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In The Name of God

INDEX

DEC. 2009 / No.121 Articles on Oil & Gas in the English section, in cooperation with IranOilGas.com Published by: IRANIAN ASSO - CIATION FOR ENERGY ECO-NOMICS (IRAEE) ISSN 1563-1133

Iran’s share of the / 2 Director and Editor-in - Chief: Seyed Gholamhossein Hassantash Editorial Manager: Homayoun Mobaraki

Oil Prices in a Year Filled with Uncertain- Editorial Board: ties / 4 Majid Abbaspour, Reza Farmand, Ali Moshtaghian, Mohammad-reza Omidkhah, Ebrahim Bagherzadeh, Fereidoun Barkeshly, Hassan Khosravizadeh, Mohammad- ali Movahhed, Behroz Beik Alizadeh, Ali Emami Meibodi, Seyed Mohammad-ali Tabatabaei, Afshin Javan, Hamid Abrishami, Mohammad-bagher Heshmatzadeh, Mehdi Nematollahi, Mozafar Jarrahi, Ali Shams Ardakani, / 7 Mohammad Mazreati

Layout : Adamiyat Advertising Agency Advertisement Dept : Adamiyat Advertising Agency Sustainable production and enhancement Tel: 021 - 88 96 12 15 - 16 of oil recovery factor; as seen by NISOCMD / 11

Translators: Mahyar Emami, Hamid Barimani

Subscription: Hamideh Noori Main obstacles standing in the way of privatization / 13

IRANIAN ASSOCIATION FOR ENERGY ECONOMICS Construction of tanks to store 15 Mln Unit 13, Fourth flour, No.177, Vahid Dastgerdi (Zafar) Ave., Tehran, barrels of crude in / 17 Iran Tel: (9821) 22262061-3 Fax: (9821) 22262064 Web: www.IRAEE.org E-mail: [email protected]

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As can be seen in above map, the dark blue areas, which indicate greater depths, are in the Iranian side of the Caspian Sea. Perhaps this is one of the most important reasons for the long over delay in determining the status of a ‘legal regime’ for the Sea. Most oil and gas reserves of the Caspian Sea that have so far been tapped are in its low waters. Some oilfields of Kazakhstan are located in such shallow areas of the Sea that get frozen for a few months of the year and no drilling activity can be carried out at those regions. Oil companies have to create artificial islands so that drilling can continue during cold days as well. The second phase of ‘Shah Deniz’ gas field of Azerbaijan is in the deeper waters of the Caspian, but is no more than 300-400 meters deep. Identification of the kind of hydrocarbon reserves in the deep waters of the Caspian, on the Iranian side, can have decisive impact on the nature of that ‘legal regime’. But before any action can be taken to that end, those reserves need to be explored. Iran’s Share of the Deepwater drilling know-how is a relatively new and complex technology which is available with only a few major oil companies. Deepwater drilling requires the Caspian Sea help of semi-submersible drilling rigs and other ad- vanced and expensive equipments. In the case of the Caspian Sea, such equipments have he issue of a ‘legal regime’ for the Caspian to be assembled nearby at high costs because they can Sea and the mode of sharing its resources not be imported. Besides, use of those equipments T and interests, which used to be a two- remain restricted to the Caspian exploratory activities sided issue for many decades between Iran and the USSR, and can not be used elsewhere. became a five-sided question after the downfall of the Most potential hydrocarbon reserves of the Iranian socialist system. side of the Caspian that have been recognized in the Although eighteen years have gone by since the Soviet preliminary exploratory studies are located in the Union was disintegrated, the ‘legal regime’ of the Sea has deepwater basins. Tapping such potentials entails heavy not yet been determined. costs and high risks and can only be carried out with the Caspian Sea is actually the world’s largest lake and it is help of major international oil companies, most of which called a sea because of the extraordinary are reluctant to get involved in the task. area it covers and the profound depth it Besides, nonexistence of a ‘legal regime’ plus the has in some parts. After ‘Baikal’ in Siberia prevailing political atmosphere against Iran have played and ‘Tanganyika’ in Africa, the Caspian their parts in barring the country from using the services Sea is the world’s deepest lake and its of companies with deepwater know-how. depth can reach more a thousand meters Many such companies are working on the hydrocar- in certain areas. bon reserves of other Caspian littoral states, especially

