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$5bn Package for Iranian Companies

The third annual Congress of the Iran Petroleum and Energy Club (IPEC) was held October 10-12 in Tehran.

$5bn Package for Iranian Companies
(Wednesday, February 7, 2018) 09:42
Addressing the opening ceremony, Iran's Minister of Petroleum Bijan Zangeneh said a $5 billion package had been drawn up to enhance production from operating oil fields in Iran.

"In order to preserve and enhance production from operating fields in Iran, we are preparing a $5bn package over two years," he said.

"This package is exclusively for Iranian companies; however, they can choose foreign partners for financing," the minister said.

He added that the billion-dollar package was complementary to Iran's new model of oil contracts – Iran Petroleum Contract (IPC) – which require foreign companies to have an Iranian partner for operating oil projects in Iran.

"Preparation of this package and implementation of these projects would be apart from projects that would be implemented" under IPC framework, Zangeneh said.

The package, he added, would mainly be spent on workover of oil wells, drilling new wells, surface debottlenecking, and operation. A variety of fields run by the National Iranian South Oil Company (NISOC), the Iranian Central Oil Fields Company (ICOFC) and the Iranian Offshore Oil Company (IOOC) would be covered by this package.

"This $5bn package will be divided into smaller packages which would worth $300 million at most," said the minister.

Zangeneh added that these projects would be implemented in two years' time with reimbursements to be made from project revenues in less than three years.

He referred to financing, usance, bonds, domestic financing and getting loans from the National Development Fund of Iran (NDFI) as some methods of financing.

IPC Talks in Good Stage

Zangeneh gave a positive and acceptable assessment of negotiations under way for the development of oil fields within the framework of IPC contracts.

"The policy pursued by the government and the Ministry of Petroleum is to finalize the case of all jointly owned fields within four years and determine contractors for their development. That's a big stride," he said.

Zangeneh expressed hope for the signature of contracts with leading foreign companies to develop jointly owned fields. He noted that foreign companies would have to work with Iranian partners.

The minister said development of oil fields in the West Karoun area in western Iran and enhanced recovery from operating fields were among priorities of Iran's petroleum industry.

Petchem Needs Attention

Iran's petrochemical sector was also highlighted by Minister Zangeneh. He said the Ministry of Petroleum called for enhanced production capacity at petrochemical plants and paying further attention to mid-stream and downstream sectors of petrochemical industry.

"We need to activate these industries in cooperation with the Ministry of Industry, Mine and Trade," he said.

Regarding construction of oil refineries, he said: "We don’t need oil refineries for domestic consumption. Any new refinery must be used for exporting petroleum products. Of course, the existing refineries need optimization in order to see convergence between the quality of products and new standards,"

No Flaring

Zangeneh also highlighted the significance of no flaring, expressing hope that flaring associated petroleum gas would have been minimized by 2021, when his ministerial term ends.

He referred to NGL 3100, NGL 3200, NGL Kharg and Bidboland 2 as plans under way by the Ministry of Petroleum for no flaring.

"These projects are not sufficient. We have to adopt successful methods in order to prevent flaring of associated gas," he said.

Zangeneh also said the first FLNG (floating liquefied natural gas) contract would be signed in the near future.

"The capacity of this FLNG is 500,000 tonnes a year, whose required gas we will be supplied by us," he added.

IPEC, Influential NGO

Zangeneh also described IPEC as an influential non-governmental body, saying it was finding its right direction.

"This club is continuing its life and will reach growth and blossoming," he said.

Zangeneh said the idea of IPEC establishment was raised in 2011 for the purpose of setting up a think tank for oil and energy without any dependence on government.

"We always seek to develop thoughts. I hope that more youth would join this club which has less than 200 members now," he said.

Trump Rhetoric Not Worrying

The second speaker was Ali Kardor, CEO of National Iranian Oil Company (NIOC).

He said that US President Donald Trump's anti-Iran rhetoric was not worrying.

"There is nothing worrying about Trump's remarks. A good path has been traced in Iran which I hope would continue in full strength," he said.

Kardor said 10 contracts were to be finalized in the current calendar year to March 2018.

He also referred to the conclusion of studies conducted by foreign companies, saying: "Hopefully these companies have understood our message of the significance of enhanced recovery and they have taken into consideration EOR and IOR methods in all their studies."

"At this stage, only technical proposals would be examined. In case technical aspects are reviewed and endorsed at the three layers of technical committee, reservoir consultants and reservoir supreme consultants, economic and contractual negotiations will be put on agenda," he said.

Kardor said Iranian exploration and production (E&P) companies had still time to establish bonds with foreign companies for future cooperation in the development of fields in Iran.

"Some foreign companies have yet to choose their domestic partners and we hope that Iranian E&P companies would boost their standards to become further influential in this regard," he said.

Kardor said that $300 million packages were being drawn up for different projects. "Necessary tender bids will be held and we hope that would provide potential for domestic companies and subsequently domestic manufacturers to boost their activities," he added.

