iran and Pakistan pursued their drawn-out energy cooperation  during President Hassan Rouhani’s two-day visit to Islamabad last week.

The president told a meeting of the two countries’ high-ranking delegations that Iran is ready to “undertake the security of energy supply to Pakistan”. But the optimistic statement is most notably overshadowed by the non-cooperation of the Pakistani side in completing the Iran-Pakistan “Peace” Gas Pipeline, among other things.

Islamabad has been slow and negligent in laying the pipeline in its territory, largely blaming sanctions and financial woes for its repeated delays. And despite promising statements by Pakistani officials in recent months, the country has yet to take concrete steps to receive gas from Iran.

But a more immediate energy pact can come in the form of electricity export, rather than gas supply. Iran, currently an electricity exporter to Pakistan, discussed raising electricity transmission to the eastern neighbor to up to 3,000 megawatts, according to Energy Minister Hamid Chitchian.

The two countries are slated to sign a memorandum of understanding for the power deal during a visit by Pakistan’s water and power minister to Tehran next month.


  NIOC, Total Sign NDA

National Iranian Oil Company and Total signed a nondisclosure agreement as part of a deal that will allow the French major to develop Iran's giant South Azadegan Oilfield.

Oil Minister Bijan Namdar Zanganeh made the statement on March 24, Mehr News Agency reported.

South Azadegan is an oilfield shared with Iraq. It is touted as one of the country’s most-coveted energy projects. The NDA allows Total to conduct technical surveys on the oilfield.

But Total is not expected to be the sole foreign contractor in South Azadegan; the field’s second development phase is estimated to require around $5 billion in investment, with some big names in negotiations for its drilling and production rights, including Entrepose Contracting and VINCI Construction Grands Projets, South Korean conglomerate Hyundai and Japan’s Marubeni.

Iran ultimately plans to produce 320,000 bpd of oil from the joint field.

The proprietary right to develop South Azadegan is apparently part of a package deal that also includes the export of 150,000 to 200,000 barrels of oil per day to Total, with the former agreement publicized in January.