2 Dec . 2009 - 121 in Turkmenistan, Kazakhstan and Azerbaijan, and may tries. not be willing to get involved in riskier activities on the Perhaps some of those littoral countries that have Iranian side. managed to attain production of oil and gas from their Fabrication of Iran’s first drilling rig for exploring Caspian resources have already decided about the kind hydrocarbon potentials of the Caspian, called ‘Iran- of a ‘legal regime’ they favor. Some others, however, may Khazar’, started in 1988-89 and was finally ready in still be waiting for the final outcome of exploration of 1996. ‘Iran-Khazar’ was hurriedly built and was soon deepwater potentials on Iran’s side before clarifying their proved to be incapable of deepwater drilling and has position about that ‘legal regime’. since been leased out to other countries of the region. Any further delay in stating Iran’s position on that Later, fabrication of ‘Iran-Alborz’ semi-submersible ‘legal regime’ and other Caspian issues may be harmful drilling rig was put on Iran’s agenda. ‘Iran-Alborz’ is to the country’s interests. It was a worrying sign when theoretically capable of drilling at depths of up to 1,000 the other four Caspian states held a meeting without meters and is currently at pre-commissioning phase. Use Iran on 11th August this year at port Octave of of ‘Iran-Alborz’ for exploring the Sea is possible only with Kazakhstan. Though President Nazarbaiof of the help of services of companies that possess deepwater Kazakhstan said the meeting was not a formal one and know-how. no decision would be made without Iran. Some specialists and managers of Iran’s oil industry It must not be forgotten that historical links amongst believe that the risks involved in tapping the hydrocar- the said four Caspian states, which used to be called bon potentials of the Caspian Sea are such that Iran’s autonomous republics in former Soviet Union, could standard ‘Buy-Back’ contract fails to be attractive make any accord amongst them more plausible than any enough to foreign companies. These specialists blame similar understanding with Iran. the ‘Buy-Back’ mode as a deterrent to foreign companies’ During the Soviet era, all kinds of border disputes interest in Caspian projects. amongst them were regarded as administrative differ- In contrast to that notion, some others think the only ences and were resolved under the leadership of Russia. type of contract that can help tap those hydrocarbon If once again they manage to reach an accord, Iran’s potentials is in fact the ‘Buy-Back’ mode, which is Caspian relationship with them could practically go effectively a service contract suitable for risky regions back to the state it was during the Soviet time. like the Caspian Sea. These experts insist that foreign As for sharing the Caspian waters, some experts refer companies’ reluctance to get involved in Iran’s Caspian to the Friendship Treaty of 1921 and Trade & Shipping projects has nothing to do with the mode of contract and Accord of 1940 between Iran and the Soviet Union and is because of the absence of a ‘legal regime’ and adverse believe Iran’s share of the Sea stands at 50%. Some political atmosphere against the country. others, however, take the Astarakhan-Hosseingholi Iran has to speed up exploring its part of the Sea so marine line as the dividing line and arrive at some other that the hydrocarbon potentials are identified and an figures. appropriate ‘legal regime’ can be prepared. Two years ago, Iran’s foreign minister claimed that Adopting a dual-purpose ‘legal regime’, for sharing the Iran’s share of the Caspian waters had never practically Sea for shipping and fishing and tapping its hydrocarbon gone beyond 11.3%. This coming from Iran’s foreign reserves, will very much depend on the volumes of those minister was severely criticized by many because no reserves. In such a mode, shipping and fishing can be Iranian official had ever before mentioned such a low shared by the littoral countries as per international figure as Iran’s share of the Caspian. This was later regulations and the hydrocarbon reserves will be corrected to an extent. regarded as the common property of all littoral coun- Director

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Oil Prices in a Year Filled with Uncertainties

2009 proved to be a year filled with that oil market is expected to experience supply surplus in uncertainties insofar as oil prices were 2010 (table 1). In fact, although global demand for oil will T concerned. OPEC’s basket price which had grow in 2010, supply surplus is expected to cast shadow on touched the figure of US$131.22 per barrel in July 2008 fell to the market as well. According to OPEC, global demand for as low as US$38.60 in December 2008 following the global oil in 2010 will grow by 760 thousand barrels reaching to downturn which gave rise to dwindling prices. In January 85.07 million barrels per day. Non-OPEC states’ share of 2009 however, prices rose to US$41.54 per barrel and kept production is expected to grow by 920 thousand barrels on sloping upward ever since. In November 2009, oil was reaching to 56.56 million barrels per day in which case, traded at US$76.39 per barrel. In ten months time alone, oil demand for OPEC’s oil will come to 28.51 million barrels prices increased by almost US$34.75 per barrel. OPEC’s per day meaning 160 thousand barrels lower than the average basket price in the same period of time registered the Organization’s production rate in 2009. Under such sum of US$59.85 per barrel. circumstances, should OPEC member states keep on And close to the turn of the year, experts are now producing oil at current levels i.e. 29.21 million barrels per wondering what fluctuations the oil market is expected to day, the Organization’s surplus production will exceed 690 experience in 2010. Perhaps examination of supply and thousand barrels per day. demand foundations shall assist with responding to this Similar estimates by the International Energy Agency question. Figures released by the Organization of Petro- indicate that the surplus supply shall approximate 720 leum Exporting Countries (OPEC) and the International thousand barrels per day. Thus, in 2010, not only the Energy Agency (IEA) on global supply and demand reveal market shall not experience any shortage of supply, rather

4 Dec . 2009 - 121 there will reside supply surplus and prices are likely to daily supply surplus of no more than 50 thousand barrels, remain at current levels. an effective measure that proved effective in reviving In 2009, global demand for oil fell by 1.4 million barrels prices. In 2010, however, supply surplus is believed to according to an OPEC report and 1.45 million barrels stand at 700 thousand barrels per day. In fact, contrary to according to an IEA report. The sharp fall was due to the 2009, economic forecasts for 2010 are illustrative of a emergence of the global downturn. In response, the bloom resulting in growing demand for oil. According to OPEC member states reached consensus to reduce their OPEC’s report, global demand for oil in 2010 is estimated production proportionately and on that basis, the OPEC at 760 thousand barrels per day and 1.34 million barrels voted in favor of a production cut of 4.2 million barrels per according to an IEA report. However, increase in demand day beginning from 2009. Although OPEC member alone shall not guarantee preservation of prices. On the states failed to adhere to their commitment with full one hand, supply of oil by non-OPEC producers shall determination, the measure however, proved to be a grow further in 2010 and on the other, OPEC member success to a great extent. Figures released by OPEC states appear to be reluctant to reduce production any indicate that in the first, second and third quarters of more and shall most probably keep production at the 2009, OPEC member states’ adherence to their commit- present level. The likelihood does in fact exist that OPEC ment to cut production was rated 70, 75 and 65 percent may increase its production. Therefore, as was stated respectively. This rate did not exceed 60% in October earlier, in 2010, the market shall experience a supply 2009. OPEC member states consensus for cutting surplus of 690 to 720 thousand barrels per day, ruling out production rate established some kind of balance in any optimism about any significant price hike. The ICAP supply and demand. In 2009, oil market experienced a shipping Company has reported that in November 2009,

Tale 1- Estimates by OPEC and IEA Concerning Global Supply and Demand- Million barrels per day.

