In recent days and weeks, Iran has found itself in the news on a fairly regular basis, particularly now that it appears that they are ramping up their nuclear program and messing with the British Embassy. Iran is often overlooked as an energy producing nation, while most people are aware that Iran is a member of OPEC, they are not aware of the significance of Iran's oil and natural gas reserves. Hopefully this posting will put Iran's place in the energy world into context.
Let's open with some background information on the country. Iran is located along the north shore of the Persian Gulf, a very strategically important geographic location since the country is in partial control of the entry to the Gulf of Oman, the narrowest part of the access and egress from the Persian Gulf. Iran is not an Arab county, the majority of Iran's population of 77,891,000 people are Persian. Iran has a very young population; the median age of both males and females is only 26.8 years compared to 36.9 years in the United States. Iran's economy relies heavily on the oil and natural sector which provides the majority of government revenues. Iran suffers from one of the world's highest unemployment rates (139th out of 199 countries) with 13.2 percent unemployment in 2010. Surprisingly, Iran's government is one of the most fiscally responsible in the world, in 2010, Iran's government ran a budget surplus that reached 6 percent of GDP (11th place in the world) and public debt is only 16.3 percent of GDP, enviable by any standard.
Now let's look at Iran's main industry, oil and gas. Iran is one of the world's leading producers of both natural gas and oil; it is OPEC's second largest oil producer and exporter after Saudi Arabia and, in 2010, was the world's third largest exporter of oil after Saudi Arabia and Russia. Here is a map showing Iran's main oil and gas fields and pipeline infrastructure. Note that the vast majority of the country’s producing oil and gas fields are located along the Persian Gulf. Note the huge South Pars/North Dome gas field (in red); this is the world's largest natural gas field shared by Iran and Qatar:
In this posting, I’m going to focus on Iran’s natural gas reserves. Let’s start out by taking a look at the world's top natural gas reserve holders:
As I mentioned earlier, Iran and Qatar jointly own the North Dome Field and South Pars Field, a wonder of the natural gas world. Here's a more detailed map of the fields:
The combined field was discovered in 1990 by the National Iranian Oil Company (NIOC), the second largest oil company in the world after Saudi Aramco. It covers an area of 9700 square kilometres of which 3700 kilometres are situated in Iranian territory. The field is part of the north-trending Qatar Arch with most of the gas trapped in Permian-Triassic formations. The total reserves for the field are estimated to be around 2000 trillion cubic feet (TCF) and it contains an additional 50 billion barrels of condensate. With in-place reserves of 360 billion barrels of oil equivalent, the field is larger than the world's largest oil field, Ghawar (170 billion barrels of oil-in-place) located in Saudi Arabia. It is anticipated that the gas recovery factor is about 70 percent resulting in total recoverable gas reserves of 1260 TCF. Using a 70 percent recovery factor results in the combined field containing 19 percent of the world's total gas reserves. Interestingly enough, the fields also contain the world's largest reserves of helium totalling 10 billion cubic metres or about 25 percent of the world's total helium reserves.
Let's look at Iran's share of this elephant. Iran owns 500 TCF of gas-in-place and approximately 360 TCF of recoverable gas. This is 36 percent of Iran's total gas reserves and 5.6 percent of the world's entire proven gas reserves. Let's step away from Iran for a moment to put these massive reserves into perspective. Here is the data showing the changes in proved natural gas reserves since the 1920's for the United States from the U.S. Energy Information Administration:
Iran's proven natural gas reserves in this one field alone are nearly twice that of the entire United States.
