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A New Stream of Oil for Iran, but Not Right Away A New Stream of Oil for Iran, but Not Right Away
(about 9 hours later)
HOUSTON — The nuclear agreement with Iran opens the way for a flood of new oil eventually to pour onto world markets, setting up a potential windfall for energy giants. HOUSTON — The nuclear agreement with Iran opens the way for a flood of new oil eventually to pour onto world markets, setting up a potential windfall for energy giants.
But it will take a year or more before Iran can increase production significantly, delaying any impact on oil prices.But it will take a year or more before Iran can increase production significantly, delaying any impact on oil prices.
“It’s not just a matter of turning on the taps again,” said Andrew Slaughter, executive director of the Deloitte Center for Energy Solutions. “They will need some investments and technology.”“It’s not just a matter of turning on the taps again,” said Andrew Slaughter, executive director of the Deloitte Center for Energy Solutions. “They will need some investments and technology.”
With nearly 10 percent of global oil reserves and 18 percent of natural gas reserves, Iran is potentially an energy market mover that can compete with producers like Saudi Arabia and Russia. As optimism increased for a nuclear deal, oil giants like Royal Dutch Shell, Total of France and Eni of Italy looked for investment opportunities in Iran in recent weeks.With nearly 10 percent of global oil reserves and 18 percent of natural gas reserves, Iran is potentially an energy market mover that can compete with producers like Saudi Arabia and Russia. As optimism increased for a nuclear deal, oil giants like Royal Dutch Shell, Total of France and Eni of Italy looked for investment opportunities in Iran in recent weeks.
Even after years of underinvestment and mismanagement of its aging oil fields, Iran has a production capacity of 3.5 million barrels a day, roughly 4 percent of global output. It is already a major supplier to China, India, Japan, South Korea and Turkey.Even after years of underinvestment and mismanagement of its aging oil fields, Iran has a production capacity of 3.5 million barrels a day, roughly 4 percent of global output. It is already a major supplier to China, India, Japan, South Korea and Turkey.
Oil companies are not the only businesses eyeing Iran. With some exceptions for food and medical supplies, American companies have been prohibited from selling to Iran since the 1979 takeover of the United States embassy in Tehran.Oil companies are not the only businesses eyeing Iran. With some exceptions for food and medical supplies, American companies have been prohibited from selling to Iran since the 1979 takeover of the United States embassy in Tehran.
If sanctions are lifted, consumer-oriented companies, in particular, could find opportunity in this country with 81 million consumers, many of whom are young.If sanctions are lifted, consumer-oriented companies, in particular, could find opportunity in this country with 81 million consumers, many of whom are young.
Iranians have already shown a taste for smuggled Apple products and American cigarettes. Coffee shops have emerged in Iranian cities that look like Starbucks, suggesting there could be an opening for Western restaurant chains. Even before the signing of the deal, the French government told Peugeot and Citroen that sanctions on motor parts will most likely be lifted by the end of the year.Iranians have already shown a taste for smuggled Apple products and American cigarettes. Coffee shops have emerged in Iranian cities that look like Starbucks, suggesting there could be an opening for Western restaurant chains. Even before the signing of the deal, the French government told Peugeot and Citroen that sanctions on motor parts will most likely be lifted by the end of the year.
Iran is also considered a strong emerging market play, giving a potential opening to investment firms and trading companies. For the last two years, mostly European brokerage houses have held discussions with Iranian players to find future business on the local stock exchange.Iran is also considered a strong emerging market play, giving a potential opening to investment firms and trading companies. For the last two years, mostly European brokerage houses have held discussions with Iranian players to find future business on the local stock exchange.
Significant hurdles remain. Congress could still torpedo the agreement, although President Obama has pledged to veto such an effort.Significant hurdles remain. Congress could still torpedo the agreement, although President Obama has pledged to veto such an effort.
For oil giants, the payoff, and the potential problems, are even greater.For oil giants, the payoff, and the potential problems, are even greater.
The Iran oil industry is in a state of disarray. For most of the last three decades, Iran has been off limits to Western oil companies because of sanctions and Iranian laws that limit the profitability of private energy investments.The Iran oil industry is in a state of disarray. For most of the last three decades, Iran has been off limits to Western oil companies because of sanctions and Iranian laws that limit the profitability of private energy investments.
Without modern technology and new investment, oil and gas fields have been in sharp decline. The country has lost a million barrels a day of exports since 2012.Without modern technology and new investment, oil and gas fields have been in sharp decline. The country has lost a million barrels a day of exports since 2012.
Iranian officials have been promising to regain those barrels quickly once a deal is signed. At the Organization of the Petroleum Exporting Countries meeting last month, Bijan Namdar Zanganeh, the Iranian oil minister, predicted a quick export rebound of 400,000 barrels a day and an additional 600,000 barrels after six months.Iranian officials have been promising to regain those barrels quickly once a deal is signed. At the Organization of the Petroleum Exporting Countries meeting last month, Bijan Namdar Zanganeh, the Iranian oil minister, predicted a quick export rebound of 400,000 barrels a day and an additional 600,000 barrels after six months.