5 Dec . 2009 - 121 oil stocks held in floating have exceeded 90.3 million Table 2- Estimates for 2010 barrels, that is 15 million in excess of such stocks held in (dollars per barrel) October 2009, a rate that may soar further and come to 6.5 million by the end of the year. Such huge stocks of oil will expose prices to a host of serious risks. As the new Christian Year approaches, analysts have initiated to forecast oil market and price situations in 2010. Forecasts by sixteen various institutions indicate that in 2010, the price of Brent Crude will be traded at US$72.63 on the average (table 2). These forecasts foresee a minimum of US$58 and a maximum of US$90 per barrel of oil for the same period of time and that is synonymous with a host of market uncertainties in 2010. These institutions vote in favor of a maximum price of US$90 per barrel because they believe that economic situation will bloom in the future. Even Barclays institu- tion has foreseen a global growth rate of 4.2 percent for 2010. Such a forecast lies on continued economic growth in Asia and improvement of economic situation in the OECD member states. This group of analysts believes that G20 will keep on providing its encouraging financial And less optimistic analysts hold that, although global packages and for that matter, demand for oil will increase. economy is on the blooming, impediments still exist and Meantime, Non-OPEC producers of oil will cut produc- that oil prices have grown beyond the limits. These same tion, OPEC producers shall preserve their production analysts believe that stock brokers should be claimed rate, and dollar will be devaluated further as a result of responsible for abnormal pricing foundations while high monetary and financial policies and oil prices will be levels of oil stocks in turn threaten prices. further strengthened, these analysts believe. On certain At any rate, even very optimistic institutions do not rule occasions, there resides optimism about oil prices out the likely threat of low economic growth. High rate of approximating even US$100 a barrel. unemployment, weak index of customer confidence, low corporate profits and refusal to provide encouraging economic packages may associate and menace growth of global economy. These factors along with further consumption of alternative fuels and higher levels of energy efficiency may impact demand for oil. However, neither party holds that oil prices may drop to levels lower than those of the early 2009. In this manner, it so appears that the market risks give rise to this belief that minimum price option is more practical under conditions when the said financial institutions have foreseen average oil prices at US$70 a barrel.

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NISOC yet to prepare National Iranian South Oil Com- wells to the production units, shortlist of Aghajari pany (NISOC) is evaluating the Pre- - Two production units of 100,000 POSFR qual documents for ‘package 1’ of bpd capacity each, to replace the five ‘Production Optimization & Surface existing and worn out units, Facilities Renovation (POSFR)’ -Two desalting units of 55,000 bpd project of Aghajari oilfield , sent by the capacity each. bidders in late September ’09. By executing POSFR project, which The results of the pre-qual stage and is foreseen to take four years to shortlist of the qualified companies seem complete, all surface facilities of to be known by the end of December ’09 Aghajari oilfield will be renovated, but and the tender documents for ‘package the field’s crude oil output will not be 1’ are expected to be given to the raised. shortlisted companies by then. The financial needs of POSFR The work scope of the first package of project will be partly provided by the POSFR project includes the construc- internal revenues of NIOC and partly tion of: financed by - Oil flow pipelines from Aghajari Company (NICO).

Qatar to develop Barzan The Barzan Gas Project, a QP- tion of interest notice’ to the contractors offshore gas structure ExxonMobil joint venture, will substan- in the fourth week of November for the tially meet the burgeoning local gas engineering, procurement and demand, especially from industries and construction (EPC) contract. The utilities, when it is expected to be move follows the award, in mid- realized in the next few years. November, to UK’s Royal Bank of Qatar’s demand for gas is estimated Scotland (RBS) the mandate to raise to shoot up to 4.25bn cu ft a day by the $8bn the joint venture needs to 2012, data indicate. Because of Qatar’s develop the structure, MEED said. rapid economic expansion the demand “QP expects to pre-qualify the for gas is soaring. contractors by the end of March and to The Barzan Gas Project may provide invite bids in the second quarter of next about 1.5bcfd of pipeline gas. The year. Barzan will award the contract in balance will be met by the existing Al the fourth quarter of 2010,” MEED said. Khaleej Gas I (AKG-1) with a capacity According to MEED, contractors of 750mn cfd and the North Field expect Barzan to develop the structure Alpha (800mn cfd). in three phases. At least 10 international contractors “The winning bidder for the first phase have been invited to ‘express interest’ in will build two onshore gas processing a multi-billion contract to build facilities trains by the end of 2013 with a to develop the Barzan offshore gas combined capacity of 1.7bn cubic feet a structure in the North Field, MEED day (cf/d). The second phase will reported. deliver a further 2bn cf/d and third phase It said Barzan has issued a ‘solicita- a further 2.5bn cf/d,” MEED said.