Iran's South Pars field also contains about 18 billion barrels of condensate-in-place with an estimated recovery factor of 50 percent. The gas produced is quite rich in liquids, yielding approximately 40 barrels of condensate per million cubic feet of gas. Wells are extremely productive with an average well producing 100 MMcf/day. Production began in July 2003 at a total rate of 1 BCF per day plus 40,000 barrels of gas condensates. Development of the field is taking place in 29 phases; Iran has signed development agreements with TotalFinaElf, Gazprom, Petronas, Agip, Statoil, Shell, Spain's Repsol, India Oil Corporation and China's Sinopec and CNPC among others. As I will detail below, sanctions by foreign governments have caused many of the aforementioned companies to abandon their development agreements with Iran. Here is a chart showing the phases, partnerships and current production levels along with Iran’s future plans for development:
The current political issues in Iran have impacted development of the South Pars field. Here is the latest press release from NIOC outlining their plans for future development, noting the use of Iranian contractors and the end of control over projects by foreign contractors:
"Iran plans to reach the maximum level of gas production from the South Pars Oil Field, a year before the end of Fifth development plan, he added. “All eight remaining phases of South Pars were entrusted to Iranian contractors and the foreign contractors have no longer any control over South Pars projects, the official stated. Although Tehran is trying to rely on Iranian contractors but it has no plan to discharge foreign companies because they can strengthen Iran’s national development plan, Suri expressed. Tehran plans to be self-sufficient in the oil industry, furthermore, Iran has a program to export technical services, he added. “The today mission of Pars Oil and Gas Company is to maintain the current 250- million cubic meter production. It plans to develop the North Pars, Golshan and Ferdowsi oil fields as a second priority. The Fifth Development Plan sets guidelines for the socio-economic development of Iran. The plan is part of 'Vision 2025', a strategy for long-term sustainable growth. Under the plan, following annual approval of the government’s budget, the Central Bank of Iran will forward a detailed monetary and credit policy to the Money and Credit Council (MCC) for approval. Thereafter, major elements of these policies will be incorporated into the five-year economic development plan. South Pars is the biggest gas field in the world, shared by Iran and Qatar. The South Pars field is the name of northern part of the joint located in Iranian waters and the North Dome is the name of southern part, located in Qatari waters. South Pars field was discovered in 1990.” (my bold)
In 2009, the National Iranian Oil Company announced that China National Petroleum Company signed a $4.7 billion contract to develop Phase 11 (out of 29 total phases) of development of the South Pars field. CNPC replaced Total as a partner; Total had signed a memorandum of agreement to develop the field in 2004, however, those nasty international sanctions interfered with Total's ability to develop the field. Iran had become increasingly concerned that a portion of their natural gas reserves were being competitively drained by Qatar.
China is also active in two exploration projects with NIOC as shown on these charts:
It's interesting to see that NIOC also partnered with Russian, Brazilian, Vietnamese, Italian and Spanish oil companies for various exploration projects throughout Iran.
Where is all of this natural gas going? Iran’s domestic demand for natural gas has risen by 550 percent over the past two decades with consumption keeping pace with production increases. Here is a graph showing the growth in both natural gas consumption and production:
In 2010, Iran produced roughly 6 TCF of marketed natural gas and consumed an estimated 5.1 TCF. Of the 7.7 TCF of gross natural gas produced, 1.2 TCF was reinjected into oil reservoirs as part of Iran’s plan to increase crude oil production through the use of enhanced oil recovery (EOR) techniques. Even with the massive and growing output from South Pars, it is unlikely that Iran will increase its exports of natural gas. In fact, despite having the world’s second largest natural gas reserves, Iran imported about 0.7 BCF/day of natural gas from Turkmenistan to satisfy demand in the northern part of the country.
As an aside, in January 2011, Iran's Petroleum Minister announced the discovery of a new onshore natural gas field located in southeastern Iran near Assaluyeh in Bushehr province. The field contains recoverable gas reserves of 7.4 TCF and an additional 7.7 million barrels of condensate in place.
One can readily see from this posting that Iran is sitting on a very strategic resource. The combination of huge reserves of both oil and natural gas may well make Iran a very, very tempting target for military intervention in the future. In this case, however, the issue is complicated by the presence of both Chinese and Russian economic interests in Iran’s natural resource base.