Oil, Gas, Refining & Petrochemical (Plant Design & Construction) Market in Iran

Iran has been identified as a high priority market for the oil and gas sector. This priority is a result of the high level of investment now and anticipated, for both oil and gas sectors to increase oil production from existing fields, to develop new oil and gas fields and to increase the capacity of the country's refining and petrochemical sector to meet domestic requirements. Large reserves of both oil and gas ensure that this market represents a long-term business opportunity which will progress as foreign investment is secured.

Reserves and production data provide an indication of the current levels and the potential for future activity. Note that the value of reserves in the following table are the total of remaining proven and probable resources, based on identified discoveries.

	LIQUIDS	GAS
Production (per day)	3 688 000 barrels	5.9 bcf
Reserves	89 700 million barrels	812.3 Tcf

BP Statistical Review 2002

2.2 National Status
Iran has been an oil province since the early twentieth century and is the second largest oil producer with 9% of the world's reserves and 15% of the world's gas reserves, second only to Russia. Consequently oil production is important to the country, contributing 40 - 50% of the state budget and 80% of hard currency. Gas production is becoming increasingly. Production is beginning to flow in major reserves and associated gas transportation systems are being developed.

There is a national oil company: NIOC, with others concerned with gas (NIGC), refineries (NIORPDC) and petrochemicals (NPC). The constitution of the Islamic Republic of Iran prevents foreign companies owning Iranian hydrocarbon reserves. In 1990 the Iranian government created the "buyback contract" This enables foreign companies to invest in the development of oil and gas fields. It has a similar operation to a mixture of a service contract and a production sharing agreement.

Under the buyback contract the process of foreign investment in Iran begins with the interested contractor, operating through an Iranian afffiliate, entering into a contract with NIOC. The contractor develops the field and NIOC repays the costs that comprise capital expenditure (CAPEX), operating expenditure (OPEX) and accrued bank charges. Additionally, the contractor receives a pre-agreed remuneration fee, normally by way of an entitlement to an amount of produced hydrocarbon.

In October 1999, President Khatami announced an ambitious plan to privatise a number of industried including petrochemicals and even upstream oil and gas to an extent, as part of the next five-year plan (beginning March 2000). This plan remains politically contentious.

2.3 Country Attractiveness for Development
The country has major offshore gas reserves requiring development, particularly South Pars, mature oilfields requiring major investment for enhanced oil recovery (using gas injection) as well as new discoveries made over the last five years by NIOC. Iran has ambitious plans to double national oil production by 2020. It is counting on foreign investment to achieve this.

The buyback terms were first operational in 1998, although there is some dissatisfaction over the terms, which give differing returns to the parties depending on the oil price.

Iran is seen to be moving towards a more open society, and improving its relations with the West and other Arab countries, not least to enable external investment, as the country recovers from the economic effects of post-Revolution isolation. The country has a very stable regime and rule of law, although not all policies are acceptable to some Western countries, notably the US whose Iran-Libya Sanctions Act imposes sanctions on non-US companies. In late July 2001, the U.S. Congress voted overwhelmingly to renew the Iran-Libya Sanctions Act for a further 5 years.

UK companies were involved in the training of many NIOC personnel before the Revolution, and it is generally held that NIOC is familiar with and has respect for British products and standards.

2.4 Oil & Gas Sector Constraints / Geography
The main oil reserves are located onshore in the west and south-west of the country. These areas also contain some associated gas reserves, although the majority of non-associated gas reserves are offshore in a few major fields in the south, with smaller gas fields in the coastal Gulf region. The main export routes for oil are from the Gulf.

Gas reserves for domestic requirements are ill-placed, since the demand is predominantly in the north. The lack of new gas developments in recent years and the high domestic demand can be seen from the fact this potentially major exporter is currently importing gas from neighbouring Turkmenistan to the north-east. A gas line has been completed from the main north-south trunkline to Turkey, in preparation for exports there.

Iran has the potential to provide an export route for oil and gas reserves from the Caspian states (Turkmenistan, Kazakhstan and Azerbaijan), but international politics and lack of infrastructure are limiting this at present. As a way round this some oil swaps take place: Caspian oil is provided for use in northern Iran, in exchange for oil from Iran, exported from the south by tanker, though of limited capacity at present.

