The latest report from “Business Wire” on the outlook of Iran’s oil and gas industry shows signs of hope in this sector. In the past two years, the widespread impact of the coronavirus and the decrease in oil prices have had a negative effect on Iran’s oil and gas industry. However, this report predicts an annual growth rate of over 3.4% for Iran’s oil and gas industry from 2022 to 2027, due to the increasing demand for oil and gas and the diminishing effects of the pandemic. Despite these predictions, Iran’s oil and gas industry is currently experiencing a decline in production, as many of its oil fields are reaching the end of their lifespan and will no longer be able to produce oil and gas in the coming years. This, along with international sanctions, will complicate the situation in this industry.

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Iran is one of the major producers of oil and gas in the Middle East. According to a recent report by “Business Wire,” (1) it is expected that the upstream sector will maintain its dominance over other sectors. Iran holds 153.8 billion barrels of oil reserves and 33.5 billion cubic meters of natural gas reserves, accounting for 9.3% and 18% of the world’s total reserves, respectively. In fact, it is the fourth largest holder of oil reserves and the second largest holder of gas reserves in the world. However, these reserves do not necessarily translate into higher income for the Iranian economy. Due to international sanctions and lack of sufficient investment in the industry, crude oil and natural gas production has significantly decreased over the years. On the other hand, high domestic consumption has resulted in a limited amount of oil and gas available for export.

According to this report, Iran’s energy demand will significantly increase in the next two decades, which can be attributed to population growth, improvement of living standards in the country, and the possibility of facing the lifting of sanctions by the United States.

Production and natural decline of it.

Iran’s oil production has faced many fluctuations in recent years. The majority of these fluctuations have been due to international sanctions, which have resulted in insufficient investment. However, another factor contributing to these fluctuations is the natural decline rate of Iran’s oil and gas fields. According to official statistics, the natural decline rate of production from massive oil reserves is between five to eight percent annually, which amounts to two hundred to four hundred thousand barrels. For example, 99.58% of recoverable reserves in the Aghajari oil field have been extracted. This field reached its peak production in 1973 with 1.25 million barrels of crude oil and gas condensate per day, and according to economic estimates, its production will come to an end in 2024. Additionally, the natural decline rate of production from the South Pars gas field began in 2020. According to the Minister of Oil, production from this field will decrease by one phase (28 million cubic meters) each

Share of OPEC production.

In recent years, Iran’s share of the oil and gas market has decreased. Iran’s share of total OPEC production has decreased from 13.3% in 2005 to 7.5% in 2019, but has slightly improved to 9% in June 2022. This figure has fluctuated between 12-13% in non-sanction years.

Based on the goals of the Vision Document in the oil and gas sector of Iran, by the 20-year horizon (2025), Iran should be the second largest oil producer in OPEC with a capacity of 7% of global demand, and the third largest gas producer in the world with a share of 8-10% of global gas trade. However, achieving these goals seems unlikely given the current trend of oil production in Iran.

Price growth.

The price of oil, which had faced a decline in the past two years due to a decrease in demand caused by the COVID-19 pandemic, has experienced a recent upward trend in the past six months due to Russia’s attack on Ukraine. As shown in the graph below, the price of oil has increased by about fifty percent in the past three months and has reached $115 in June, from $70 at the end of last year. During this period, the price of oil in Iran has also increased. According to the latest report from OPEC, the average price of a barrel of heavy oil in Iran in June 2022 has reached $115.85, an increase of seventy cents compared to the previous month.

Growth of Iran’s exports.

According to Oil Price, the global increase in oil prices has affected the Iranian oil industry and China, Russia, Turkey, Venezuela, and Afghanistan are interested in buying more oil from Iran. Market experts believe that the new agreements between Iran and the West will result in an additional 500,000 to 1 million barrels of oil entering the international markets, which is enough to put pressure on prices. Iran also has approximately 100 million barrels of oil in storage, which can easily be sold after reaching an agreement, and this amount will also have an impact on prices.

A few days ago, Ehsan Khazaei, the Minister of Economic Affairs and Finance, announced that due to the increase in oil exports and the new exchange rate of Iran, in the first four months of this year, they have faced a 580% growth in their oil and gas revenues.

According to Bloomberg (2), while Iran’s oil exports have faced significant growth, negotiations between Tehran and global powers have been halted since March. Independent oil traders are pessimistic about the negotiators reaching an agreement, but believe the United States may not oppose Iran’s entry into global markets even without reviving the nuclear deal. Gasoline prices in the US have reached $4.80 per gallon. It seems that in the current situation, America needs to reduce unprecedented oil and gasoline prices before the midterm elections in November. Therefore, it appears that the decision for Iran to enter global markets is a self-serving one by the US.

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Although it may seem that in recent months Iran has supplied more oil to its customers and due to the increase in oil prices, Iran will receive more income from oil and gas exports, the natural decline in production in large oil fields will be a major challenge in this area. However, predictions indicate a short-term increase in demand. With the continued absence of major oil companies in Iran’s oil and gas fields and the lack of new investment injections, it is unlikely that production will decrease to the point where it will equal domestic consumption within the next decade.

Notes:

1- Iran’s oil and gas market is expected to grow by 3.4% annually until 2027.

Business Wire

July 26, 2022.

2- Wallace, Paul, and Vitol say: “The United States may allow Iranian oil to flow; even without an agreement.”

Bloomberg.

June 5, 2022.