IRAN: ENERGY PROFILE

EnerPub, TX –
Oct 3 2007

Iran, one of OPEC’s founding members, holds the world’s third-largest
proven oil reserves, and the world’s second-largest natural gas
reserves.

Iran is a member of the Organization of the Petroleum Exporting
Countries (OPEC), and ranks amongst the world’s top three holders of
proven oil and natural gas reserves.

Iran is OPEC’s second-largest exporter after Saudi Arabia, and is
the fourth-largest exporter of crude oil globally after Saudi Arabia,
Russia, and Norway.

Natural gas accounts for half of Iran’s total domestic energy
consumption, while the remaining half is predominately oil consumption.

The continued exploration and production of the offshore South Pars
natural gas field in the Persian Gulf is a key part of in Iran’s
energy sector development plan.

Oil

According to Oil and Gas Journal, Iran has 136 billion barrels of
proven oil reserves, or roughly 10 percent of the world’s total proven
petroleum reserves as of January 1, 2007.

Iran has 40 producing fields, 27 onshore and 13 offshore, with the
majority of crude oil reserves located in the southwestern Khuzestan
region near the Iraqi border.

Iran’s crude oil is generally medium in sulfur content and in the
28°-35° API range.

Iran is OPEC’s second-largest producer after Saudi Arabia.

In 2006, Iran produced an estimated 4.2 million barrels per day
(bbl/d) of total liquids, of which 3.8 million bbl/d was crude oil,
equal to 5 percent of global production.

Iran’s oil consumption totaled 1.6 million bbl/d in 2006.

The Iranian government heavily subsidizes the price of refined oil
products which has contributed to increased domestic demand.

Iran has limited refinery capacity to produce light fuels, and imports
much of its gasoline supply.

Iranian domestic oil demand is mainly for gasoline and automotive
gasoils, but domestic demand for other oil products are declining
due to the substitution of natural gas.

However, it is an overall net petroleum products exporter due to
large exports of residual fuel oil.

Oil export revenues represent the majority of Iran’s total exports
earnings, but the country suffers from budget deficits due to a
growing population and large government subsidies on gasoline and
food products.

In 2005, the International Monetary Fund (IMF) estimated that energy
subsidies accounted for 12 percent of Iran’s GDP, the highest rate
in the world according to an International Energy Agency (IEA) study.

Iran produced 6 million bbl/d of crude oil in 1974, but has been
unable to produce at that level since the 1979 revolution due to a
combination of war, limited investment, sanctions, and a high rate
of natural decline in Iran’s mature oil fields.

Iran’s oil fields need structural upgrades including enhanced oil
recovery (EOR) efforts such as natural gas injection.

Iran’s fields have a natural annual decline rate estimated at 8 percent
onshore and 10 percent offshore, while current Iranian recovery rates
are 24-27 percent, 10 percent less than the world average.

It is estimated that 400,000-500,000 bbl/d of crude production is
lost annually due to reservoir damage and decreases in existing
oil deposits.

Upstream Projects

The Azadegan project phases I and II represent the greatest potential
increase in Iranian crude oil production. Azadegan contains 26 billion
barrels of proven crude oil reserves, but is geologically complex
and difficult to extract.

Iran and Venezuela have agreed on a $4 billion investment in the
Ayacucho 7 block, where there are an estimated 31 billion barrels
of oil.

Iran’s Northern Drilling Company (NDC) has also worked with Russia’s
Lukoil on oil field development in the Caspian Sea. (See Caspian Sea
Analysis Brief)

Iran plans to increase oil production to over 5 million bbl/d by 2010,
but it will need foreign help.

According to Global Insight, an estimated $25-35 billion is required
to meet the government’s 5.8 million bbl/d target by 2015.

Investment in Iran’s energy sector has been tempered due to
the election of the conservative government of President Mahmoud
Ahmadinejad in 2005, the international controversy surrounding the
Iranian uranium enrichment and nuclear program, and economic sanctions.

According to the IEA 2007 Medium-Term Oil Market Report, Iran will
not be able to increase its net expansion capacity through 2012.