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Iraq awards five more OAO Lukoil and partner Statoil The other members of group are oilfield development ASA won rights to develop the Korean KOGAS, Turkey’s TPAO, projects second phase of Iraq’s “super giant” and Malaysia’s . West Qurna crude deposit, the Sonangol, Angola’s state-run oil largest offered to foreign investors on company, on Saturday agreed to Saturday second round of bidding. Iraq’s terms to develop the Qaiyarah Lukoil, the Russian producer with deposit after their initial bid was the most oil assets abroad, beat out rejected yesterday. Sonangol also teams headed by London-based BP won rights to develop Iraq’s Najmah Plc, Paris- based Total SA and Kuala crude deposit, the last field to be Lumpur-based Petroliam Nasional auctioned. Bhd. Lukoil committed at the The winning bids from Friday’s auction in Bagdad to increase output auction show Shell and Malaysian at West Qurna, 65 kilometers partner Petroliam Nasional Bhd., northwest of Basra, to 1.8 million plan to boost output at the Majnoon barrels a day for a fee of $1.15 a barrel. field to 1.8 million barrels of output a The five projects on Saturday day, from about 50,000 barrels a day bidding were West Qurna-2, Garraf, now, earning a fee of $1.39 a barrel. Badra, Middle Furat, and Najmah. The partners beat a rival bid by Total Petroliam Nasional, known as SA and CNPC. Petronas, and Japan CNPC, Petronas and Total will Exploration Co., known as Japex, won boost production at Halfaya to Garraf. They outbid groups led by 535,000 barrels a day, for a fee of Turkish Petroleum Corp., known as $1.40 per barrel produced, beating TPAO, and PT , groups led by Statoil, Italy’s SpA Indonesia’s oil company. and India’s Oil & Corp. led the only group Majnoon holds 12.6 billion barrels bidding for rights to develop Iraq’s of oil reserves and Halfaya holds 4.1 Badra oilfield. It won the contract billion barrels, according to U.S. after lowering its cost for the work. estimates.

KEPCO gives no exact “It has been months since Iran- drilling operation will not start this date for Alborz startup Alborz semi-submersible platform got week,” reported the news agency of ready to start drilling operation,” said Iran’s oil ministry.Without mentioning Hossein Dana, managing director of a date for drilling startup, Dana added: Khazar Exploration & Production Co. “Drilling startup in the Caspian Sea will (KEPCO) and added: “This operation be arranged in line with NIOC’s plan.” requires to be synchronized with In accordance with the latest various sectors.”Asked whether this revised plan announced by NIOC, platform would start operation this the said semi-sub was assumed to week as reported by some news start drilling operations in the agencies, Dana replied: “Iran-Alborz Caspian Sea in last October.

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Chinese SAFE approves Chinese foreign exchange regulator, in the first half of next year. funding Resalat the State Administration of Foreign COMPLANT and AIV, which were Exchange (SAFE), has approved a contracted with Iranian Offshore Oil scheme to provide funding to develop Corporation (IOOC) to develop the Iran’s Ressalat oilfield in the Persian field, have signed sub-contracts with Gulf. Offshore Oil Engineering Corporation People close to the plan said SAFE and China Oilfield Service Ltd has given the go ahead to the funding (COSL). plan involving about $1.47 billion The project involves building and proposed by China Construction installing four wellhead platforms, Bank. three topsides and upgrading the The borrower was the lead contrac- existing jackets, which have been in tor of the project China National use for the last 20 years. Complete Plant Import & Export The deal may involve the drilling of Corporation (COMPLANT) and 19 production wells and 11 injection Malaysia’s AIV, which sprang out from wells, which will be carried out by the former Amona after the latter failed COSL. to secure the same funding package. IOOC expects the upgrading and Sources said approval of the funding redevelopment exercise to boost package will enable the project to start production at Ressalat.

ONGC to use ‘Iran Oil and Natural Gas Corporation block with 40 per cent interest; where LNG’ facility for Farzad- plans to use the facility, that Iran it along with Indian Oil (40 per cent) B gas LNG Company (ILC) is creating on and Oil India (20 per cent) has southern Iranian coast, to liquefy the submitted a $5.5 billion plan to bring gas it will produce from the Farzad-B to production the Farzad-B gas find. gas field in the . “Our stake in Iran LNG can go up ONGC and its overseas subsidiary to 40 per cent,” he said adding ONGC Videsh Ltd along with ONGC wanted to ship back home 6- Hinduja Group and Petronet LNG 8 million tonnes a year of LNG to be last week agreed to take 20 per cent produced from Farsi and SP-12 fields. stake in the $4.35 billion liquefied So far, Iran has agreed to give India up natural gas export facility ILC is to 6 million tonnes per annum of LNG building at Tombak Port. for its efforts in SP-12 and Farsi gas field. “Though this plant is to turn gas Iran LNG plant is being built at produced from South Pars Phase-12 Tombak Port, about 50 km north of (SP-12) into liquid (LNG) for Assaluyeh in the Bushehr province. exports, we are looking at using it also Work on the LNG plant started in 2007. for turning gas from the Farzad-B gas The project includes two LNG trains field in the Farsi block into LNG,” a each with 5.4 MT of LNG per annum company official said. capacity. The project is expected to be OVL is the operator of the Farsi operational by January 2011.

