U.S. Energy Information Administration Report on Investment Challenges in Iran's Oil Sector

The U.S. Energy Information Administration, in its latest annual report on Iran's energy sector, states that the country's oil and gas fields are developing slower than expected. According to this report published on Monday, April 8, on the official website of this energy agency, Iran's projects during the sanctions were developed slowly, and after the sanctions were lifted, it faced challenges in attracting investment and technology from foreign companies. After the JCPOA, Iran managed to sign a $5 billion contract with a consortium led by Total France for the development of Phase 11 of South Pars and a $741 million contract with Zarubezhneft of Russia for the development of the Aban and West Paydar fields. However, none of the mentioned companies have yet begun investing in these projects. According to the report, Iran, with 157 billion barrels of oil and about 34 trillion cubic meters of gas, is the fourth and second largest holder of oil and gas reserves in the world, respectively. Last year, the country produced 3.8 million barrels of crude oil and 900,000 barrels of other liquids and gas condensates daily. The daily gas production was also close to 600 million cubic meters. In total, oil, gas condensates, and raw gas account for 98% of Iran's energy consumption. According to the U.S. Energy Information Administration, Iran consumed about 270 million tons equivalent to crude oil in 2016, which is a 40% increase compared to 2006. Last year, Iran exported a total of 2.5 million barrels of crude oil and gas condensates daily, as well as 34 million cubic meters of gas. Overall, the country's oil and gas exports increased by 8.7% and 50%, respectively. In June of last year, Iran began exporting gas to Iraq, which led to a significant jump in Iran's gas exports over the past year. However, according to the U.S. Energy Information Administration's assessment, although Iran is the third-largest gas producer after the U.S. and Russia, due to its massive domestic consumption, it holds only a 1% share in global gas trade. The amount of oil and gas condensate refining in the country was about 1.7 million barrels per day last year, which has not changed significantly. Iran also exported about 507,000 barrels of petroleum products daily, 83% of which was fuel oil and liquefied gas (LPG). Iran's petroleum product exports decreased by 16% compared to 2016. Additionally, Iran imported 80,000 barrels of gasoline daily. The report adds that after the JCPOA, Iran attempted to attract foreign companies to its projects by offering a new model of oil contracts that combines 'buy-back' and 'production-sharing' contracts, but progress is not meeting expectations, and Iran is forced to rely on the capacity of domestic companies. At the same time, when introducing the new contracts known as 'IPC', Iran expected to attract $20 billion in annual investment in the oil and gas sector, with 80% of that being foreign investment. The report further states that most of Iran's large active oil fields are in the second half of their lifespan, and their production is declining annually. Iran is currently trying to develop oil production from new fields in West Karun with the help of domestic and Chinese companies, which were contracted years ago, to prevent a decline in oil production. Recently, the energy consulting firm GlobalData reported that total investments in Iran's oil and gas fields are expected to reach $21 billion over the next three years. This amount of investment is one-third of what Iran had planned. Estimates from the energy consulting firm Wood Mackenzie also indicate that total foreign investments in Iran's oil and gas sector after the sanctions were lifted were about $1.3 billion, which is approximately 4% of what Iran expected.