Cash Crunch Hampering Domestic Oil, Gas Firms

Financial constraint is keeping Iran's petroleum industry from using the potential of domestic companies, pushing the government to look overseas to fund oil and gas projects, Oil Minister Bijan Namdar Zanganeh said on Tuesday.

The minister made the statement in a parliamentary hearing, addressing an inquiry about pipe-manufacturing deals with foreign companies, IRNA reported.

Zanganeh was asked by three lawmakers as to why his ministry has backed millions of dollars worth of agreements in the midstream petroleum sector while "60,000 tons of pipes for oil and gas wells are purchased annually" from countries such as China, which is "hurting domestic industry".

Spanish consortium Tubacex signed a deal worth around $600 million with Iran's Sepahan Steel Company to produce 600 kilometers of corrosion resistant alloy (CRA) pipelines in three years and also transfer the manufacturing know-how.

The deal was cast as a measure toward self-sufficiency in the production of oil and gas equipment at home after the state-owned Oil Turbo Compressor Company was established in 2001 to manufacture gas compressors and turbines.

He described cash crunch as the most pressing concern in energy ventures.

"In recent years, we have nearly halted upstream investment projects, except in West Karoun and South Pars," Zanganeh said, referring to an oil-rich block in Khuzestan Province and a giant gas deposit shared by Iran and Qatar in the Persian Gulf.

According to Zanganeh, local pipe producers are riddled with financial and production problems, including Luleh Gostar of Esfarayen, a beleaguered production unit in the city of Esfarayen in North Khorasan Province.

"The company is being handed over and can't make investments … Recently a tender was held on producing CRA pipelines, but it [Luleh Gostar of Esfarayen] was ruled out because it lacked the financial muscle. The deal was worth $200 million," he said.

Zanganeh also justified the deal with the Spanish group by stressing that Iranian producers lack the formula of "very complicated" CRA pipes with materials that make them resistant to corrosion and cracks under high pressure.

CRAs are used for cladding pipes and equipment that increase resistance against corrosion and wear. They are essential for providing long term resistance to corrosion for many components exposed to oil and gas production environments.

Zanganeh added that domestic companies should compete in tenders to secure contracts in the oil and gas industry.

"Even if an Iranian firm can make a product, we can't buy it from outside the framework of a tender," he said.

Iran's petroleum sector needs $200 billion in new investments, most of which are expected to come from foreign sources. Years of economic restrictions imposed over Tehran's nuclear program deprived Iran's key petroleum industry from finance and technology.

Tehran has introduced a new model of contracts, dubbed as IPC, that offers attractive terms to international firms for investment in Iran's oil and gas projects.