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he National Iranian South Oil Company Sustainable (NISOC) is producing over 85% of T Iran’s crude oil and hence plays a piv- Production and otal role in the country’s petroleum consumption and exports. Enhancement of NISOC is producing the crude oil from 2,450 active wells of 42 oilfields it handles and operates a total of 60 Oil recovery Factor; production plants for treating that output. The four subsidiary oil/gas production companies As Seen by of NISOC also carry out many research studies, pro- duction projects and provide the needed services for NISOCMD various parts of Iran’s . To get better acquainted with the plans and policies of NISOC, an interview has been conducted with its managing director Gholamreza Hassan Baigulou, ex- cerpts of which follow:

Q) What exceptional impact does NISOC have on Iran’s oil industry, besides the huge volume of crude it produces? A) NISOC has over a century of technical experience and has played a vital role in the victory of the Islamic Revolution. The company’s facilities were bombarded sev- eral times by Iraq (in its 8-year long war with Iran) but it has always succeeded in rebuilding them to produce the largest part of the country’s crude oil needs. Although Iran’s oil industry has been a source of great achievements for the country in the past one hundred years, the sacrifices made by the personnel of the industry in the past 30 years are just indescribable. After the victory of the Islamic Revolution of 1979, all foreign specialists left Iran and that gave rise to concerns in the country about the capability of the personnel of the oil industry to run the show on their own without any help from foreign specialists. Fortunately, very soon the technical capability and skill- fulness of specialists of NISOC proved the anxieties to be unfounded and production of crude oil and gas continued unabridged. During the 8-year long war between Iran and Iraq, the competence of the specialist of NISOC was put to test again. When our forces were sacrificing their lives at the warfront, my colleagues were busy day and night produc-

10 Dec . 2009 - 121 ing oil and gas under the constant bombardment of pro- attained by injecting incompatible gas into its reservoir. duction facilities by Iraqi cannons and air force. However, the experience gained in the injection of gas into Those tough days have produced very proficient spe- Ramshir oilfield showed, theoretically, that injecting com- cialists (mostly from NISOC) who can confidently man- patible gas into an oilfield has a better prospect of enhanc- age all affairs in producing oil and gas for the country. ing its oil recovery factor. It must be noted that the oil facilities were bombarded For boosting production capacity of Iran’s oilfields’, more than 150 times during Iraq-Iran war, and even then, studies are underway for using the latest know-how such not a single day Iran’s crude oil export was halted nor an as new drilling techniques, injection of CO2 into oilfields of the country went without the crude feed sup- and the use of Nano technology. If such studies show fa- plied by NISOC. This is a great honor for the company. vorable results, they will be used in the projects. Technically speaking, NISOC is being run by very com- Q) Are there any comprehensive program in petent experts who have gained precious experience in op- NISOC for restoration, renovation and replace- erating very large and com- plex oil and gas fields and are capable of handling all kinds of projects in Iran and even abroad. In other word, NISOC is a scientific-technical-op- erational system with a very smooth workflow which can both define and implement Iran’s largest economic projects at high standards. It should be noted that NISOC has 45 different specialized com- mittees that have their own statutes. Q) What challenges has NISOC been facing in recent years, as far as en- ment of its worn out facilities? hancement of its oil production capacity is con- A) Yes, for that purpose verities of projects have been cerned, though great fresh discoveries have been defined and many of them are being implemented. Some made by the company? have been finished and some others are at various stages A) Given that most oilfields of Iran are going through of designing, tendering and execution. For example, the the second half of their lifespan, sustaining their output is gas injection project at Aghajari region, at an estimated the greatest challenge NISOC has been faced with. On cost of $ 1 Bln, has been put on NISOC agenda. Other the one hand, much more drilling has to be done in the examples of such projects are; process of averting drop in their production, which requires Restoration of oil pressure-boosting station of Omidiyeh a larger fleet of drilling rigs, and on the other, attempts II, must constantly be made on enhancing the fields’ recov- Renovation of Guenaveh multiple access roads, ery factors. Upgrading/expansion of BIK petrochemical metering Enhancement of a field’s final recovery factor is currently station,

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Enhancement of power supply system to desalting plants oilfields that are going through their second half of Maroun oilfield, Optimization of processing system of of lifespan are dependent on the injection of gas Gas & NGL-900 plant of Gachsaran, Optimization of into them, why are such injections being delayed? waste water processing systems of Ahvaz I, II & III desalt- A) Since every one percent rise in the recovery factor of ing plants, Iran’s oilfields will result in an extra five billion barrels of Enhancement of power supply system to Gas & NGL- recoverable crude oil, focus should be on attaining further 900 plant of Ahvaz, rise in those recovery factors. Restoration of the ‘corridor’ of oil & gas pipelines to- Experts believe in various categories of recovery factors ward Mahshahr export terminal. that are applicable in different cases. Besides, it has to be Q) What impact financial constraints have had on recognized that recovery factors of a group of reservoirs NISOC projects? can later change in a wide range. A) As a rule, any increase or decrease in the budget of a The primary recovery of a reservoir is obtained by using the natural gas pressure in it. Af- ter a while, drop in the reser- voir pressure will not allow sustainable production from it. Then secondary recovery methods are used for provid- ing pressure to the reservoir from outside. These entail drilling side wells to inject gas or/and water into the res- ervoir. Secondary recovery meth- ods vary depending on the type of a field’s structure and its reservoir behavior. For choosing a suitable method studies have to be conducted on each field and its reservoir. project has a very direct impact on its progress. To adjust Injection of gas into oilfields has to be both timely and to budgetary problems, certain steps have been taken to in sufficient volumes. Unfortunately Iran’s gas balance is avert parallel works and to curb non-essential expenditures, not in a favorable situation. but to the extent that production is not hampered. Q) Is the private sector involved in NISOC In general, our planning is such that all obstacles on our projects? payments and on securing the needed equipments are over- A) Currently, most projects of NISOC have been as- come and the planned production is achieved. However, signed to contractors of the private sector. In some projects given that the policy of Iran’s oil ministry is to encourage even detailed engineering design and procurement are the local manufacturing of equipments needed in the oil given to their private contractors. industry, which is a time consuming process, the relevant Many civil and construction projects of the company planning has to be done in line with that policy. have been undertaken by private companies, but under Q) Given that sustainable production from the total supervision of NISOC

