Oil to become "low hanging fruit" once Iran sanctions lifted

Oil&Gas Materials 18 November 2015 16:58 (UTC +04:00)

Baku, Azerbaijan, Nov. 18

By Aygun Badalova - Trend:

The sharp decline in oil sector investment, which is predicted by the International Energy Agency (IEA), will be result of the problems regarding storage of excess oil, aimed at avoiding a complete collapse in oil prices, expert Sam Barden believes.

In its latest World Energy Outlook, the IEA estimated that investment in oil would decline more than 20 percent this year and the trend would continue into 2016.

IEA executive director Fatih Birol has previously warned that a drop in investment across the oil industry could cause prices to tighten from mid-2016.

Meanwhile, Barden, who is the director of Wimpole International, an energy market development company told Trend that the sharp decline in the oil sector investment is more a function of the fact that there is so much oil in above ground storage, that there is nowhere to store anymore excess production.

"On this basis, I see the sharp decline in oil sector investment more to do with avoiding a complete collapse in oil price rather than contributing to rise in oil price," Barden added.

Oil prices have tumbled from a peak of around $102 per barrel in June last year, to just below $48 per barrel today. Such a collapse has already discouraged major producers from investing in oil production, and there are currently concerns that this will eventually lead to a shortage, in turn pushing the prices up.

At the same time similarly, I think that Iran sanctions lifting, will represent "low hanging fruit" in terms of oil which is cheap to extract, he said.

"Iraq and Iran still have some of the most accessible oil reserves for development, and while on a global scale oil sector investment will decline, it may actually increase in Iran and Iraq," Barden said.

Iran holds almost 10% of the world's crude oil reserves. About 70 percent of Iran's crude oil reserves are located onshore, with the remainder mostly located offshore in the Persian Gulf. Iran also holds proved reserves in the Caspian Sea, although exploration has been at a standstill. According to the Oil & Gas Journal, as of January 2015 Iran has an estimated 158 billion barrels of proved crude oil reserves.

In recent years, a series of sanctions targeting Iranian oil sector have resulted in cancellations of new projects by a number of foreign companies, while also affecting existing projects.

Iran produced 3.4 million barrels per day of petroleum and other liquids in 2014. Iran's crude oil production fell dramatically from nearly 3.7 million barrels per day in 2011 to 2.7 million barrels per day in 2013 because of sanctions.

Iran believes lifting the sanctions could increase the supply of Iranian oil to the world energy market by half a million barrels per day next year. Tehran is now actively promoting its new oil contracts, announcing the openness of the Iranian energy market to foreign investment.