Oil and gas
BMI has reported that Iran has highlighted a small increase in oil production and exports due to the Geneva Interim Agreement. However, BMI has pointed out that a more significant increase in crude production from the country as well as exports can only come from an easing or lifting of international sanctions. If a full lift was to occur, BMI predict that it would take at the very least 3 – 4 years from when sanctions are lifted for presanction production and export levels to be achieved. The time frame is so long as the years of underinvestment which followed sanctions have damaged the country’s supply chain infrastructure. Iran is home to the fourth largest oil reserves and second largest gas reserves in the world.
BMI expects Iran’s 2014 crude and condensate production figures to come in at approximately 3.25 million bpd, approximately 150 000 bpd more than 2013 production. BMI has made a decision to forecast a very small year on year output increase during its forecast period of 2023 as it makes the assumption that the current international sanctions are to remain in place, limiting crude exports to 1 – 1.1 million bpd. It will be an increase in domestic consumption that spurs production increases in the country.
When it comes to refining in the country, capacity expansions have been significant over the past three years and fuel subsidies have been cut. Iran is now close to being self sufficient when it comes to producing refining fuels. If the Persian Gulf Star refinery does indeed come online over the next 2 years, BMI believes that Iran could remain fuel self sufficient until 2019.
Looking more closely at gas, BMI has revised Iran’s gas production outlook due to progress made on the South pars field development. However, the company still reports that output in Iran will not be sufficient to satisfy domestic demand in the short to medium term, with pent up demand rising in tandem with production. Iran does have the capacity to become a major gas exporter in the long term, but BMI has said that this is unlikely to come to fruition under current sanctions. If sanctions are lifted, domestic demand for gas, as well as investment lead times will put a gap on gas exports from the country.
BMI has said that the easing of the current sanctions on Iran are going to have a positive effect on Iran’s petrochemicals industry with the hope of improved growth output. However, weak external markets, along with declining cost differentials between naphtha and ethane as well as domestic feedstock constraints are going to undermine 2015 government targets.
Despite Iran resuming exports to the EU in January of this year, BMI has said that the collapse in crude prices and the effect on naphtha prices has undermined the competitiveness of the country’s ethane fed petrochemicals sector. Also, the failure to meet 2014/15 government targets is expected to undermine the credibility of the country’s petrochemicals development programme. BMI has said that the main reason behind this is the international sanctions which have deterred investment and caused domestic decline.
Some plants under the development program are expected to come online, however their output rates will be low and they are likely to run at a loss unless producers can pass on the full costs of production to export market consumers. In order to operate at reasonable levels of capacity, olefins output will have to increase by a third and polymers by a third as well, however, BMI has said that the demand may not exist and may not have existed even without international sanctions.
BMI has forecast that by 2019, ethylene capacity in Iran will be at 11.08 million tpy, with the completion of the Olefins 11 and 12 projects, which have capacities of 2 million tpy and 1.2 million tpy respectively.
Edited from report briefs by Claira Lloyd