2.5 Trends in Oil /Gas Sector: Recent Exploration & Production
The national oil company has concentrated its efforts mainly on maintaining production, although limited exploration (seismic and wildcat wells) has taken place. Since 1989, oil and gas production has increased from 1075 mmbbl liquids and 897 Bcf gas to 1412 mmbbl and 2477 Bcf by 1998. Most of Iran's crude is low in sulphur.

The second and thisrd phases of the South Pars field came on stream in February. The first phase is expected to come on stream by winter.

2.6 Current Activity and Outlook
Of the forty producing oil fields, five account for two-thirds of current production (Agha Jari, Ahwaz-Bangestan, Bibi Hakimeh Gachsaran, and Marun).

NIOC's onshore field development is concentrated mainly in maintaining output from the giant onshore oilfields, including Marun, Karanj, Gaschsaran and the presently inactive Parsi field, with enhanced oil recovery via gas injection projects. Whilst there have been technical difficulties with some fields, However, there have been technical difficulties with some fields, and the use of indigenous companies to execute these projects has resulted in delays due to both technical and financial constraints, gas injection has been successful in sevearl cases such as Gachsaran which contains 53 billion barrels of reserves.

The majority of Iran's offshore output comes from the Doroud 1 and 2, Salman, Abuzar, Foroozan and Sirri fields. All of which is exported. Extensive developemnt of offshore fields is planned and production is hoped to reach 1.1 million bpd by 2003. In May 2002 Iran's Oil Ministry signed a deal worth 585 million dollars with the country's Petro Iran company to renovate Foroozan and Esfandiar oilfields in the Persian Gulf. Exploration in the Caspian Sea has so far led to only marginal gas finds.

2.7 Status of Refinery and Petrochemical Sector (incl. LNG systems)
Iran has nine operational refineries and related plant, including Abadan, Esfahan, Tehran, Shazand Arak, Tabriz, Shiraz, Lavan and Kermanshah, with a total capacity of 1.47 mmbbl/d. In order to meet increasing domestic demand (reducing imports obtained annually since 1982), there are plans to increase capacity by a further 2 mmbbl/d. Two grassroots refineries are planned at Shah Bahar and Qeshm Island. The former project at an estimated $3 billion capex was approved in 1994, and is to be built by private investors.

The National Petrochemical Company (NPC) has recently launched a U.S. $24 Billion development programme aimed at boosting the contribution of petrochemicals in the Iranian economy from 1% to 4% by 2020. This will involve the construction of 30 new plants and significant foreign investment.

2.8 Upstream Supply Industry
The Petroleum Equipment Industries Co. (affiliated to the Ministry of Industry) has a remit to reduce Iranian dependence on imports. Thus contracts are awarded to indigenous companies wherever possible, and imports are minimised. Compulsory quotas for local involvement in projects can be expected for approved projects, via joint ventures or the use of local suppliers and contractors, and must involve the transfer of technology.

Despite these restrictions, it is estimated that up to approximately $70 million of UK goods are purchased by NIOC annually. The industrial base has been limited by the lack of investment and development since the Revolution, although changes are now being made. The population is generally well educated, with a need for useful employment. There is currently virtually no indigenous capacity for the manufacture of spares, and even where capability exists to produce some larger items (such as heat exchangers), imports will still be required for many years to come.

Buyers
NIOC procurement is carried out by the Kala organisation, and purchases from UK suppliers are either made from Kala Tehran or Kala London. The organisation procures on behalf of both the upstream and downstream industry in Iran, and includes purchasing for both NIOC and NIDC. These organisations do, however, also retain their own purchasing capability, and thus in theory can also purchase directly from suppliers.

Companies must become a registered supplier to Kala before they will be requested to quote for work. Further information is available from Kala London and from the DTI Iran desk.

Suppliers
A full list of Iranian suppliers to the oil and gas industry is available from 'The Arab Oil and Gas Directory' - an annual publication. Contact details of selected contractors and equipment suppliers are given below: