Vera De Ladoucette, Senior Director of Middle East Research, Cambridge Energy Research Associates (CERA)

Mohamed Hamel, Head of Energy Studies Department and OPEC Secretariat

In the recent decades oil has had a significant contribution to the global economy. The rapid economic growth required for creating jobs for the younger generation needs a significant rise in external trade exchanges, including oil exports. Therefore, the country needs to develop its oil sector to use the revenues for promotion of other sectors. The government of Iran has the production and export of crude oil to thank for around 55% of its revenues and the country owes around 75% of its hard currency revenues to the same source. Therefore, oil revenues play an undeniably significant role in raising the living standards of Iranians. The oil sector has accounted for hard currency revenues under the Third Five-Year Economic Development Plan (March 2000-2005) and it has provided major help to the preservation of inter-generation interests, boosting investment and stabilizing the macro-economy.

Regarding the conformity of oil revenues maximization and membership of OPEC, the Minister of Oil said that predictions show that demand for oil would continue to rise so that the annual rise in oil demand is predicted to hit 1.5% in the next 20 years. In the future, the global demand for oil would turn to OPEC and with appropriate investments Iran can account for the largest share of supply. In that case, Iran cannot ignore OPEC policies and objectives. The minister reiterated that Iran has always been committed to OPEC's production quota. Boosting oil production can bring stability to market and serve the interests of the country and the Organization of Petroleum Exporting Countries," he said, stressing the need for more investment in the oil sector.

Iran has pressed OPEC members to enforce curbs agreed last month by the organization in a bid to avoid any possible slump in the oil prices. OPEC agreed on 24 September 2003 to cut production by 3.5% from 1 November 2003 as the group sought to stop international supplies building as Iraq’s post-war production recovers and Russian output rises. Iran, OPEC’s second biggest producer, will slice spot crude sales into Europe as it enforces OPEC’s cuts. About 60% of Tehran’s oil sales are destined for the Asian market, the remainder mostly to Europe.

The global perspective of oil supply and demand, the future of OPEC and Iran’s status within the organization, oil revenues, investment in Iran’s oil sector and legal aspects of financing oil development projects were other topics addressed in the two-day seminar. The participants at the conference analyzed the impact of oil prices on the economy, sought alternative energy resources and tried to streamline bureaucracy in the energy sector. The seminar also focused on Iran’s status within OPEC and possible weakening or reinforcement of the organization in the years to come. Lecturers discussed investment in Iran’s upstream oil sector, technical developments and its future prospects in comparison with the region and the world. The seminar also discussed the consequences of sanctions on Iran’s oil sector and the possibility of oil stock exchanges.

In an interview with Mohamed Hamel, Head of Energy Studies Department and OPEC Secretariat, when asked how successful he rated OPEC’s policies for achieving its general goals, he replied "since 2000 OPEC has introduced the concept of the price band, by which prices are left to fluctuate between $22 to $28 per barrel, and whenever prices go over the band corrective measures are taken. If we look at the distribution of oil prices over the last four years the average is about $25 per barrel which is around the middle of the band. From that point of view, we can say that OPEC was really successful in achieving its target. Nevertheless, this has been done at the expense of market share and we have seen a decrease in OPEC market share, due mainly to the fact that there are large increases in non-OPEC supplies, in particular from countries like Russia.

That question was followed by another asking; would OPEC members prefer to control a larger share of the market or sell at higher prices. To which he replied; I don’t see the question as being that black and white. It’s oversimplifying the situation but the ultimate objective is maximizing OPEC member countries’ revenue, short-term and long-term. Currently with the projections we are having for the next five years we are seeing that we might have some difficulties in the next two or three years. And we think that effective and real cooperation from non-OPEC countries is now needed.

