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March 2003 / No. 22

Oil & Gas

Ali Milani, Managing Director of Bank Tejarat

Bank Tejarat Financing for the Future

"It is not only industries that are pursing such policies; Iran’s Bank Tejarat issued millions of dollars worth of guarantees to support the South Pars project."

Eighty years pass since the discovery of Iran’s first oil well. During this time the industry’s technologies have been constantly advancing and the emergence of globalization has endowed this technological advancement with unprecedented vigor. These advancements have been to an extent that they have transformed all three aspects of discovery, recovery and consumption. These technologies have brought about risk and cost reduction, recovery speed and efficiency increase for the producer and reduction of usage for the consumer, thus benefiting both sides. In addition to production and consumption a third factor has now emerged and that is the market or the energy stock exchange. This has turned energy management to a critical quality on the repertoire of both producers and consumers, pursed with the utmost care and precision to avoid the slightest mistake that could deal great and irreparable damage.

The success of oil-rich countries is now contingent on their energy management policies and they can no longer linger in their simple production for export mentality. Technological advancement and globalization means the producers most now take the consumption and market factors into consideration, lest they exacerbate the problems they already face. The limitation of oil and gas reserves has draw attention to alternate sources of renewable energy, which means companies in oil-rich regions must cooperate like never before.

Iranian companies have not had adequate participation in the oil industry in the past, but their development and advancement in recent years means they are now using state-of-the-art foreign technologies and cooperating with their foreign counterparts to an extent that they are now capable of undertaking oil, gas and petrochemical projects as well as the construction and design of sophisticated machinery which is a phenomenal leap if compared with only a decade ago. These companies will be of great assistance to Iran who must provide 12% of OPEC’s daily output over the next 20 years.

"The success of oil-rich countries is now contingent on their energy management policies and they can no longer linger in their simple production for export mentality."

To meet this demand, Iran must increase its investments in development, discovery, recovery and production of oil and gas, especially those found in joint fields. Another method is injecting oil fields with gas to boost their yields as well as strengthening gas’ share of the energy basket and the gradual replacement of the 1.3 million barrels of crude oil used daily to meet domestic energy demands. Gas export is also on the agenda, hoping to make Iran a transit highway connecting Europe and East Asia. Foreign cooperation must be taken seriously with technologically advanced countries, in an attempt to reduce costs, boost efficiency and expand the capacity of Iranian companies. In short, the oil industry must be administered as an economical institute, with constant growths in efficiency.

These measures will lead to job opportunities being created by major companies who strive for the advancement of domestic industries while pulling in a wide spectrum of other companies to take part in oil and gas upstream projects. The viability of these policies are assured by Iran’s wealth of gas resources, second largest in the world with 23 trillion cubic meters equivalent to 15% of the world’s natural gas. Half of this gas lies in the joint gas field of South Pars. Exploiting this gas field has become the oil industry’s topmost priority, as the field offers an unprecedented opportunity for not only the oil industry but all industries as well as the national economy. Energy analysts already assert that Iran’s economic future is inextricably linked with the South Pars gas field.

When South Pars’ 10 first phases commence production, they will account for 10% of Iran's gross national production (GNP). This share will only be going up, as gas is becoming ever more vital in Iran’s energy landscape, not just because if it's environmental-friendliness but also because there is almost twice as much gas in Iran then there is oil. 85% of the country’s major oil fields need to be injected with gas to boost their yields. For example, injecting 60 million cubic meters of gas in the Aghajari oil field will boost recovery by 2.2 billion barrels over 30 years.

Replacing gas with oil is therefore zealously pursued, with the gas grid now covering many households, factories and power plants. Gas’ share of the energy basket has risen from 38% in 1996 to 46% in 2001 and it is forecasted that today’s daily usage of 60 million cubic meters will double to 120 million cubic metes within a decade. The excess gas will be exported with cooperation of respectable corporations in different forms –through pipelines, LNG, GTL and DME– depending on the needs of Asian and European markets.

The petrochemical and its affiliated industries have also become lucrative export opportunities. In 2001 Iran’s National Petrochemical Company’s (NPC) production reached a total of 12.5 tons – 4 of which were exported. With the completion of 16 ongoing development projects –in which at least $7.5 billion has been invested– NPC’s production will exceed $7 billion by 2005 and Iran’s current 13% petrochemical production capacity in the Middle East will rise to 29% and its 0.76% share of the world market will leap to 5.8%.

In regards to the construction of foundational and contingent structures, such as sea platforms and pipelines, domestic manufacturers have achieved a great deal, clearly visible from their activities in South Pars. Iran’s oil industry has been pursuing supportive policies to encourage the domestic manufacture of the devices needed by oil, gas and petrochemical industries, to an extent that it placed $250 million worth of orders with domestic manufacturers. Today, many of our companies have achieved world-class quality standards and are even looking to export their technological advancements.

However, it is not only industries that are pursing such supportive policies; Iran’s Bank Tejarat has issued millions of dollars worth of guarantees to support the South Pars project. Bank Tejarat believes the future of Iran lies in the gas fields of South Pars and therefore withholds no effort or investment for furthering its cause, as its cause is one and the same with that of Iran.
 

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