Iran H/C Standing

Kardor said Iran was standing in a top position in terms of hydrocarbon reserves. He said Iran had brought its oil output to 6 mb/d before the 1979 Islamic Revolution.

"Over the past two years, by reliance on enhanced recovery we have concluded that reaching that level of production capacity is possible through practicing optimal management, enjoyment of foreign investment and state-of-the-art technologies," said Kardor.

He said the 6mb/d target would be achieved under Iran's 7th Five-Year Economic Development Plan.

Kardor said plans were under way for raising Iran's oil output to 4.5 to 5 mb/d by the end of the 6th Five-Year Economic Development Plan.

He said the cost price of oil production in Iran was acceptable, saying: "The cost price of oil production in Iran in foreign currency puts Iran among countries with lowest production costs. As we regularly monitor the economic model of international companies, Iran is among the best countries in the world in terms of profitability in this sector."

Kardor referred to field-oriented project implementation and said: "The resultant of outputs and specifically regulation of portfolio are among features of field-oriented performance. New oil contracts and other contractual frameworks for field development lie within such a framework."

He said that NIOC was planning to hire Iranian production companies to work in the West Karoun fields. "We had better establish companies for this purpose to work specifically in this sector. So far, some companies have become active in this sector."

Kardor said that international oil companies (IOC) had focused on reservoir and project management, as well as financing. "That is while Iranian E&P companies are still stuck in engineering, procurement and construction (EPC). They need to change their conditions."

He voiced support for assigning NGL projects to petrochemical companies, saying: "We are ready to cooperate with these companies in the development of fields and we have so far assigned studies on two gas fields."

Kardor said Iran needed no more gas for domestic consumption. "Therefore, the gas produced in the fields must be converted to petrochemical products in the value chain."

1st FLNG Contract

Kardor said Iran was set to sign its first FLNG contract, with a capacity of 500,000 tonnes, with a Norwegian company soon. The contract will be for 20 years and the pricing formula will be set and communicated by the Ministry of Petroleum.

He said that NIOC was in favor of private companies in building water desalination plants and power plants.

"Companies are required to give realistic prices in the tender bids, because NIOC studies the commerciality of projects and will shun projects with insufficient commerciality," he added.

Kardor said NIOC had to cancel a project due to unrealistic price. "We hope that companies would offer realistic prices in order to help the NIOC in its policy of further cooperation with the private sector. If not, we will have to implement these projects through our own direct investment."

He welcomed build-operate-transfer (BOT), build-operate -own (BOO) and public-private partnership (PPP) models for projects.

"Australia and India are among countries that pursued PPP model and they achieved positive results," said Kardor.

Issue of Bonds

Kardor also spoke about methods of financing of projects, saying bonds in Iranian currency were to be issued for the first time on a foreign currency basis. He noted that NIOC would hedge risks of these bonds.

He said that necessary arrangements had been made with the Iran Energy Exchange.

Gas, Best Option to Cut Pollution

Mohammad Hossein Adeli, Secretary General of the Gas Exporting Countries Forum, (GECF), said natural gas market was being influenced by political and technological elements.

"Weather conditions, economic expansion mainly in Asia (China, India), competitive prices and environmental concerns are expected to boost natural gas consumption towards 2018," Adeli said, estimating a 2.1% to 2.3% increase in gas consumption.

He said that world energy demand is projected to grow by 1.1% a year between 2017 and 2040 mainly for a population growth, global economic prosperity due to the emergence of new economies and higher living standards.

"Natural gas will grow by 1.8% per annum and will be the fastest growing fossil fuel in 2040," he said.

"Fossil fuels are expected to meet 75% of the world's energy demand," Adeli said, adding that coal would be replaced increasingly by natural gas, renewables and nuclear power in power generation.

"The share of gas in the overall energy mix will increase from 22% in 2016 to 26% in 2040," he said.

"Cheaper prices of gas compared to renewables, ample global natural gas reserves and gas oversupply" were among factors enumerated by Adeli to support his idea.

He said that power generation will remain the largest natural gas consumer among all sectors, hitting 2,317 bcm in 2040.

"The share of gas in power generation increased from 18% to 23% between 2000 and 2016, and will continue to rise" to reach 28% by 2040, he said, adding: "That represents the largest market share of any fuel."

The share of renewables in the global energy mix was only 8% in 2016 and would reach 20% in 2040.

"Gas has a good competitive position against renewables, and also coal, especially if environmental externalities are integrated," Adeli said.

"Gas market is now very competitive and is passing through a changing and challenging transition," he said.

"There is a momentum for CO2 mitigation, and in spite of the US withdrawal China and EU are leading the world for this cause," added Adeli.

Gas and renewables are two fuels that can effectively address the global concerns on the climate change," he noted.

"Gas provides a global solution for all, while renewables will remain an EU centric solution for long period of time to come. Electrification of vehicles will not be overwhelming; on the contrary, it is again an opportunity for gas to grow as there is a need for more electricity generation," he said in conclusion.

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