Three years of sanctions: Iran's oil output suffers significantly

Tehran, Iran, Jul. 23

By Milad Fashtami - Trend:

Iran's oil production and exports have decreased significantly in the past three years.

The U.S. Energy Information Administration (EIA) has studied the effects of sanctions on Iran's oil and gas sector, and released the results in its annual report on July 22.

The report reads, the U.S. and EU measures targeted Iran's petroleum exports and imports, prohibited large-scale investment in the country's oil and gas sector, and cut off Iran's access to European and U.S. sources for financial transactions.

Further sanctions were implemented against institutions targeting the Central Bank of Iran, while the EU imposed an embargo on Iranian oil and banned European Protection and Indemnity Clubs (P&I Clubs) from providing Iranian oil tankers with insurance and reinsurance.

The EIA cited the International Energy Agency (IEA), saying Iranian crude oil and condensate exports declined by 1 million barrels per day in 2012 compared with its preceding year.

Iran's crude oil and condensate exports averaged 1.1 million barrels per day in 2013, 1.4 million barrels per day less than the volume exported in 2011. This figure in 2011 was 2.5 million barrels per day.

Following an interim deal between Iran and the P5+1 group of countries over the country's nuclear program, Iran's exports increased in the beginning of 2014.

From January to May 2014, Iran's exports averaged 1.4 million barrels per day, 300,000 barrels per day higher than the 2013 annual average, according to the IEA. China and India accounted for nearly all of that increase. The largest buyers of Iranian crude and condensate are China, India, Japan, South Korea, and Turkey.

The report further reads that in addition to crude oil and condensate, Iran also exports petroleum products. According to FGE ( international energy consultancy group), Iran exported about 240,000 barrels per day of petroleum products in 2013, most of which were fuel oil and LPG sent to Asian markets. Iran's petroleum product exports declined by roughly 40% in 2013 compared with the 2011 level. According to FGE, U.S. and EU sanctions affected Iran's ability to sell petroleum products as well.

The Kharg, Lavan, and Sirri Islands, located in the Gulf, handle almost all of Iran's crude oil exports. Iran also has two small crude oil terminals at Cyrus and Bahregansar, one terminal along the Caspian Sea, and other terminals that handle mostly refined product exports and imports. Condensate from the South Pars natural gas field is exported from the Assaluyeh terminal.

Sanctions affected Iran's production negatively as well.

According to the IEA, Iran's crude oil production fell dramatically in 2012, following the implementation of sanctions in late-2011 and mid-2012. Iran dropped from being the second-largest crude oil producer in OPEC to the fourth in 2013, after Saudi Arabia, Iraq, and narrowly behind the United Arab Emirates (UAE).

In 2013, Iran produced approximately 3.2 million barrels per day of petroleum and other liquids (total oil), of which roughly 2.7 million barrels per day was crude oil, 0.4 million barrels per day was condensate, and 0.1 million barrels per day was natural gas plant liquids (NGPL). Iran's total oil production level in 2013 was 1.0 million barrels per day (almost 25%) lower than the production level of 4.2 million barrels per day in 2011.

Iran's production increased in 2014, increasing Iran's rank to the third-largest crude oil producer in OPEC during the first half of 2014.

For the first half of 2014, Iran produced about 600,000 barrels per day of non-crude liquids (condensate and NGPL). Iran's non-crude oil production mostly comes from the South Pars natural gas field, with smaller volumes produced at Nar and Kangan, and at other fields.

IEA's annual report also reads that Iran faces continued depletion of its production capacity, as its fields have relatively high natural decline rates of 8% to 11%, coupled with an already low recovery rate of 20% to 25%, according to FGE and the Arab Oil and Gas Journal. Sanctions and unfavorable contractual terms have impeded the necessary investment to halt this decline.

Moreover, sanctions enacted in late 2011 and throughout 2012 have accelerated Iran's production capacity decline.

According to the Oil & Gas Journal, as of January 2014, Iran has an estimated 157 billion barrels of proved crude oil reserves, representing nearly 10% of the world's crude oil reserves and 13% of reserves held by the Organization of the Petroleum Exporting Countries (OPEC).

About 70% of Iran's crude oil reserves are located onshore, with the remainder mostly located offshore in the Gulf.

Iran also has proved and probable oil reserves of approximately 500 million barrels mostly offshore in the Caspian Sea, but exploration and development of these reserves have been at a standstill because of territorial disputes with neighboring Azerbaijan and Turkmenistan.

Iran also shares a number of both onshore and offshore fields with neighboring countries, including Iraq, Qatar, Kuwait, and Saudi Arabia.

Most of Iran's reserves were discovered decades ago. According to a report by Clyde & Company, roughly 80% of Iran's reserves were discovered before 1965.

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