What incentives do non-OPEC members have for cooperating with OPEC? It is very simple. If you have a huge slump in prices and you have a very low oil price environment non-OPEC countries will also suffer from this. They will have lower revenues and they’re suffering will be exacerbated if they are also relying on natural gas like Russia which is exporting large quantities of natural gas to the European markets. And the price of gas is also linked to oil prices. So I would say that they will see a huge decline in their revenues so this is why I see a space for cooperation between OPEC and non-OPEC countries. I would say that the low oil price environment is so detrimental to all that this would create the conditions for cooperation. The question is do we need to have this cooperation before having the prices down or do we need to suffer from crises and then decide to cooperate. And I think the debate now is about this.

When asked if Iraq would stay in OPEC once it is in the position of exceeding its OPEC production quota he said that this is a question about a member country and that he would not speculate on it.

When Vera De Ladoucette, Senior Director of Middle East Research, Cambridge Energy Research Associates (CERA) was asked to rate OPEC’s actions for maintaining its market as an analyst from outside of OPEC she opined that OPEC has done a very good job in defending its price and defending its revenue, but it has done so at the expense of its market share. OPEC has been losing its market share for five years in a row now.

Asked whether this was good or bad news for OPEC members or in another words, would OPEC members prefer to have higher prices or more market; she said for OPEC members what is most important is neither price nor market share, it’s revenue. So as long as you can maintain revenue no matter how much market share declines it is not a problem. This decline only becomes a problem for OPEC countries when they begin to see that this trend will be continuing for five more years.

She dodged a question about what are the exclusive benefits of being a member of OPEC, or in another words, what benefits do OPEC members enjoy that non-OPEC members don't and is keeping these producers within the system; by saying that you can prop up prices by collective actions, as OPEC did in 1998-1999, where as if nothing was done the prices would have gone into the low teens.

How would you rate the LNG market, and do you think Iran can claim a higher share in that market? The LNG market is increasing now; especially since the United States is realizing that it has to rely on LNG imports because of its dwindling own gas production. But the LNG market is much more complicated than the oil market mainly because of its long term agreements that last for some 20 years for example.

Japan has so far taken no practical step toward the Azadegan deal even though it has officially declared that its oil diplomacy takes the priority over its relations with the U.S. On the other hand, it added, the Iranian officials have not given a clear response to the rival company of the Japanese consortium—the French Total—over the deal. Tehran had offered preferential rights to a Japanese consortia during President Mohammad Khatami’s visit to Japan in 2000 to develop Azadegan—Iran’s biggest oil field—for $2.8 billion. Japan in return had pledged to grant a three-billion-dollar credit-line to Iran over three years. However, it has not yet reached a deal with Iran to the effect after the deadline expired at the end of June. However, Oil Minister Bijan Namdar Zangeneh has said that Iran has cancelled Japan’s preferential rights to develop Azadegan oilfield, stressing that the measure had been taken 'long ago' when the deadline for the deal was over.

The Fourth Economic Development Plan has given priority to development of shared oil fields. During the Fourth Economic Development Plan the recovery factor of the fields will reach 28% and the country’s oil production will be attuned to production quota set by the Organization of Petroleum Exporting Countries (OPEC). Mentioning Iran’s oil production quota for 2009 at about 5.4 million barrels per day, the official noted that the National Iranian Oil Company must take long strides to achieve that production capacity.

Further in the conference, Eskandar Bavariyan, advisor to the managing director of the National Iranian Oil Company stated that the natural recovery factor for Iranian reservoirs was currently 20%, which could be increased to 25% after injection of fluids. The recovery coefficient after fluid injection is 30-35 percent. Elsewhere in the world they have succeeded to increase the recovery factor to 80% through combined injection (of gas and gas liquids). The number of active oil and gas reservoirs in the country is 77, including 59 oil and 18 gas reservoirs. To increase recovery from reservoirs such methods as conducting research studies; implementing seismological operations, especially 3-D seismography; rapid implantation of wellhead tests and selecting suitable reservoirs for horizontal drilling are proposed.