How do you see the future, Mr. Minister?

What is currently discussed as economic diplomacy is taking regional and global considerations into account to lessen political influences and increase role of economic indexes in management of Iran’s energy sector.

Iran’s general policies in oil and gas sector show that expectations from energy sector are serious and increasing. Therefore, suitable approaches and mechanisms should be taken; so as to increase oil and gas exploration, identify new energy sources, increase crude production output in proportion to existing reserves and boost the country’s economic, security and political power. Those policies should stipulate that gas production capacity should also increase in proportion to volume of gas reserves until domestic need is met and maximum replacement is made with oil products. On the other hand, due attention should be paid to basic and developmental research, specialized manpower training, efforts at establishing centers for technology transfer as well as energy engineering at a global level, in addition to promoting technologies with regard to oil, gas, and petrochemical resources and industries.

Iran’s sovereign system has accepted that energy sector needs a lawful organization to attract needed financial resources from inside and outside the country to oil and gas sector within frame of “legally authorized sectors” and due to regional and geographic situation of the country, measures should be taken for trading, processing, refining, swapping and transferring oil and gas resources of regional countries both to domestic and global markets. High consumption and resultant costs with regard to oil revenues have convinced the ruling system to be serious about optimization of consumption and reduction of energy intensity and it has aimed at supplying its energy resources to the world after converting to oil, gas and petrochemical products instead of exporting them in crude form.

The important point with this 20-year perspective for oil and gas industry is where the plan stipulates that total investment in oil industry up to 2015 should surpass 150 billion dollars.

Former managers of oil and gas sector under the reformist government believed that direction of large-scale policies should be changed because temporary changes as well as replacing some policies cannot accomplish much. Therefore, the government gave up old views that looked upon oil as a revenue source and a fulcrum for budget which should supply current and other expenses; so as to lay grounds for establishment of a “knowledge-based oil industry” which would use oil revenues to good effect instead of letting the government gobble them up. In this way, oil revenues could work as impetus behind development drive. Therefore, oil companies should change their articles of association and give up their noneconomic and political nature to become efficient and technical corporations capable of being active at international level. To put energy consumption inside the country in order and reduce energy intensity, we need a new consumption model to realize government’s dreams about optimizing energy consumption through replacing separate managerial approaches to supply and demand with an integral management system. To do this, we must improve one of the most important development factors: we must improve quality of oil industry manpower and elevate energy management to a level that it would look to the future instead of looking to the past. Of course, changes would not be limited to internal policies of basic reforms because relying on internalization and limited markets will challenge mere survival of Iran’s energy sector and there is no way but to exercise economic externalism, developing market, diversifying demand, and diminishing foreign tensions to pave the way for expiring high value-added products in place of raw materials exports. What is currently discussed as economic diplomacy is taking regional and global considerations into account to lessen political influences and increase role of economic indexes in management of Iran’s energy sector.

Those who drew up Iran’s 20-year perspective plan have considered Iran to deserve to stay atop of regional countries in economic, scientific and technical terms and have stressed constructive and effective interaction in international relations. Therefore, they have considered top priority for Iranian oil and gas industry which should rank the first in terms of oil and gas technology in the region. On this basis, priority has been given to interaction with countries and companies enjoying advanced technologies, creating a center for transfer, production and promotion of modern oil, gas and petrochemical industries in the Persian Gulf region and bolstering research and development institutes of Iranian organizations as the main goals of the government for two decades to come. Ministry of Petroleum, National Iranian Oil Company National Iranian Oil Refining and Distribution Company, National Iranian Gas Company and National Petrochemical Company have been required to follow those goals from now up to 20 next years. Ranking the first in terms of oil and gas technology in Persian Gulf region is one of four dimensions and a pleasant picture which has been depicted by the government.

Global players need energy resources to keep their economies going and hydrocarbon sources will remain the main energy source of the world up to 2050.

The general goals of 10-year plan for oil and gas industry has it that Iran’s production capacity for crude oil, condensate and gas liquids should increase from daily average of 5.8 million barrels to 7 million barrels and the country should give out a daily average of about 1,300 million cu. m. natural gas in 2015 while refining capacity should increase to 2.5 million barrels per day and value of petrochemical products should hit 20 billion dollars per year.

The important point with this 20-year perspective for oil and gas industry is where the plan stipulates that total investment in oil industry up to 2015 should surpass 150 billion dollars. Will domestic sources be enough to make such a huge investment? Conclusion reached by the previous government was that projected financial resources to be earned through profits and reserves of state-run oil companies could only account for slightly more than 25 percent of that figure. Therefore, about 75 percent of needed resources should be supplied by domestic cooperative and private sectors and, especially, through foreign resources in the form of foreign direct investment, which should be attracted as finance and buyback. Also, out of the said 150 billion dollars investment, 100 billion dollars could be allocated to domestic executive capacities through correct planning.

