Iran's oil output falls as sanctions bite

Sept. 29, 2011 at 10:56 AM
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TEHRAN, Sept. 29 (UPI) -- Sanctions-battered Iran's crude oil production fell in August for a second consecutive month, underlining how the Islamic Republic's mature fields are steadily declining.

This also gave added urgency to Tehran's scramble to secure foreign investment to upgrade the fields and replenish shrinking reserves, an increasingly futile effort as U.N. sanctions, beefed up by U.S. and European measures, scare off international companies.

The International Energy Agency reported that Iran produced 3.51 million barrels per day in August and only 3.53 million bpd in July. The June total was 3.65 million bpd.

There are no expectations of boosting production to a planned target level of 5 million bpd by 2015 nor is there likely to be any significant investment for the foreseeable future.

Indeed, production is expected to continue sliding. The IAE has forecast that it call fall to 3.1 million bpd by 2016, with revenue-earning exports suffering accordingly.

The IEA said officials at the National Iranian South Oil Co. say production is declining at a rate of 300,000-330,000 bpd per year.

That's three times the volume decrease cited by the government figure of around 100,000 bpd per year.

Some of Iran's fields have been producing for since the 1940s and '50s.

The Middle East Economic Digest, published in Dubai, reported in August: "Iran risks becoming a net oil importer if output rates continue to fall.

"Conservative estimates suggest Iran needs to replace at least 300,000 bpd of oil production a year as its fields mature.

"By 2015, crude oil production is expected to fall to 3.8 million bpd from 4.2 million bpd in 2010. Production capacity could fall faster if sanctions continue."

Iran has sought to sustain production by injecting vast amounts of natural gas into the declining oilfields in a bid to pressure the oil to the surface. But that program has been hard hit by growing delays in developing the giant offshore South Pars gas field.

That's the world's biggest natural gas field off southern Iran with estimated reserves of 436 trillion cubic feet. It abuts Qatar's vast North Field.

The International Energy Outlook 2011, published by the U.S. Energy Information Agency, says Iran is the Middle East's largest user of reinjected natural gas for enhanced oil recovery, with 1 trillion cubic feet, 16 percent of gross production, utilized in 2008.

The U.S. report, released Monday, says that despite the problems with South Pars, Iran is expected to more than double its gas production by 2030, from the current annual output of 4.1 tcf to 8.6 tcf, growing to 9.4 tcf by 2035.

But in the meantime, Oxford Analytica noted that "sanctions will make Iran's oil export market increasingly vulnerable.

"The recent dispute over unpaid oil debt with India, the country's second largest buyer of crude, highlighted the difficulty of buyers finding banks to transfer money to Iran.

"Although the issue was ultimately resolved, India's largest state-owned refiner Mangalore Refining and Petrochemicals Co. has subsequently stepped up ties with oil companies in Saudi Arabia, Kuwait and Abu Dhabi," Oxford Analytica added.

"These new suppliers could decrease Iran's market share even after payment disputes are settled."

"The oil and gas sector will continue to stall amid mismanagement, corruption, sanctions and lack of technical expertise," Oxford Analytica observed in a Sept. 5 report on Iran's fourth-quarter prospects.

"Foreign energy companies will stay away, unwilling to brave sanctions to invest in development of Iran's upstream production capacity.

"Only state-owned Chinese companies CNPC and Sinopec remain as significant concessions holders but they have yet to make large investments," the analysis noted.

Under the threat of U.N. sanctions imposed in June 2010, reinforced by U.S. and EU measures, European majors such as Royal Dutch Shell, Total of France, Statoil of Norway and Eni of Italy have cut all investment in Iran.

Shell, Total and Repsol of Spain were to help develop South Pars but all have pulled out.

In 2010, Oil Minister Masoud Mirkazemi warned that the hydrocarbons sector needed investment of $150 billion-$200 billion over the next five-six years to stem the decline in production.

Iran is the second largest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia. In 2010, the Oil Ministry pegged the country's reserves at 150.31 billion barrels.

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