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Main Obstacles Standing in the Way of Privatization Introduction: n a report released by Iran parliament’s I special committee for ‘supervision of the general policies of execution of ar- ticle 44 of the Constitution’ (Article 44), the reasons for Iran oil ministry’s delay in privatization of its sub- sidiaries have been stated’ reported the NaftNews website. The report covers the privatization activities of the four major companies of Iran’s oil ministry. In the following report, IranOilGas Network will cover part I of the special committee’s report, regard- ing NIOC’s privatization activities: National Iranian Oil Company is going to priva- tize its subsidiary companies under two categories. The companies in the first category include:

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1) PetroIran Development Company (PEDCO), 2) Naft have not undergone the privatization process yet, but it Petropars Ltd., 3) Oil Industries Engineering & Construction was supposed to go through its pricing process. (OIEC), 4) North Drilling Co. (NDC), 5) Iranian Helicop- 8) NIDC ter Company (IHC), 6) Oil General Welfare Service Co. 40% of NIDC shares have been allocated to ‘justice shares’; (OGWSC), 7) Manufacturing Support & Procurement though, no other actions have yet taken for the rest of the Kala Naft Co., 8) National Iranian Drilling Co. (NIDC), 9) shares. However, because of the key role of this company in Petroleum Transportation & Logistics Co. (PTLC), 10) Iran’s upstream sector, NIOC has suggested to transfer the rest South Turbine Industrial Engineering & Equipment Services of NIDC’s shares to some sort of public joint stock company Co. (STIEESC), 12) Naftiran Intertrade Co. (NICO) Sarl, which will set up by the employees of that company. 13) Petroleum Industry Health Organization (PIHO) 9, 10&11) PTLC, STIEESC and Pira The companies in the second category are: Drilling 1) Iranian Fuel Conservation Co. (IFCO), 2) National Still no particular activity has taken place for privatization Iranian Gas Export Co. (NIGEC), 3) Oil Terminals Co. of ‘Petroleum Transportation & Logistics Co. (PTLC)’, (OTC), 4) & Development Co. ‘South Turbine Industrial Engineering & Equipment (PEDEC), 5) Naftiran Intertrade Co. (NICO) Based on the report, the latest status of the 13 companies of the first category is as follows: 1) PetroIran Last year, 100% of PetroIran shares were sold to the winner of a tender (Dana Energy Co.) at Rials 11 trillion; but, due to pricing opacity, the president ordered for the suspension of the deal and retendering the company’s shares on the basis of a new pricing. Yet, Dana Energy’s claim over the 20% down payment of the total shares value should be taken into consideration. 2) PetroPars 61% of Petropars shares were sold at Rials 25 trillion; however, due to the purchaser’s deficient pledge, it is going to be retendered and the rest will remain state-run. Services Co. (STIEESC)’ and ‘Pira Drilling Company’; yet, 3) OIEC they are supposed to go through their pricing process. 72.29% of OIEC shares which belong to NIOC is 12) NICO Sarl supposed to be sold via ‘Tehran Stock Exchange’ (Bourse) NICO Sarl is going to be dissolved and its tasks are or tender. transferred to its main company (NICO). 4) NDC 13) PIHO 28% of NDC shares have been sold through bourse and Petroleum Industry Health Organization (PIHO) has not another 20% block of the shares was supposed to be experienced privatization process either. Because this sector presented through bourse soon. provides health services, NIOC has asked for its exemption 5) IHC from privatization. Iranian Helicopter Company (IHC) has been sold in The most recent status of the 5 companies of the second tender at Rials 125 Bln. category under Article 44 is as comes here: 6&7) OGWSC and Kala Naft 1&2) IFCO & NIGEC Oil General Welfare Service Co. (OGWSC) and Kala Since the nature of the tasks related to both Iranian Fuel