Minister of Petroleum Vaziri Hamaneh and his aides would need 30 billion dollars to make Iran rank the first in terms of petrochemical products in the Persian Gulf region by 2015; that is, an average of 3 billion dollars per year should be given to the National Petrochemical Company to achieve its goal of producing 20 billion dollars worth of petrochemicals per year. The plan drawn up by the former minister included using natural gas cuts as primary feed, correcting and bolstering production chain from upstream to downstream products, creating new production capacities, domination of economic corporation management view, structural reforms in petrochemical industry to help it survive at international level, maximizing added value of petrochemical products, joint investment with other companies and countries, influencing market management in Persian Gulf region, attracting investment and providing financial resources, and finally, supporting and bolstering domestic private sector.

According to the draft of the oil industry perspective plan, the National Iranian Oil Company needs about 50 billion dollars to rank the second among OPEC member countries in terms of oil production and account for 7 percent of global market demands. To attain that goal, Iran should increase its daily oil production capacity to about 7 million barrels. This will require increasing production capacity of gas condensate and gas liquids, identifying all hydrocarbon reserves and increasing production from those reserves while giving priority to joint reserves which are shared with other countries and increasing recovery factor for crude oil. To achieve those goals, we must not only improve bilateral and multilateral regional and global cooperation, but regulations and structure of the National Iranian Oil Company should be changed in such a way as to make it an economic corporation, boost its competitiveness in global market, and increase transparency of the company’s financial relationship with the government while maximizing added value in oil industry and establishing support and maintenance industries as well as suitable engineering services.

Supporting the private sector and joint investment between Iran and other countries and foreign companies in addition to attracting investments and mobilizing financial resources, accepting partnership and developing regional cooperation for exploration, extraction and exploitation of oil reserves; establishing a center for providing financial services and concentrating money markets; insurance and commodity exchange; as well as effective and positive presence in regional oil and gas markets by taking advantage of Iran’s geographical situation for promoting oil transportation and swap are major challenges to be faced by the minister of petroleum over the upcoming years.

Vaziri Hamaneh is quite familiar with the Ministry of Petroleum and the works of oil industry as testified by his work records in the ministry. When Bijan Namdar Zanganeh, who enjoyed the longest ministerial record among Iranian statesmen, left Ministry of Petroleum after eight years, he noted that the Iranian officials should take key factors of oil industry quite seriously and pay due attention to its weaknesses and fortes. Now, it is for the new minister of petroleum to show whether he respects the legacy of the past or considers it a collection of mistakes made by his predecessors which should be radically corrected. Iranian oil and gas industry draws its strength from control over 13 percent of proven global oil reserves and 18 percent of gas reserves and there is still possibility of finding new oil and gas resources in southeastern regions of Iran as well as in deserts and Caspian Sea. In addition to those advantage, propinquity to waterways which facilitate access to global markets and the possibility of oil and gas exchange with other countries according to swap contracts; existence of inexpensive Iranian workforce; over one century of working record in this industry; quality of Iranian oil and gas fields which minimizes exploitation costs; possibility of injecting gas into most oil fields and many other factors are among strengths of the Iranian oil and gas industry.

Major weaknesses that threaten Iran’s oil industry, however, are more serious and more institutionalized and this fact increases difficulty of overcoming existing problems by minister of petroleum. General atmosphere governing Iran’s oil and gas sector is noncompetitive, exclusive and protectionist and politics influence related decisions as well as macroeconomic management of oil industry. When this basic weakness is combined with the fact that oil industry funds most domestic projects while suffering from incongruous structure in upstream sector other weaknesses and challenges may be easily ignored. In this way, due attention will not be paid to necessity of upgrading technology used for oil production and the necessity of understanding rapid changes in the world and developments of global markets as well as the need to make use of various contracts in the turbulent international oil markets. Our neighbors do not lose a night or day to make the most of joint fields and our rivals are racing to attract trustworthy customers and this is a major future threat for our country.

The preamble of oil industry perspective plan reads: “Global players need energy resources to keep their economies going and hydrocarbon sources will remain the main energy source of the world up to 2050. Iran, Saudi Arabia, Kuwait, Iraq and the United Arab Emirates, will remain top five oil producers within the next 20 years and account for 65 percent of total proven world resources.” This is a major opportunity for our country. Global need to energy in the form of oil and gas, playing an active role in the Organization of Petroleum Exporting Countries, emergence of new markets in Asia, expansion of goods and commodity markets… are major opportunities presented to oil-rich countries of the world including Iran. However, such threats as changing political and economic structure of the world and establishment of a new economic and political world order combined with domination of competition and emergence of new players are present and future concerns for energy-rich countries.