Iran once produced more than 6 million barrels crude per day, but despite all efforts, the current figure stands at 4 million barrels while tens of billion of dollars have been invested in the domestic oil industry.

There is no doubt that Iran enjoys huge gas reserves and many countries are looking toward those reserves. However, there are many discrepancies with regard to the fate of those reserves. Some people maintain that Iran should export gas to other countries to, firstly, cement trade and economic ties with other countries, and secondly, use that tool to achieve its political goals.

On the contrary, there are others who believe that gas exports should be curtailed and gas reserves should be used to boost oil production. There is another view, however, which emphasizes on the importance of replacing other fuels with natural gas in the country. There are other groups that favor a combination of the above options.

The question is can’t we do anything to increase recovery from domestic oil fields? A glance at the method used to extract oil from domestic fields will give a negative answer to the above question and similar questions.

Technology is currently helping oil extraction from oil fields and we can no longer rely on old oil production methods. Released figures show that Iran has extracted about 57 billion barrels from oil reserves over the past 10 years. The highest figure pertains to 1978 when Iran’s daily crude oil production surpassed 6 million barrels.

Interestingly, Iran was producing 5.1 million barrels per day by drilling only 400 wells in 1976. Now, despite 1,500 oil wells have been spudded, oil production has fallen drastically and most experts believe that the one and only solution to this problem is injecting gas into oil fields. To explain this and its effect on the national economy, we must first explain the oil in place and recovery factor.

Oil in place indicates the volume of oil in oil reservoirs. Statistics related to oil in place are usually announced as primary oil in place, that is, the volume of crude oil which is reported at the time of discovery and before exploiting reservoirs. Unofficial figures have put the volume of oil in place in offshore and onshore oil fields at about 450-500 billion barrels. The figure, however, does not mean that Iran enjoys 450 billion barrels crude. The actual oil volume depends on a variable known as recovery factor. For example, if recovery factor is 25 and total oil in place is 500 billion barrels, then the actual extractable oil will equal 125 billion barrels.

Back to the main question, is it possible to prevent falling production from domestic oil fields?

The answer, in view of the recovery factor, is positive. In other words, if the country managed to increase recovery factor from 25 to 30, the volume of extractable crude will increase from 125 billion barrels to 150 billion barrels.

Unfortunately, performance of the Iranian Ministry of Oil shows that Iran has never achieved its goals with respect to gas injection into oil fields. According to the Second Economic Development Plan (1995-1999), at least, 101 million cubic meters of should have been injected into oil fields during the first year of the plan while the figure for three following years was set at 130 million cubic meters. However, actual gas injection during the first year of the plan stood at 54.6 million cu. m. per day while respective figures for years equaled 58.4 million cu. m. per day, 61.2 million cu. m. per day and 67.4 million cu. m. gas per day for 1996, 1997 and 1998. The figure for the last year of the plan, that is 1999, stood at 67.75 million cu. m. per day. The said statistics show that about half of the country’s goals for injecting as into oil fields have been achieved. The remarks made by the former Minister of Petroleum, who was addressing the Islamic Consultative Assembly (Majlis) on 12 January 1999 are noteworthy.

Bijan Namdar Zanganeh told MPs that 70 million cu. m. gas was injected in oil wells at that time and the figure was to be increased by about 200 million cu. m. per day. Of course, situation of gas injection during the Third Economic Development Plan was no better than the Second Economic Development Plan. According to the Third Economic Development Plan, 509 million cu. m. gas was to be injected into oil fields during the plan. The actual figure fell short of that goal by 134 million cu. m. gas. Statistics show that realization figures for gas injection into oil wells stood at about 88 percent in 2000, about 83% in 2001, and more than 80% in 2002. The figure reduced to 57% in the last year of the plan.

In view of the above facts, some economic experts maintain that gas export will not be economically feasible for the next 15 years to come and Iran should stop exporting gas as soon as possible and think about injecting more gas into oil wells. For this reason, participants in a conference on Iran’s economy and international economy pointed out that if Iran were serious about exporting gas to India, the country would be short of about 44 million cu. m. gas for injection into oil wells during 10 years to come. One of the participants ask why after a century of oil sales, we must start the 21st century with gas sales when we can inject gas into oil fields to increase their productivity.

Apart from that, some regions in Europe and other Persian Gulf states are on the waiting list for signing gas export contracts with Iran. Although as long as the final text of signed contracts have not been made public and as long as we do not know the price of exported gas, it would be difficult to judge the cost and benefits in this regard, when compared to the benefits of gas injection into oil wells, economic profits of gas exports are insignificant.

It is in view of this fact that the question now is why we must think about increasing gas exports?

The recent political developments may provide relative explanations in response to the said question. Let’s assume that the Iranian gas will reach Europe and India during the current year and Iran is introduced as one of the most important sources of energy for Europe, India and Pakistan. At the same time, Iran’s nuclear dossier is being reviewed by Board of Governors of International Atomic Energy Agency. In that case, Iran’s nuclear dossier will fare in a better way in the Board of Governors.

This was only an example to show that expanding Iran’s gas export to neighboring and other countries is only a strategy, an option which cannot be easily overlooked. Experts that emphasize the necessity of injecting gas into oil fields should change their mind after taking into consideration the above facts. However, enormous economic benefits of injecting gas into oil fields are nothing to be ignored easily. This issue should be looked upon both from a purely economic angle once and then should be considered again from both economic and political viewpoints. It is noteworthy that every percent increase in recovery factor of domestic oil reserves will be translated into about $250 billion according to the current average oil prices. Gas injection is one of the best methods for achieving that goal. Of course, the issue of gas injection into oil wells involves a lot of financial and technical problems and complexities which cannot be elaborated here. In short, the results of gas injection will be obvious in 10-15 years from now and we must not expect short term results from gas injection. On the other hand, since many oil industry projects are carried out according to buyback contracts, we cannot expect investors to use gas injection method because in buyback, investor seeks a rapid return on investment as soon as oil is extracted and this is not compatible with gas injection. Therefore, another problem facing the country with regard to gas injection policy is shortage of financial resources.