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Review of Iran’s energy sector in last fiscal year

Business Materials 20 April 2017 10:18 (UTC +04:00)

Baku, Azerbaijan, Apr. 19

By Dalga Khatinoglu – Trend:

Iran has prioritized the South Pars gas field as well as five major oil fields in its West Karoon Block.

During last fiscal year that ended March 20, Iran increased natural gas output from South Pars by 20 percent, or 25 billion cubic meters (bcm) to 155 bcm, according to an official document prepared by Oil Ministry and seen by Trend Apr. 19.

Coming to nominal production capacity, Iran increased the volume by 95 mcm/d to 495 mcm/d as of March 21.

The South Pars field, shared between Iran and Qatar, contains 40 trillion cubic meters of recoverable gas and 50 billion barrels of gas condensate. A third of the field is located in Iranian waters, containing an oil layer with 14 billion barrels of in-situ reserves.

For the first time, Iran bought a floating production storage and offloading (FPSO) unit from Norwegian DNV GL, installed it in February, and started 25,000 barrels per day of crude extraction from South Pars’ oil layer.

The country’s total gross gas output (including re-injection and flaring) stood at about 285 bcm last fiscal year, which indicates a 9.6 percent growth year-on-year.

Iran plans to increase the South Pars output to above 720 mcm/d by 2021 by completing all of South Pars’ 24 phases to bring the country’s total gas output to 1.2 bcm/d (or about 440 bcm/y).

West Karoon Block

One of the major projects in Iran’s upstream sector is the first phase of five fields (West Karoon Block) in Iranian western regions with 66.7 billion barrels of in-situ oil reserves, sharing 9.5 percent of the country’s total in-situ oil and gas condensate reserves. All of these fields are joint with Iraq.

Iran has started developing the first phases of these fields and currently the production capacity is going to reach about 280,000 barrels per day (b/d), though the actual output is half of this volume. However, the major problem lies in enhancing the recovery rate of the fields, which is below 10 percent on average.

Iran has signed buy-back agreements with Chinese and domestic companies to develop these fields, but it is preparing to sign other deals with foreign companies based on the newly-designed agreement, called the Iran Petroleum Contract (IPC), to complete them and increase recovery rate. West Karoon Block includes Yadavaran, North Azadegan, South Azadegan, North Yaran and South Yaran fields.

Yadavaran

Iran has signed a buy-back contract with China’s Sinopec to develop the first phase of Yadavaran, which contains 34 billion barrels of in-situ oil reserves.

The project has been divided into three phases and its final production capacity would be 300,000 b/d.

According to a document prepared by Oil Ministry and seen by Trend, the first phase of Yadavaran was developed by 99.1 percent as of March 21.

Iran produced 21.5 million barrels (mb) from the first phase in 2016, about 2.1 million barrels more than in 2015. However, the output decreased from 3.34 mb in January 2017 to 2.63 mb in March. The reason may be the country’s obligation to keep the oil output at 3.797 mb/d in 1H17, based on OPEC deal.

Iran’s oil output from other active fields of West Karoon also decreased in 1Q17.

In total, Iran has produced 75.129 mb of oil from the field since 2012.

North Azadegan

Iran has a buy-back contract with China’s CNPCI to develop the North Azadegan field. The first phase of the project was developed by 99.94 percent as of March 21, or 0.2 percent more than on January 1.

Iran produced 2.133 mb in March (71,100 b/d), compared to 2.36 mb in January.

North Azadegan contains 5.6 billion barrels of in-situ oil reserves and the cumulative production at the field, since March 20, 2017, has reached 19.78 mb.

In the second phase of this project, the output would double to hit 150,000 b/d.

South Azadegan

Iran also had an agreement with CNPCI to develop South Azadegan, but the country canceled the deal with the Chinese company in 2014 because of long-delayed development process.

For instance, according to an official document, CNPCI had invested $355 million until 2014, which is one third of the projected investment. CNPCI also drilled only 12 wells using 5 rigs instead of the projected 37 wells and 18 active rigs by 2014. In total, before leaving the project, the Chinese company developed the project by 9 percent instead of the projected 18 percent.

According to the official document, the project’s first phase was developed by 31.42 percent as of January 1, 2017. No figures were available for March.

The first phase needs $6.1 billion of investment to produce 320,000 b/d of oil. The second phase will add 280,000 b/d to this volume.

The field contains 25.34 billion barrels of in-situ oil and its recovery rate is very low at 6.6 percent.

Currently five foreign companies, including France’s Total and Japan’s Inpex are studying the Azadegan field and the ways of increasing its recovery rate, based on confidentiality agreements.

North Yaran

Iran is developing the North Yaran field with local companies – led by Persia Oil and Gas Industry Company – which have 73 percent share based on a buy-back contract. The rest of shares belong to foreign companies.

The field needs $660 million of investment, of which $585 million have been spent as of the beginning of 2017. North Yaran has been developed by 94.64 percent as of March 21, about 0.64 percent more than in January.

Iran produced 26,600 b/d of oil from the field in December 2016, but the output in 1Q17 stood at below 350 b/d on average. Iran has produced 4 mb of oil from field since 2012. The volume was expected to reach its final capacity of 30,000 b/d, projected for March 2017.

South Yaran

Like North Yaran, the South Yaran field is also being developed by local companies to produce 50,000 b/d of oil by July 2017. The project has been developed by 80.25 percent as of March 21, compared to 79 percent on January 1.

It needs $1.1 billion of investment in total.

The overall reserves of North and South Yaran are estimated at about 1 billion barrels.

After completion of all the phases of the mentioned five oil fields, their production capacity will reach 1.04 million b/d by 2021.

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Dalga Khatinoglu is the head of Trend Agency’s Iran news service, follow him on Twitter: @dalgakhatinoglu

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