Subsidies Hurting Development Plans

Subsidies Hurting  Development Plans Subsidies Hurting  Development Plans

The $ 1.4 billion in subsidies paid monthly by the government, notwithstanding most development plans in the oil and gas sector have been halted, a senior oil official said in an interview with ISNA, published on Monday.

The National Iranian Oil Refining and Distribution Company (NIORDC) is paying one billion dollar in subsidies each month, in addition to $300 million which is paid by the National Iranian Gas Company (NIGC), according to deputy oil ministry Mansour Moazzami.

Projects worth around $70 billion were presented to the Economic Council of the government, the effect of which may not be visible immediately, but “will definitely become evident in five years.” The official called for a change in consumption patterns, warning “otherwise the country would be left with no choice but to  become an energy importer.”

Despite having the world’s biggest hydrocarbon reserves, Iran imports gas from other countries, the official noted. “We lack the required distribution network.”

The government has increased oil production, by 740,000 barrels per day. Together with gas condensate, the daily production capacity is projected to reach 5.7 million barrels per day in 2018.

Petrochemical export revenues which were once less than a billion dollars, have now reached $25 billion. Current petrochemical production capacity stands at 10 million tons. Yet, only 41 million tons of petrochemicals were produced last year, “which is inadequate,” according to the official.

On new oil contracts, Moazzami said his ministry has drafted a new approach which takes into consideration the interest of all parties.  All contractual frameworks, including those of the neighboring countries, were studied to achieve this.

The sanctions made it difficult for the country to import the required technology, and obtain the much-needed investment in the oil and gas industry. Hence, Iran’s new petroleum contract (IPC) was drafted to attract strategic and competent companies.

Bigger share in the current global oil market is difficult, yet to maintain and increase it is far more challenging, said the official. “Iran’s share of the global oil market has been undermined.”

As regards the global oil markets, “the US and shale boom is not a hurdle for Iran,” Moazzami said, adding that the real hindrance lies in neighboring Iraq, or even Venezuela. “The real threat is the rapid development of the Iraqi oil industry and the huge investments made there.”

The US imposed tough sanctions on Iran’s economy, and especially the energy sector, to curb the country’s nuclear program which it claims is geared to military use. Iran insists the program is peaceful.

Iran holds the world’s second biggest natural gas reserves after Russia, and the fourth-largest proved crude oil reserves.  It holds 17% of the world’s proved natural gas reserves and more than one-third of OPEC’s reserves.

However, the vast majority of Iran’s gas reserves are undeveloped. Lifting of the sanctions will also allow renewed international investments in the country’s gas fields.

Iran significantly reduced energy subsidies in December 2010 as part of a five-year program to gradually increase prices of oil products, natural gas and electricity to full cost prices.