Too soon to speculate on Iran's ability to absorb investment - OME director

Oil&Gas Materials 29 July 2015 18:16 (UTC +04:00)

Baku, Azerbaijan, July 29

By Dalga Khatinoglu - Trend:

A senior energy expert believes that it is too early to speculate on the ability of Iran to absorb huge amount of foreign investments.

Iran has announced that $185 billion investment is needed in its upstream oil and gas sector, as well as $70 billion in petrochemical and $200 billion in optimizing energy consumer sectors to halve the energy intensity, which is two times more than global averages.

This is while, according to OPEC's estimation, OPEC would need to invest an average of close to $40 billion annually in the remaining years of this decade. This figure was $120 billion in 2014 or three times more than the annual investment amount. However, according to Wood Mackenzie's estimations, the plunge in oil price since last summer caused the suspension of 46 big oil and gas projects. The worth of suspended projects in 2015 is estimated to reach about $200 billion.

Director of Hydrocarbons, France, Mediterranean Energy Observatory (OME) Sohbet Karbuz told Trend July 29 that "return of foreign companies will surely pave the way for Iran to gain its long deserved place in world oil and gas markets and become an influential player. Aside from the political and legal uncertainties concerning when all sanctions will be lifted, there is little room to doubt that Iran will be bristling with energy projects measured in triple digit billions of dollars for decades to come. However, it is too early to throw any estimate about the amount of foreign investment in the country".

Iran and P5+1 reached a comprehensive nuclear deal on July 14, but the implementation of this deal depends on Iran-IAEA (International Atomic Energy Agency) cooperation around some suspected activities. Iran says the sanctions would be removed in four to six months.

Iran had also defined a long-term (20-25 years) new model contract that it calls its integrated petroleum contract (IPC) to replace the old, less popular buyback agreements to attract foreign companies. However, it's not clear whether IPC could compete with production sharing agreements (PSA) that is popular with companies, but is banned in Iran.

"We are currently witnessing a speculative material inflation concerning timing and amount of foreign investment in Iranian energy sector. The amount and timing of investment flow will depend largely on attractiveness of the investment climate in Iran. After all, companies will pour money into projects only if they foresee a favorable rate of return. For this Iran will need to establish investor confidence and also overcome some major barriers, such the improvements in and amendments to the legal and fiscal framework", Karbuz said.

Edited by CN