Exploration And Production In Iran

• Iran's crude oil production fell dramatically in 2012, and, although it remained the second-largest OPEC producer on average during the year, it exceeded Iraq's production only narrowly. In August 2012, its crude oil production fell below Iraq's for the first time since 1989.
• A series of sanctions targeting the oil sector have resulted in cancellations of new projects by a number of foreign companies, while also affecting existing projects. Following the implementation of sanctions in late-2011 and mid-2012, Iranian production dropped dramatically. Although Iran had been subject to four earlier rounds of United Nations sanctions, the much tougher measures passed by the United States and the European Union have severely hampered Iran's ability to export its oil, which directly affected its ability to produce petroleum and petroleum products.
• The U.S. and EU measures targeted its petroleum exports and imports, prohibited large-scale investment in the country's oil and gas sector, and cut off Iran's access to European and U.S. sources of financial transactions. Further sanctions were implemented against institutions targeting the Central Bank of Iran, while the EU imposed an embargo on Iranian oil and banned European Protection and Indemnity Clubs (P&I Clubs) from providing Iranian oil carriers with insurance and reinsurance. The implementation of insurance-related sanctions was a particularly effective sanction in stymieing Iranian exports, which affected not only European importers, but also Iran's Asian customers who were forced to temporarily halt imports.
• In 2012, Iran produced approximately 3.5 million barrels per day (bbl/d) of total liquids, of which roughly 3.0 million bbl/d was crude oil. The total production level in 2012 was about 17 percent lower than the production level of 4.2 million bbl/d in 2011, most of the drop is attributable to the imposition of sanctions. Condensate production totaled approximately 650 thousand bbl/d in 2011, according to Arab Oil and Gas Directory, of which 440 thousand bbl/d was marketed and 210 thousand bbl/d was mixed in with the crude oil.
• Iran has 34 producing fields (22 onshore and 12 offshore), with onshore fields comprising more than 71 percent of total reserves. Currently, Iran's largest producing field is the onshore Ahwaz-Asmari Oil Field, followed by the Marun Oil Field and Gachsaran Oil Field, all of which are located in Khuzestan province.
• Iran Heavy crude stream accounts for most of the country's oil production, at approximately 45 percent, according to FGE. The stream is mainly sourced from a few onshore fields in southern Iran, some of which are multilayered and also feed the Iran Light stream. Gachsaran and Marun are two of the largest fields that contribute to Iran Heavy. Other fields include Rag-e-Safid, Ahwaz, Bangestan, Mansouri,and Bibi Hakimeh.
• Iran Light crude stream is the other key grade and is sourced from several onshore fields in the Khuzestan region. However, two-thirds of this grade comes from three fields: Ahwaz-Asmari, Karani, and Agha Jari. Many of the fields that produce Iran Light have been producing for decades and are declining rapidly. NIOC has been working on offsetting these declines through the use of enhanced oil recovery (EOR) techniques, mainly using associated gas. However, this effort was severely hampered as a result of a shortage of natural gas available for reinjection.
• Since the 1970s, Iran's oil production has varied greatly. Iran averaged production of over 5.5 million bbl/d of oil in 1976 and 1977, with production topping 6 million bbl/d for much of the period. Since the 1979 revolution, however, a combination of war, limited investment, sanctions, and a high rate of natural decline in Iran's mature oil fields has prevented a return to such production levels.
• Iran's reserves are not confined to the southwest and offshore Persian Gulf, creating potential for further discoveries. Iran has oil reserves under the Caspian Sea, but exploration and development of these reserves have been at a standstill due to territorial disputes with neighboring Azerbaijan and Turkmenistan. Iran also shares a number of both onshore and offshore fields with neighboring countries, including Iraq, Qatar, Kuwait, and Saudi Arabia.

