Tapping Energy-Rich Iran: Iran's Strategic Importance to Global Energy Markets Cannot Be Underestimated. with over 9% of the Globe's Oil Reserves and 15%-17% of Worldwide Reserves of Natural Gas, the Hydrocarbons Resources of the Gulf's Most Populous State Are Tremendous

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THE PETROLEUM INDUSTRY constitutes the bedrock of Iran's $100bn-plus economy. It provides on average 80% 85% of total export earnings, one-half of the state budget and one-quarrel of gross domestic product (GI)P). Economic growth this year is anticipated at 6.2% thanks to higher hydrocarbons production and robust domestic demand--underpinned by rising private and government consumption. The US Energy Information Administration (EIA) forecasts 2004 oil-export revenues at $27.5bn, up from last year's $23.9bn.

The country's recoverable reserves are now estimated at 131bn barrels, 32% higher than the previous official figure (99.08bn barrels) issued by OPEC. Total "oil-in-place" is probably between 500bn and 600bn barrels. Both Iran and Iraq claim to hold the world's second-largest proven reserves after Saudi Arabia (264.2bn barrels).

Reserves-to-production ratio (assessed at 74 years) should see significant upward revisions during the next 20-to-30 years.

The southwest Khuzestan province and the Gulf represent oil heartlands where 32 large oilfields are situated, of which seven are offshore and 25 onshore. Productive onshore fields include Ahwaz-Asmati, Gachsaran, Marun, Bangestan, Agha-Jari, Karanj-Parsi and Rag-e-Safid. The giant Gachsaran field boasts probable reserves of 53bn barrels. Meanwhile, the main offshore fields include Abuzar, Doroud, Sahnan, Sirri (A&E), and Soroush-Nowruz.

The quality of Iranian crude is good, low in sulphur--with gravities in the (28-35) API range (see footnote * on page 55). But geological disadvantages in the upstream sector cause higher exploitation and production (E&P) costs relative to both Iraq and Saudi Arabia.

Sustainable capacity stands at almost 4m barrels a day (b/d), whilst actual output averaged 3.66m b/d over 1992-2003, making Iran the fourth-largest producer after Saudi Arabia, Russia and the US. Private sources, however, say total installed capacity will fall unless new oilfields are brought onstream in the coming years.

The National Iranian Oil Company (NIOC)--which holds "sole ownership" of hydrocarbons deposits and exploration-development (E&D) rights--aspires to regaining pre-1979 revolution capacity of 6m b/d. NIOC's targets are 5m and 7m b/d, respectively, by 2005-06 and 2015, with an ultimate goal of achieving 8m b/d in 2020. Before achieving these ambitious targets however, annual capacity must expand by 200,000 b/d over the next 20 years.

According to Oil Minister Brian Zanganeh, some ageing fields, notably Agha-Jari and Marun, need immediate upgrades and modernisation because they are experiencing an annual depletion rate of 200-300,000 b/d. Therefore, the upstream sector demands higher investment in enhanced oil recovery (EOR) programmes in order to maintain production flows at larger oilfields. EOR, in turn, depends on infrastructure development, substantial injection of natural gas and, of course, financing.

Moreover, Iran needs inward foreign direct investment (FDI) of $10bn/year to supplement NIOC's E&D spending, and prompt access to oil majors' advanced technologies for boosting recoverable reserves and output capacity. The Royal Institute of International Affairs in London notes: "Foreign investment is desperately needed, not only to exploit existing reserves but to develop new fields."

MAJOR UPSTREAM DEVELOPMENTS

In recent years, oil reserves have risen thanks to huge discoveries, impressive even by Gulf standards. They include the Azadegan field--boosting probable reserves by 24-26bn barrels; the Bangestan reservoirs in southern Iran where the Ahvaz, Abteymour and Mansuri fields posses combined reserves of 6.Sbn barrels; offshore Dasht-e-Abadan, which NIOC believes could boast "reserves comparable" to Azadegan; Darkhovin at 3-5bn barrels; and three adjacent offshore fields near Bushehr, discovered in July 2003--with in-place reserves of 38.5bn barrels, mostly heavy sour crude, of which 10bn barrels are deemed recoverable. …