Iran is on track to reach a major national milestone this year, if the nation’s oil spokesmen are to be believed. On Wednesday deputy oil minister Amir Hossein Zamaninia predicted oil production would reach 4 million bpd by the end of 2017, and certainly exceed that level by the end of the Iranian calendar year (March 2018).
Since international sanctions on its oil and gas industry were lifted in January 2016, Iran has managed to increase production to pre-sanctions levels, reaching 3.8 million in May 2017, the highest level in seven years. But 4 million bpd, long a national goal and symbolic of a full recovery, is now within reach.
Iran, the third-largest producer in OPEC, agreed to the group’s production cuts last year and to their extension in May. Citing its recovery from sanctions, Iran was exempt from production cuts, allowing its output to exceed 3.7 million bpd. Despite the collective desire of OPEC members to see prices recovery, fraying cohesion and dipping compliance makes it easier for Iran to push its own high-production agenda.
Oil minister Bijan Zanganeh has made it clear he wants Iran’s output to exceed 4 million bpd by March 2018, when the current production cuts expire, but recent news makes it seem that target will be reached even sooner. Looking further ahead, Iran’s oil minister has stated his goal to be 4.7 million bpd by 2021.
At the World Petroleum Congress earlier this week, contracts manager Reza Dehghan announced plans to increase crude production to 4.8 million bpd and natural gas output to 45 billion cubic feet per day by 2022.
To accomplish these goals, the country hopes to attract more foreign investment. It’s already clinched a deal with Total earlier this month to develop new areas in the South Pars field, the first such deal reached with a major international company since sanctions were lifted. While the other oil majors remain wary of doing business with Iran, the country’s leadership is confident the contract with Total is just the first of many. Related: The Only Way OPEC Can Kill U.S. Shale
They’ve promised at least ten new contracts in 2018 and have announced that Iran is seeking $92 billion in foreign investment. Zamaninia has told reporters that Iran’s “hands are full” with fresh interest, and that twenty-five contracts are currently being negotiated. BP’s CEO Bob Dudley has said his company is looking past Iran for now: “We have a full plate.” American majors like Chevron and ExxonMobil are barred from doing business with Iran due to remaining U.S. sanctions.
Royal Dutch Shell signed a preliminary deal last year to explore the Yadavaran field, together with the National Iranian Oil Company (NIOC) and China Petroleum & Chemical Corp, but has yet to make serious commitments, citing the uncertain political conditions within Iran.
Zanganeh and other oil officials have come under attack by the country’s hard-liners for offering sweet deals to foreign companies. Iran has tough laws on foreign investment and a long history of suffering from foreign exploitation of its oil and gas resources. Hence, the issue of bringing in international companies is one which the country’s conservatives can use to attack the existing government, which is eager to open up Iran to more foreign capital.
The government has succeeded in pushing through the deal, setting up a special commission to observe relations with Total, which will own a 50.1 percent stake in the venture and is spending at least $2 billion on the first phase of operations. Total has plenty of experience working in Iran, having launched a number of projects in the 1990s, and expects to be involved in the development of South Pars for twenty years, the proposed length of the contract. Zanganeh has estimated the deal will produce $54 billion in gas products.
Zanganeh strongly defended the Total deal in the Iranian parliament, or Majlis, on Wednesday. The government used its majority in parliament to block an attempt by conservatives to cancel the deal, while the pro-government Iranian press backed up Zanganeh’s defense.
The oil minister claimed the deal would allow for further foreign investment: Iran would need at least $200 billion, he said, for its oil and gas industry to modernize and provide for domestic demand while increasing exports. He cited on-going discussion with Lukoil, Gazprom and BP as evidence of the deal’s success.
Between skepticism among the international companies and resistance from within Iran’s own political class, it remains to be seen if Zanganeh and the rest of Iran’s oil industry can succeed in signing additional deals. For now, confidence is high, but then again Iran’s oil ministry has a reputation for talking big. Two years after the nuclear deal signed with the United States and Europe, the diplomatic move which allowed for the drop of international sanctions, the opening up of Iran’s oil and gas sector remains in its early stages. It will take greater interest from foreign investors, along with higher prices, for the current trickle to turn into a flood.
By Gregory Brew for Oilprice.com
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