DEC. 2009 / No.121 in the Name of God Main Obstacles Standing in The

Dec . 2009 - 121 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 Caspian Sea / 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 Iran / 17 Iran Tel: (9821) 22262061-3 Fax: (9821) 22262064 Web: www.IRAEE.org E-mail: [email protected] 1 Dec . 2009 - 121 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 3 Dec . 2009 - 121 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.

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