++++ Upstream projects

• • New developments**

• Although there were a number of new exploration and development blocks announced over the last several years, which could provide Iran with an increase in its crude oil production capacity, sanctions have negatively affected the Iranian oil industry. In the last year in particular, Iran has seen a significant erosion of production capacity that is at least in part attributable to the sanctions.
• Virtually all western companies have halted their activities in Iran, although there are a number of Chinese and Russian companies that are still participating. The sanctions and lack of international involvement has particularly affected the upstream projects negatively, as the lack of expertise, technology, and investment has resulted in delays and, in some cases, cancellations of projects. Nonetheless, development of a few projects continues, albeit at a slower pace than planned.
• The **Azadegan Oil Field** was Iran's biggest oil find in 30 years when announced in 1999. It contains 26 billion barrels of proven crude oil reserves, but its geologic complexity makes extraction difficult. The field is separated into two portions: North and South Azadegan. China National Petroleum Corporation (CNPC) is developing North Azadegan in a two-phase development, with ultimate total production estimated at 150 thousand bbl/d (75 thousand bbl/d for each phase). Latest estimates by FGE indicate that the first phase will be onstream by 2016.
• In 2004, a consortium of NIOC (25 percent) and Japan's INPEX (75 percent) signed an agreement to develop the southern portion of the Azadegan field. However, as a result of sanctions, INPEX has halted its activities in South Azadegan. According to FGE, production from South Azadegan averaged 50 thousand bbl/d in 2012, although peak production is expected to reach around 260 thousand bbl/d in two phases. Considering the delays the project has already experienced, it is not likely that the field will be fully developed before 2020.
• **Yadavaran Oil Field** is the other promising upstream oil development project, with 3.2 billion barrels of recoverable reserves. China Petroleum & Chemical Corporation (Sinopec) signed a buyback contract at the end of 2007 to develop Yadavaran in two phases. The first phase of production is expected to plateau at 85 thousand bbl/d, while the second phase will boost production to 185 thousand bbl/d. NIOC originally planned to have Yadavaran's first phase completed by 2012. However, new estimates indicate that this will occur most likely in 2016.
• There are a number of other upstream projects that are in various stages of development. However, development of all these projects may be adversely affected by the international sanctions. Thus far, at least four of these projects saw initial operators cease activities because of sanctions, including the geologically challenging Azar field. Although drilling operations began in October 2012, production is unlikely to come onstream in this decade.

++++ Existing production

• Ahwaz is the largest producing field in Iran and is composed of three zones: Asmari, Bangestan, and Mansouri. The combined production capacity of these three formations is 750 thousand bbl/d, according to Arab Oil and Gas Directory. Asmari is the largest of the three formations and produces 530 thousand bbl/d. Ahwaz is located onshore in the Khuzestan province. The second-largest producing field in Iran is Marun, with a production capacity of 500 thousand bbl/d.
• Iran's largest offshore field is Abuzar field, with a production capacity of 175 thousand bbl/d. NIOC plans to undertake an expansion of the field, which would bring its total capacity to 220 thousand bbl/d.

+++ Natural Gas

• Iran holds the world's second-largest reserves of natural gas, but the vast majority of these reserves are undeveloped.
• According to Oil & Gas Journal, as of January 2013, Iran's estimated proved natural gas reserves stood at 1,187 trillion cubic feet (Tcf), second only to Russia. Eighty percent of Iranian natural gas reserves are located in non-associated fields, and most of these reserves have not been developed. Major natural gas fields include: South Pars, North Pars, Kish, and Kangan. In 2011, Iran produced an estimated 5.4 Tcf of dry natural gas and consumed an estimated 5.4 Tcf.
• Iran's natural gas reserves are located predominantly offshore, although significant associated natural gas production originates from the country's onshore oil fields. The giant South Pars gas field, only a portion of which is in Iranian territory, comprises over 27 percent of Iran's total proved natural gas reserves and is Iran's largest natural gas field. South Pars' proved natural gas reserves are estimated at 325 Tcf, according to FGE, with 3-4 billion barrels of condensate in place, as reported by Arab Oil and Gas Directory.
• Kish is Iran's second-largest field, with an estimated 70 Tcf of reserves in place. Other large natural gas fields include North Pars, Tabnak, Forouz, Kangan, and Ferdowsi.
• ran is the third-largest natural gas producer in the world due in part to the development of the giant South Pars field. Despite repeated delays in field development and the effects of sanctions, Iran's natural gas production is expected to increase in the coming years.
• Iran's natural gas resources are abundant, and although exploration for new resources is not a priority for the Iranian government, a number of new finds have been announced recently. In 2011, four sizeable new discoveries were announced: Kayyam, Farouz B, Madar, and Sardare Jangal fields.
• The discovery of the Khayyam field, located south of the city of Assaluyeh, was announced in January 2011. According to FGE and Arab Oil and Gas Directory, the field contains 9.1 Tcf of natural gas in place, of which at least 7 Tcf is recoverable, along with approximately 220 million barrels of condensate reserves. Madar, a second discovery close to Assaluyeh, is thought to hold about 17.5 Tcf of natural gas and 653 million barrels of recoverable condensate reserves.
• The Forouz B field was discovered in the Persian Gulf, close to Lavan Island, and holds estimated natural gas reserves of 29 Tcf. This field could provide feedstock for a petrochemical complex that is planned to be built on Lavan Island.
• Finally, in December 2011, Khazar Oil Company discovered the giant Sardare Jangal field approximately 150 miles offshore in the Caspian Sea. Based on initial assessments, the field's estimated reserves total 50 Tcf of natural gas. Given the field's position in the Caspian Sea, it is possible that Iran shares the field with Azerbaijan; however, lack of a border delineation agreement among littoral states could complicate the development of this field.
• Over the last two decades, Iran's dry natural gas production has rapidly increased, rising from 0.9 trillion cubic feet (Tcf) in 1991 to 5.4 Tcf in 2011, and accounts for around 5 percent of the world's natural gas production. Domestic consumption, also estimated at 5.4 Tcf in 2011, has kept pace.
• Gross natural gas production totaled 7.9 Tcf in 2011, increasing nearly 2 percent compared with the year prior. Nearly three quarters of total production originated in non-associated gas fields, with the remainder of gross natural gas being produced associated with oil.
• The South Pars field accounts for about 35 percent of Iran's total natural gas production, with sizeable production coming also from the Kangan and Tabnak fields. In addition, Gonbadli began producing in June 2011 and contributed about 25 thousand cubic feet (Mcf) during the remainder of the year.
• Associated natural gas production originates mainly from the Khuzestan, Ilam, and Kermanshah provinces, and offshore oil fields. According to FGE, about 30 percent of Iran's total associated natural gas production was flared.
• In 2011, more than 67 percent of the gross natural gas was delivered to market as dry gas, with 16 percent (1.2 Tcf) reinjected to enhance oil recovery. Approximately 0.6 Tcf of total natural gas produced was flared, with shrinkage, loss, and flaring representing 17 percent of the total.
• Much like in the oil sector, the natural gas sector has been hampered by international sanctions. Although sanctions targeting the Iranian natural gas exports were only recently enacted by the EU, lack of foreign investment and sufficient financing has resulted in slow growth in Iran's natural gas production. According to some analysts, Iran should have become one of world's leading natural gas producers and exporters given its large resource base. Development of its fields has been hampered by a combination of financing, technical, and contractual issues.
• Nonetheless, Iran's natural gas production has grown and likely will continue to increase in coming years. FGE estimates that Iran's gross natural gas production will increase to 10.9 Tcf in 2020, but that growth will depend on the pace of development of the South Pars field.