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Conservation Co. (IFCO), and National Iranian Gas Export 4) Lack of serious belief in privatization among the Co. (NIGEC) are claimed to be determining and influential authorities of NIOC’s subsidiaries by NIOC officials, they requested the companies to be Main obstacles : dissolved and their task transferred to NIOC. However no Iranian parliament decided to form a special committee in particular action has been taken yet. order to supervise the implementation of general policies of 3) OTC Article 44. The committee which started its work late in April 40% of Oil Terminals Co. (OTC) shares have been ’09, recently released its first report. allocated to ‘justice shares’; though, no other actions have Iranoilgas Network covered part of this report related to taken for the rest of the shares. NIOC intends to terminate privatization in NIOC on November 24th ’09 (Part 1). OTC’s duties at Kharg and Neka terminals and take them up The second part of the report deals with the barriers and itself and then set OTC’s privatization in motion. challenges ahead of the execution of Article 44 general 4&5) PEDEC & NICO policies, which are as follows: I. The privatization of the state-run companies has been No particular activity has either taken place for PEDEC or mainly in the form of transferring their shares or ownerships NICO; while NIOC has requested their exemption from without giving up the supervisory board seats. Therefore, some of these companies are still under the government’s thumb. This causes the government’s authority to be dominant and the relevant ministries to deal with the current affairs of the companies, instead of making policy adjust- ments. II. Semi-government companies, which are emerging today in the country’s economical scene and act like private sector while depending on governmental establishments, are among the serious challenges for implementation of Article 44. One can refer to the following examples: A) Rials 70,000 Bln of stocks have been assigned to these companies in the form of government’s debt payments. B) Investment organizations and some relevant affiliations of these companies could afford to buy a great privatization process. portion of Rials 180,000 Bln stocks which had been offered As mentioned above, except for the four first companies of to the private sector. Hence, not being able to do so, the real the first category, no serious activity has been taken place for private sector has been offered the least stock. the other companies with regard to the general policies of C) Such companies are neither governmental so as to Article 44. accept the parliament’s mentorship, nor are they private to The most significant causes for this problem are: follow the rivalry code. 1) Uneven distribution of authoritative and administrative III. So far Rials 220,000 Bln of the stocks of the state-run duties between NIOC and oil ministry; oil ministry officials companies have been assigned to the people entitled to claim that the problem would be solved upon the approval receive ‘justice shares’. This procedure will proceed so as to of NIOC’s article of association. cover maximum 40 Mln people. The interest payments of 2) Iran oil ministry’s authorities’ concerns over sensitivity these stocks have been proportional neither to the install- of oil and gas production operations. ments nor to the interest paid to other stockholders rather 3) Heavy capital charges and exclusivity of activities in oil than ‘justice share’ receivers. industry. The most significant issue in terms of ‘justice share’, which

15 Dec . 2009 - 121 has never been observed yet, is that the assignment of ‘justice not yet experienced privatization either. shares’ should not lead to the increase or progression of By enforcing the subsidy reduction bill, domestic gas price ownership or supervision of the government. will go up. This, will lead to the per se replacement of the IV. Among the other challenges of privatization are: present losses of the provincial gas companies in future. obscurity of the given data about the state-run companies, Thus, they can be either privatized in the form of specialized inexact assessment of the possessions and their legal holding companies, or assigned to the inhabitants of the problems, pricing, plus one-sided almost-non-negotiable same province in the form of provincial public joint stock contracts. incorporations. V. It is easy to trace lack of cooperation among some of NIGC has requested that since the activities of IGTC and the governmental managers who are distrustful of general all gas refining companies are governmental in nature, policies of Article 44. privatization should not be applied to them. The latest status: NIORDC Iranian parliament formed a special committee in order to Under Article 44 of Iran’s constitution, oil refining compa- supervise the implementation of the general policies of nies of Esfahan, Abadan, Shazand Arak (SAORC), Bandar Article 44 (of Iran’s constitution). The committee, which Abbas, Tabriz, Tehran (TORC), Shiraz (SORC), started to work late April ’09, recently released its first report. Kermanshah, Lavan plus National Iranian Oil Products Iranoilgas Network already covered two parts of this report Distribution Co. (NIOPDC), National Iranian Oil Engineer- on privatization in NIOC as well as the barriers ahead of the ing & Construction Co. (NIOEC), Iranian Oil Pipelines and realization of Article 44 in general, on 24th and 25th of Telecommunications Co. (IOPTC) and Oil Refining November. Industries Development Co. (ORIDC) are entitled to The third part of the report considers the latest status of undergo privatization. privatization of National Iranian Gas Co. (NIGC) and While 30%, 35% and 6% (a total of 71%) of the shares of National Iranian Oil Refinery and Distribution Co. Esfahan Oil Refining Co. have been respectively assigned as (NIORDC) which is as follows: ‘Justice Shares’, to offset the government debts and through NIGC Bourse, no particular activity has been carried out for the Under Article 44 the following subsidiary companies of remaining companies. NIGC are entitled to go through the process of privatization: It is also worth mentioning that 30% of the shares of All NIGC provincial affiliated companies except for Sistan Abadan, Shazand Arak (SAORC), Bandar Abbas, Tabriz, & Baluchestan Province which does not have a Gas Tehran (TORC), Shiraz (SORC), Kermanshah and Lavan Company, Parsian Gas Refining Co., South Pars Gas oil refining companies are already allocated to ‘Justice Shares’ Complex (SPGC), Shahid Hashemi Nejad (Khangiran) scheme. Gas Refining Co., Fajr-e-Jam (Kangan) Gas Refining Co., The committee is suggesting that all oil refining Sarkhoon & Gheshm Gas Treating Co., Ilam Gas Refining companies transform to a sort of public joint-stock Co., South Pars Technical Repair and Maintenance companies and find their way into the stock market Co.(TMC), Iranian Gas Engineering & Development Co. (Bourse) afterwards. (IGEDC), Bid Boland I Gas Refining Co. and Iranian Gas NIORDC requests that the shares of the refining compa- Transmission Co. (IGTC). nies should not be allocated to ‘Justice Shares’ or used to Among the entitled companies, 49% of the shares of Gas offset the government’s debts. Company of Hamedan Province plus 41% of the shares of NIORDC authorities’ claim that the reason for Article 44 ‘Bid Boland I’ Gas Refining Co. have been sold in order to has not been yet implemented for Oil refining companies offset government’s debts. However, no particular activity was because of the major role these companies play in has taken place for the rest of the companies. ‘Bid Boland II’ supplying fuel and the ongoing development plans to boost Gas Refining Co. and Iranian Gas Khodro Co. (CNG) have their refineries’ gasoline and gasoil production.

