A deadline between western nations and Iran over the country's nuclear activities in a move which could open the country to international oil firms has once again been delayed.
A deal, which would see sanctions lifted on the oil and gas rich nation, had expected to be reached 30 June, but has now been pushed back to July, as negotiations go into a 21st month.
But, should an agreement finally be reached, Western oil firms will face regulatory and political challenges in Iran even if they are allowed to re-enter the country, say commentators.
Britain, France, Germany, China, Russia and the United States, are hoping to reach a deal with Iran over its nuclear program in return for the easing of sanctions which have squeezed the country's oil trade and economy.
The sanctions have cut Iran's oil exports by more than half to about 1.1 MMb/d from a pre-2012 level of 2.5 MMb/d, with the loss of oil income making it difficult for the country to invest in new developments and pay for equipment and services is needs to keep production operating smoothly.
According to Facts Global Energy, if Iran and the West succeed in coming to an agreement over the nuclear program, Iran would have the potential to supply an additional 1 MMbo/d into the international market within a short period of time.
“Iran could also emerge as a significant regional pipeline gas exporter over the next few years as well,” it says. “In addition, significant natural gas resources at relatively low costs, compared with other international markets, would provide new investment opportunities for the international oil and gas players in the Iranian petrochemical sector.”
FGE says Iran is changing its regulatory framework, by introducing a new upstream contract model. The new terms of this contract model are designed to entice some of the international players back to Iran for investment.
According to Wood Mackenzie, a deal to lift sanctions against Iran over its nuclear deal is likely to go ahead. But, it says: “Western oil and gas companies returning to or entering Iran in the wake of a deal will face a broad range of political and regulatory challenges. These range from an inefficient petroleum bureaucracy to heightened regional tensions.” Wood Mackenzie says Iran presents a range of important oil and gas opportunities covering the whole value chain, from exploration to petrochemicals.
Iran has the third largest oil and gas reserves in the World (behind Russia and Venezuela and ahead of USA and Saudi Arabia). Three quarters of its total recoverable reserves are yet to be produced, says Wood Mackenzie.
For the offshore sector, gas is the biggest potential prize. Wood Mackenzie says gas production and export potential is enormous but more in the longer term. Iran has the second largest gas reserves in the world, second only to Russia, according to the EIA but its market share of the global gas trade is less than 1%, says Wood Mackenzie. Wood Mackenzie expects gas production to increase sharply – from 19.3 Bcf/d in 2014 to 24 Bcf/d in 2017, representing a 24% increase.
The country is home to the South Pars field, in the Persian Gulf, holding some 40% of Iran’s proved natural gas reserves, according to the US Energy Information Administration. Five new South Pars phases are coming onstream in 2014-2015, Wood Mackenzie says, eventually increasing production capacity by more than 6 Bcf/d at the world’ largest gas field.
Iran also has offshore oil reserves. According to the EIA Iran holds 10% of the world’s crude oil reserves, about 70% onshore, with the rest mostly offshore in the Persian Gulf, with some in its Caspian Sea waters, where it has territorial disputes with Azerbaijan and Turkmenistan.
Wood Mackenzie says Iran could add crude oil production to global supply of 600,000 barrels a day (b/d) by end 2017, incrementally on an annual average basis of: 120,000 b/d by end 2015, another 260,000 b/d end 2016, and another 220,000 b/d end 2017.
The firm says the gradual rate of growth is not expected to have a significant downward effect on oil prices.
Total crude production capacity could rise from 2.7 MMb/d in 2015 to 3.4 MMb/d in 2020 – and could as much as 4.4 MMb/d by 2025 with foreign direct investment in the upstream sector, says Wood Mackenzie.
But, it says Iran’s oil and gas industry is in need of significant external investment. Wood Mackenzie says the new upstream terms will be clarified by 2H 2015 and are expected to be more attractive than the previous buy-back contracts, in which returns have underwhelmed.
Shell has reportedly already been holding talks with Iran. Reuters reports that the company met Iranian officials in Tehran to discuss Shell's outstanding debt to National Iranian Oil Co. (NIOC) and potential areas of business cooperation, should sanctions be lifted.
According to Reuters, Shell has abound $2 billion in outstanding debt to the Islamic Republic as a result of Iranian oil deliveries which Shell had been unable to pay due to sanctions.