Oil & Gas
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| The Impact of the Middle East/Caspian Oil
on Global Energy Markets
Present
Supplies,
A combination of presentations and technical workshops, the event covered a variety of topics. Iran International took the opportunity to talk to some of the speakers for the following report. But first, a brief account of the Iranian Oil Minister’s opening speech: Synonymous with Oil Today, the Middle East and the Persian Gulf are synonymous with oil, and for better or worse, the region’s nations and political observers believe that whatever happens here has to do, one way or the other, with oil. The Caspian region, on the other hand, is also considered to have an important role in energy. Based on Iran’s current share of about 15% of OPEC total, we should nearly double our production capacity in the future. For this purpose, Iran has enhanced exploration operations and apart from the contracts signed in the past three years, future productions will include that of Bangestan, Cheshmeh-Khosh, Sarvestan, Dar-Khovain and the newly-discovered reservoirs. As for the increase in the production of gas, proportionate to domestic and regional needs, huge works in the upstream and downstream sectors are necessary. Amongst the most important activities in this sector one can refer to the agreements for development of the gigantic South Pars field. On the other hand, Iran has been trying to export gas to the neighboring countries via pipelines. Exploration activities are also going on in the Iranian sector of the Caspian Sea. Our studies indicated that the Caspian area reserve estimates have been exaggerated, perhaps for political reasons. In this regard, I would like to reiterate that the sooner the Caspian Sea legal regime is discussed, resolved and agreed upon, the better the littoral states’ interests will be served. Falling After Polls
OPEC members have borne losses as much as $50-60 billion due to the developments in the past years and oil price fall. This has left an unfavorable impact on their economy. Also because of the decline of the oil prices the volume of investment in oil exploration and production in producing countries has decreased. The measures taken in these fields are not at the expected level. The increase of oil prices is not due to a shortage of oil in the market, it is because of the heavy taxes which the Western countries levy on fuel and this is out the OPEC’s control. We agree that the crude price is “an element” in the fuel price, but it is only a percentage of the price. So, if you want to reduce the price of crude you should also reduce the tax. If prices go below $22 a barrel next year, there is no magic involved: we will cut production. Iran is one of the foremost members in the OPEC. Iran has a unique opportunity to expand its output. The gas potentials are very high, too. We are optimistic about the possibilities in Iran to develop additional capacity of production levels both in oil and gas. The question here is how to finance this huge expenditure needed to develop the capacity. Panic Scenario
The economic growth has been high and all these have helped the oil prices surge. According to the “basic scenario” it is predicted that by next year, demand will drop and supply will grow. Supply will increase by 3 million barrels per day and demand will decrease. Oil prices will decrease to $25 per barrel and the following year it will decrease to $21. The mechanism that OPEC has adopted recently works well when the prices are high, but not when the prices are low, mainly due to the fact that all OPEC members want to sell more and then they do not conform to their agreements within OPEC. Another scenario which is called “panic scenario” says the oil prices may even reach $40-50 per barrel, but suddenly the market may panic and this will lead to the reduction of stock prices and a crisis would emerge and finally the oil prices will drop again. The basic scenario is more likely to happen and more acceptable. This is while U.S. presidential elections do not play any role in oil prices. OPEC’s role here depends on its members. Generally, OPEC has so far played a significant role in setting oil prices. In the absence of OPEC, the supply would go up in accordance with the free market demand and in this case, the oil price would drop to less than $10 per barrel. Despite the limited production capacity of Iran, it has so far played a good role within OPEC and has influence there. Tough Competition
With respect to huge resources which exist in this region and also with the role that OPEC plays in setting global oil prices, the oil of this region could have a great impact on the global energy markets. With a 15% share in OPEC’s production, Iran can play a very significant role both within the Organization and outside. International companies need some conditions to be realized here to make investments. The most important is that they want their investments to be safe and the second is that the investors compare the return they get from their capital in Iran with what they get in other countries. Therefore, this country should endeavor to be more competitive if it wants to attract potential investors. Time for a New Model
I am not much in favor of buy-back. I understand the reasons based on which the buy-back formula was adopted, but I think as Iran opens up and as the industry is matured, it is not time to go for a more traditional route which in the industry is the production sharing contract. This is the model used by most of the world for risk and work sharing between foreign oil companies and host governments. I think it is time for Iran to look at those models which will be much more popular for the companies, because they understand how they work and at the end of the day there will be more profit for Iran. The buy-back model is simply a way of financing; it is a way for Iran to raise money and buy services from companies. But you are basically giving 20-30% of return, you are borrowing at 20-25 or 30%. Iran could borrow money at a third of that and buy the same services from the same host. Iranian oil industry should reduce the size of the bureaucracy, streamline procedures, provide greater transparency in dealings with the international oil companies, clarify the rules of the game and explain them clearly to outside investors. For the past 100 years, Iran has always remained very strategically positioned in the Persian Gulf region. Iran is coming out of its isolation and by rejoining the rest of the world from the diplomatic-political point of view, the economic situation will further improve here. Hopefully, the future developments will expose Iranians to the outside world and expose the outside world to what has been for 20 years a mystery of Iran. This is also a fantastic tourist location and increasing the number of tourists will bring about substantial revenues for Iran. I am very optimistic and very hopeful. Reaffirming a Partnership
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