++++ Iran's major natural gas fields

• **South Pars Gas Field**
• Development of the offshore South Pars field is of vital importance to Iran, both politically and economically. Natural gas production from South Pars is critical to meet increasing domestic consumption and to meet Iran's current and future export obligations.
• The most significant energy development project in Iran, the South Pars field, produces about 35 percent of total natural gas in Iran.
• Discovered in 1990 and located 62 miles offshore in the Persian Gulf, South Pars has a 24-phase development scheme spanning 20 years at a cost of approximately $60 billion, which excludes downstream facilities.
• The entire project is managed by Pars Oil & Gas Company (POGC), a subsidiary of National Iranian Oil Company. Each of the 24 phases has a combination of natural gas with condensate and/or natural gas liquids production. Phases 1-10, which are either producing or are under development, are allocated for the domestic market for consumption and reinjection.
• Production from the remaining phases will be exported via pipelines and as liquefied natural gas (LNG) and/or used for gas-to-liquids (GTL) projects.
• Contracts for the first ten phases were awarded prior to 2002; half of these came online between 2002 and 2005. Phases 5-10, which were managed by PetroPars, experienced repeated delays, with phases 6-8 expected to come online in mid-2013.

Other field developments Kish, which was originally thought to hold approximately 50 Tcf of natural gas reserves, was reassessed in mid-2011 at 70 Tcf. According to FGE, Kish may be one of Iran's more lucrative natural gas prospects because of its reserves and location. PEDEC put in place a six-phase plan to develop Kish, which could produce more than 4 Bcf per day of natural gas.

Because of repeated contractual disagreements among companies involved in the development of this field, as well as the infrastructure required (which includes the construction of a natural gas processing plant, gas pipelines, and a new power plant), the first phase of this field is unlikely to come online before 2020.

In addition to Kish, there are other promising gas fields that could further boost Iran's production. The North Pars field, adjacent to South Pars, has approximately 50 Tcf of reserves of sour gas. China National Offshore Oil Corporation (CNOOC) signed an agreement with NIOC to develop North Pars, however, CNOOC recently halted its activities as a result of U.S. sanctions. According to FGE, this project is not likely to come online before 2020.

West Assaluyeh is adjacent to the Kangan field and contains up to 6 Tcf of natural gas reserves. Development of this field requires building a natural gas gathering system, construction of a gas treatment plant, and construction of a pipeline that would transport the natural gas into the IGAT-2 trunkline.

The Lavan gas field's estimated reserves are approximately 9.5 Tcf, with 62 million barrels of condensate. The first phase of the project, expected to be completed by 2015, will produce 750 million cubic feet per day (MMcf/d) of natural gas and 11 thousand bbl/d of condensate.

Forouz B's reserves are estimated at 25 Tcf; production from this field is expected to be used for electricity generation for exporting to Iraq, Turkey, Pakistan, and Oman. The first gas from Forouz B is expected in 2017.

The Golshan and Ferdowsi fields hold 39 Tcf and 11 Tcf of natural gas reserves, respectively. Contracts for the development of these fields were awarded but subsequently cancelled; there are currently no development plans. NIOC plans to award these fields to Iranian firms sometime during 2013.