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4 Reasons Iran's Oil And Gas Industry Is More Precarious Than It Seems

By Ellen R. Wald, Ph.D.CommoditiesFeb 07, 2018 04:56AM ET
www.investing.com/analysis/4-reasons-irans-oil-and-gas-industry-more-precarious-than-it-seems-200287741
4 Reasons Iran's Oil And Gas Industry Is More Precarious Than It Seems
By Ellen R. Wald, Ph.D.   |  Feb 07, 2018 04:56AM ET
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In a recent press conference, Iranian oil minister Bijan Namdar Zangeneh discussed the state of Iran’s oil industry. It is difficult for analysts and traders to assess the true situation for Iran’s oil and gas industry because the country is not always up-front with details.

Even when the government provides information, that information cannot necessarily be taken at face value. However, if Zangeneh’s statements are taken as fact, here are the implications for the Iranian oil industry and global oil markets.

1. Zangeneh told reporters that if/when OPEC ends its production cuts, Iran will be able to raise its oil output by 100,000 barrels per day within five days. According to S&P Global Platts, an official secondary source of OPEC production numbers, Iran produced 3.82 million bpd in December, so this would put Iran at a maximum production capacity of 3.92 million bpd. Back in June 2017, Zangeneh predicted Iran would reach 4 million bpd by March 2018. It seems that Iran will fall short of that goal, but not by much.

2. Zangeneh discussed crude oil swaps with Russia. He denied bartering oil for Russian Sokhoi fighter jets but explained that Russia and Iran are restarting crude oil swaps. Iran has been looking to engage in crude swaps with Russia, Kazakhstan and Turkmenistan in order to supply oil to the northern parts of Iran since August 2017. In return, Iran would supply Russia with oil from the Persian Gulf. According to Zangeneh, the oil swap will be approximately 100,000 bpd.

3. Iran has also started crude oil swaps with Iraq. According to Zangeneh, Iran signed an agreement for a 60,000 bpd crude oil swap in which Iraqi crude oil from the Kirkuk area will be trucked over the border to Iran and Iran will provide an equal amount of crude through its facilities in the Persian Gulf. Iran’s motivation for pursuing the crude oil swaps with Iraq and Russia reportedly comes from a lack of oil infrastructure in northern areas of Iran.

4. On Iran’s ongoing negotiations with French oil company Total (NYSE:TOT), Zangeneh said that Total seems serious in its negotiations with Iran. However, the potential for the U.S. to reinstate sanctions on Iran has made the situation “unstable.” So far, Total’s contracts with Iran include a 50% stake in the development of an offshore gas field in Iranian waters. Iran has been suffering a severe natural gas shortage this winter, particularly since Turkmenistan halted its gas exports to Iran.

Although Zangeneh portrayed Iran’s oil and gas situation in a positive light, it is actually somewhat precarious. If the OPEC oil cut restrictions were removed today, Iran could not increase its oil production to a full 4 million bpd, its oil infrastructure is not sufficient to transport oil to areas in northern Iran and its natural gas supplies are not sufficient to provide heat to its citizens. The state of Iran’s oil and gas industry does not appear to match its bravado.

4 Reasons Iran's Oil And Gas Industry Is More Precarious Than It Seems
 

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4 Reasons Iran's Oil And Gas Industry Is More Precarious Than It Seems

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