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Construction of Tanks to Store 15 Mln Barrels of Crude in Iran

Construction of 17 cement and metal tanks for storing 15 Mln construction of strategic storage tanks to store a total of 15 Mln barrels of crude oil is in line with the plan to build strategic crude barrels of crude oil in Iran. oil storage tanks in Iran. To curb expenditures, the tanks were planned to be con- The scheme will be making best use of domestic potentials structed close to oil production plants. Currently, building metal and local contractors for building the tanks and will bring about storage tanks at Sirri, Bahregan and Ahvaz regions have been many advantages for the country. completed and those of Goureh and Omidiyeh regions, which Perhaps the most important aspect of the plan is to avert any are cement and semi-buried types, are underway. drop in the planned volume of available daily crude oil in Iran Crude metal storage tanks last about 35 years and cement when its production undergoes fluctuations for operational types, which are more complex to build, can be used for 50 years. reasons. To get better acquainted with the scheme to construct On the basis of a report produced by its Corporate Planning strategic crude oil storage tanks, an interview has been conducted Dept., NIOC passed a ruling in October 2000 allowing for the with Ebrahim Pairavi Vanak, executive manager of the project

17 Dec . 2009 - 121 with Iran’s Petroleum Engineering & Development Company building the cement tanks, which completed the project’s (PEDEC), salient points of which follow: feasibility studies and determined the tanks’ locations. Crude oil storage scheme In 2002, a consultant for the conceptual design of the The scheme is to builttanks for storing 15 Mln barrels of tanks was selected and a while later two contractors were oil, PEDEC is in charge of building tanks for 10 Mln barrels chosen for building the tanks. and the remaining 5 Mln barrels of storage has to be One of the contractors was put in charge of building the constructed by the National Iranian Oil Refining & tanks at Goureh region, which consisted of 4 half-Mln Distribution Co. (NIORDC). barrel and two one-Mln barrel tanks. The other contractor In the year 2000, the Management Contractor (MC) of undertook the construction of 2 half-Mln barrel and another the scheme was selected and a year later its consultants two one-Mln barrel tanks at Omidyeh. were chosen. The planned cement tanks have a total of 7 Mln barrels of Then it was realized that both metal and cement types of crude oil storing capacity and their contractors were storage tanks were needed to be constructed, on the basis of required to built them in 18 months’ time and hand them which a single consultant was selected for both types. over to their operators (Aghajari and Gachsaran Oil/Gas Construction of metal tanks Production Companies, both subsidiaries of NISOC). Metal tanks were planned for storing 3 Mln barrels of Given that it was the first time such cement tanks were crude. Early 2001, the contractors for building the metal being constructed in Iran and their consultants and tanks were selected through tenders. The tanks were contractors had no previous experience in such a task, the contractually foreseen to be completed by 2003, but the projects have suffered long delays. task had by then moved only between 50 to 80%. By 2005, Omidyeh tanks had made only about 30% This gave rise to some contractual disputes which led to headway and those of Goureh region had stopped moving delays in the project. beyond 52% progress. Later the work was resumed and construction of metal Earlier this year, PEDEC decided to revive the work on storage tanks had made 90% headway by 2006. In the same the cement storage tanks. Through tendering, a contractor year, a half-Mln barrel metal storage tank of Sirri, plus two has been chosen for Goureh tanks and the tender docu- similar size tanks of Ahvaz 3 were completed and handed ments of Omidyeh storage project have been made over to the operating company (IOOC). available to its 32 participants and a contractor will be When Ahvaz 1,2 & 4 storage tanks made about 90% selected for the task in the next couple of months. progress the project’s contractor became incapable of The contractor of Goureh tanks has been required to completing them. These were then handed over to NISOC, complete the project in the next 24 months and Omidyeh the operating company, for completion. NISOC worked tanks are foreseen to be built in 30 months’ time. very hard on the project and finally completed the said three Construction of Goureh project will cost a total of Rials storage tanks which are now in service. 280 Bln ($ 28 Mln). In addition, so far Rials 70 Bln ($ 7 Building the said metal tanks has cost a total of Rials 280 Mln) has been spent on the project’s power supply system Bln ($ 28 Mln), and its 7 contractors and management which has made 20% physical progress and is foreseen to be contractor (MC) were all Iranian contractors. completed in 2 years’ time. Construction of cement tanks Conclusion Building cement storage tanks in Iran was first raise in Given that it is the first time that building strategic 2001 and at the same time the issue of ‘Inactive Defense’ storage tanks is being done in Iran, delays were unavoidable. had become an issue of interest to the country. In line with However, such attempts will directly contribute to the that policy, PEDEC decided to construct semi-buried upgrading of the level of knowledge of the local contractors. cement tanks. Besides, delays are part of the cost customizing latest During the same year, a consultant was selected for technologies which one must be prepared to pay

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