But most independent oil analysts say Iran’s projections are overly optimistic. “It should take a good year between the day they sign the agreement and when they add 500,000 barrels of production a day,” said Gary Ross, executive chairman and head of global oil at the Pira Energy Group, an international consultancy.But most independent oil analysts say Iran’s projections are overly optimistic. “It should take a good year between the day they sign the agreement and when they add 500,000 barrels of production a day,” said Gary Ross, executive chairman and head of global oil at the Pira Energy Group, an international consultancy.
Mr. Ross said the world market should be able to absorb the extra barrels. Production in many countries is declining with oil prices slipping. Global demand, has been increasing. Mr. Ross said the world market should be able to absorb the extra barrels. Production in many countries is declining with oil prices slipping. Global demand has been increasing.
“With each day, the market will be in a better position to accommodate the incremental Iranian oil,” Mr. Ross added.“With each day, the market will be in a better position to accommodate the incremental Iranian oil,” Mr. Ross added.
The agreement announced had little immediate impact on either global or American oil price benchmarks, as both remained above $50 a barrel on Tuesday, roughly half the price of a year ago. The global market of 94 million barrels of oil a day is glutted, with an oversupply of one to two million barrels.The agreement announced had little immediate impact on either global or American oil price benchmarks, as both remained above $50 a barrel on Tuesday, roughly half the price of a year ago. The global market of 94 million barrels of oil a day is glutted, with an oversupply of one to two million barrels.
Iran has as much as 40 million barrels of crude in storage on supertankers at sea — nearly half of what the world consumes in a day — that it may soon try to release on the market. But some analysts say the stored oil is of poor quality and most refineries may be incapable of processing it.Iran has as much as 40 million barrels of crude in storage on supertankers at sea — nearly half of what the world consumes in a day — that it may soon try to release on the market. But some analysts say the stored oil is of poor quality and most refineries may be incapable of processing it.
Otherwise, the agreement details that the oil sanctions will be removed only when the United States and its allies are convinced that Tehran is modifying nuclear equipment, dismantling centrifuges and allowing detailed inspections. Oil experts said verification could mean months of delays.Otherwise, the agreement details that the oil sanctions will be removed only when the United States and its allies are convinced that Tehran is modifying nuclear equipment, dismantling centrifuges and allowing detailed inspections. Oil experts said verification could mean months of delays.
The lifting of oil sanctions has been one of Iran’s prime foreign policy objectives. Its government finances and national economy are highly dependent on oil sales. The sanctions have caused major delays and cancellations in projects, partly because of the state oil company’s lack of money.The lifting of oil sanctions has been one of Iran’s prime foreign policy objectives. Its government finances and national economy are highly dependent on oil sales. The sanctions have caused major delays and cancellations in projects, partly because of the state oil company’s lack of money.
About 70 percent of Iran’s oil reserves are onshore in fields that are easily accessible. The remainder is mostly in the Persian Gulf, as well as in the Caspian Sea, where advanced exploration could significantly bolster output, according to oil experts.About 70 percent of Iran’s oil reserves are onshore in fields that are easily accessible. The remainder is mostly in the Persian Gulf, as well as in the Caspian Sea, where advanced exploration could significantly bolster output, according to oil experts.
Senior executives of Royal Dutch Shell, Total and Eni met with Iran’s oil minister in Vienna in June, and there have been other meetings in Tehran in recent months between the oil companies and Iranian officials.Senior executives of Royal Dutch Shell, Total and Eni met with Iran’s oil minister in Vienna in June, and there have been other meetings in Tehran in recent months between the oil companies and Iranian officials.
Shell says it has already discussed potential areas of cooperation with Iran, assuming that the sanctions are lifted. “Strictly within the boundaries of the law, we are interested in exploring the role Shell can play in developing Iran’s energy potential,” the company said in a statement on Tuesday.Shell says it has already discussed potential areas of cooperation with Iran, assuming that the sanctions are lifted. “Strictly within the boundaries of the law, we are interested in exploring the role Shell can play in developing Iran’s energy potential,” the company said in a statement on Tuesday.
The companies are likely to invest the tens of billions of dollars required to give a major lift to Iranian production only if they are comfortable with the terms offered. Before the sanctions, Iranian deals generated low returns and did not permit the international companies to book the reserves or oil in the ground, which are important to investors’ valuation of oil companies. Iranian officials say they are working on new contracts, but they have not disclosed full details.The companies are likely to invest the tens of billions of dollars required to give a major lift to Iranian production only if they are comfortable with the terms offered. Before the sanctions, Iranian deals generated low returns and did not permit the international companies to book the reserves or oil in the ground, which are important to investors’ valuation of oil companies. Iranian officials say they are working on new contracts, but they have not disclosed full details.
“Iran has a massive resource base,” said Kenneth B. Medlock, the director of the Center for Energy Studies at Rice University. “If Western capital can flow in there, that will be the first place it wants to go because of its relatively low-cost oil.”“Iran has a massive resource base,” said Kenneth B. Medlock, the director of the Center for Energy Studies at Rice University. “If Western capital can flow in there, that will be the first place it wants to go because of its relatively low-cost oil.”