Russian firms steps up Iran involvement

21 December 2016
20 December 2016, Week 50, Issue 606

In the frame for seven contracts already, Russia looks to roll out full Iran expansion strategy, including major new field discovery. 

With Moscow having supported Iran throughout the sanctions, it is little surprise to see Russian firms at the forefront of new contract awards. This appears set to continue and includes a hitherto unknown but promising new oil and gas field.

At the time when sanctions were being increased again, there was a high level meeting in Tehran between senior figures from the energy sectors and central banks of Iran and Russia. During this, “it was agreed that in exchange for an initial US$20 billion investment, Russian companies would be given preferential treatment [on] exploration and development contracts once sanctions were lifted,” a senior oil and gas industry figure in Tehran told NewsBase last week.

Initially this investment was confined to engineering and infrastructure projects in order to avoid provoking further corollary sanctions being implemented on Iran and Russia. This included the upgrading of pressure relay posts, expanding the Ilam, Fajr, Jam, and Hasheminejad gas refinery plants, and completing the 6th, 10th and 11th Iran Gas Trunkline (IGAT) domestic/regional pipelines.

As it became clearer that sanctions would be rolled back, though, Russia’s investment increased to more than US$50 billion, the source added. This was broadened to include such projects as building out four new oil terminals on the islands of Jask, Lavan, Sirri, and Qeshm that would be used to diversify export outlets from the biggest oil terminal on Kharg Island, which accounts for more than 90% of Iran’s crude exports.

“This was a strategic plan by Russia to position itself front and centre for when sanctions were eventually removed and contracts for field development were on the table, which is precisely what has happened, and now Russia has huge scope to increase its business with Iran, as evidenced by the disproportionately high number of oil and gas contracts for which its firms are in the frame,” he said.

Deepening ties

In early December, Iranian Oil Minister Bijan Zangeneh highlighted that in addition to the agreements signed with GazpromNeft for feasibility studies for the Changouleh and Cheshmeh-Ghosh oilfields, Zarubezhneft has come to similar deal for the Aban and West Paydar fields and Tatneft for the Dehloran field.

This came as part of the process leading up to last week’s signing of a 22-point memorandum of understanding (MoU) by Iran’s deputy petroleum minister, Amir-Hossein Zamaninia, and his Russian counterpart Kirill Molodtsov, covering increased mutual co-operation in oil, gas, refining and petrochemicals.

Taking into consideration the previous deals signed by LUKoil and the National Iranian Oil Co. (NIOC) for studies of the Ab Teymour and Mansouri oilfields, Russian firms have now been assigned seven field studies, the most of any country.

“These MoUs are also extremely wide-ranging,” Sam Barden, CEO of Middle East specialist energy trading firm and consultancy, in Dubai, told NewsBase. In addition to the studies and plans for oil exploration and production, they cover gas transmission “petrochemical swap operations, research on the supply and marketing of petrochemical products, the manufacture of oil equipment together with local Iranian engineering firms, and technology transfer in the refinery sector,” he added.

NewsBase understands that there is even more to these already headline-grabbing awards than meets the eye. For a start, the GazpromNeft awards are just a part of a wider understanding that the Russian gas giant will also develop Iran’s promising sites in its area of the Caspian basins area, beginning with the offshore fields.

Although, according to industry data, Iran has proved and probable oil reserves of around 500 million barrels of crude oil and 2 tcf (57 bcm) of natural gas in the area, according to internal Iran Petroleum Ministry data, the actual oil reserves figure is at least 2 billion barrels of API 39-quality oil.

“Gazprom will also be joined by minority partners [Austria’s] OMV, [Norway’s] Statoil, and [Thailand’s] PTTEP, both in Changuleh and Cheshmeh-Ghosh but more importantly in the Caspian development, which is expected by the Petroleum Ministry to yield around US$150 billion in new revenues in the first instance,” he said.

Moreover, although the Russian firm has made it clear that they do not want Chinese companies directly named or involved in any of its sites, NewsBase understands that elements from the major Chinese state hydrocarbons firms will be involved in the Caspian development via Thailand’s PTTEP operation, to which GazpromNeft dos not object.

In a similar vein, the source added, although the award of the Dehloran contract to the relatively lightweight Tatneft (only the sixth biggest oil and gas firm in Russia) might appear to be something of a footnote to the other more high-profile awards, Dehloran hides a much bigger prize.

“A new field was discovered around three years ago in the Dehloran site – tentatively named Ab Avaran – which is estimated to be the biggest new oil and gas find in Western Asia of the last six years. It was decided between Iran and Russia to keep it low profile up until now, to allow Russian firms to conduct major studies on it, and work out the best development plan, which is why the name on the award is the relatively small Dehloran field and the equally minor Tatneft,” he said.

However, he added that significant resources “will be brought to bear on the site, which has enormous potential”.

Enhancing recovery

From Iran’s perspective, Christopher Cook, director of energy consultancy, Wimpole International, told NewsBase, Russia is seen as a longstanding ally and major investor. “Moscow has huge sway in the global oil and gas market and it has a significant and ongoing energy relationship with China – Iran’s number one target market in Asia.”

Meanwhile, Russian companies have extensive expertise and technology available to reverse declining oil output from ageing oilfields via enhanced oil recovery (EOR) and improved oil recovery (IOR) techniques.

Indeed, industry data makes it clear that some of Iran’s older fields are already entering a declining phase in which it will be necessary to dramatically extend EOR and IOR techniques in order to slow the drop-off. Onshore, around 6-8% of fields are experiencing loss of output that can only be restored with EOR techniques, whilst offshore the figure is between 12-15%, so plugging these gaps is crucial in meeting net production increase targets.

“Russia had the same problem during the 1990s that Iran has now with these fields, but successfully reversed the trend. Although it does not have the very latest technology sometimes needed – like the newest submersible technology, for example – what it has will make a major difference to output from these older Iranian sites,” he added.

With these agreements following hot on the heels of the recent deals with Western super-majors Shell and Total, competition is heating up and 2017 promises to be an even more intriguing year for Iranian upstream.

 

Edited by

Ian Simm

Editor

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