U.S. Sanctions

U.S. sanctions against Iran due to Iran’s historic support for
international terrorism and its actions against non-belligerent
shipping in the Persian Gulf impact the development of its petroleum
sector. According to the Iran Transactions Regulations, administered
by the U.S. Department of Treasury’s Office of Foreign Assets Control
(OFAC), U.S. persons may not directly or indirectly trade, finance,
or facilitate any goods, services or technology going to or from Iran,
including goods, services or technology that would benefit the Iranian
oil industry.

U.S. persons are also prohibited from entering into or approving any
contract that includes the supervision, management or financing of
the development of petroleum resources located in Iran.

Sector Organization

The state-owned National Iranian Oil Company (NIOC) is responsible for
oil and gas production and exploration. The National Iranian South
Oil Company (NISOC), a subsidiary of NIOC, accounts for 80 percent
of local oil production covering the provinces of Khuzestan, Bushehr,
Fars, and Kohkiluyeh va Boyer Ahamd.

Though private ownership of upstream functions is prohibited under
the Iranian constitution, the government has allowed for buyback
contracts which allow international oil companies (IOCs) to enter
exploration and development through an Iranian affiliate.

The contractor receives a remuneration fee, usually an entitlement
to oil or gas from the developed operation.

In August 2007, President Mahmoud Ahmadinejad appointed NIOC executive
Gholamhossein Nozari to serve as Acting Oil Minister, replacing Vaziri
Hamaneh and creating controversy over President Ahmadinejad’s role
in the energy sector.

Exports

According to International Energy Agency’s Monthly Oil Data Service
and Global Trade Atlas, Iran’s net crude and product exports in 2006
averaged 2.5 million bbl/d, primarily to Japan, China, India, South
Korea, Italy, and other Organization for Economic Co-operation and
Development (OECD) nations, making it the fourth-largest exporter of
crude oil in the world.

In 2006, Iran’s oil export revenues amounted to $54 billion.

Export Terminals Iran has the largest oil tanker fleet in the Middle
East, the National Iranian Tanker Company, which holds 29 ships
including Very Large Crude Carriers.

Kharg Island is the country’s largest terminal with a holding capacity
of 16 million barrels of oil and a loading capacity of 5 million
bbl/d, followed by Lavan Island with capacity to store 5 million
barrels and loading capacity of 200,000 bbl/d.

Other important terminals include Kish Island, Abadan and Bandar
Mahshar, and Neka, which helps facilitate imports from the Caspian
region.

The Strait of Hormuz, on the southeastern coast of Iran, is an
important route for oil exports from Iran and other Persian Gulf
countries. (See Persian Gulf Analysis Brief)

At its narrowest point the Strait of Hormuz is 34 miles wide, yet an
estimated 17 million barrels, or roughly two-fifths of all seaborne
traded oil, flows through the Strait daily.

Iranian Heavy Crude Oil is Iran’s largest crude export at 1.6 million
bbl/d followed by Iranian Light at 1 million bbl/d.

Refining

Iran’s total refinery capacity is 1.5 million bbl/d from nine
refineries operated by the National Iranian Oil Refining and
Distribution Company (NIORDC), a NIOC subsidiary.

Iranian refineries are unable to keep pace with domestic demand,
and face major infrastructure problems.

The country plans to add around 985,000 bbl/d of refining capacity
by 2012, mostly through expansions and upgrades for gasoline yields
at the Bandar Abbas, Bushehr, and the 90-year-old Abadan refineries.

Large expansion projects at Bandar Abbas, including new catalytic
reformers, distillation units, and condensate splitters will help
supply the domestic demand, but it will probably not all gasoline
imports.

Iran has also discussed joint ventures in Asia, including China,
Indonesia, Malaysia, and Singapore to expand refining activity.

Pipelines

Iran has an expansive domestic oil network including 5 pipelines,
and multiple international pipeline projects under consideration.

Recently, an expansion of the 150 mile pipeline from the port of
Neka on the Caspian coast to Rey, Tabriz, and Tehran refineries has
reached a capacity of 300,000 bbl/d according to Global Insight.

Iran has invested in its import capacity at the Caspian port to handle
increased product shipments from Russia and Azerbaijan, and enable
crude swaps with Turkmenistan and Kazakhstan.

In the case of crude swaps, the oil from the Caspian is consumed
domestically in Iran, and an equivalent amount of oil is produced for
export through the Persian Gulf with a Swiss-trading arm of NIOC for
a swap fee.

In 2006, Iran imported over 192,000 bbl/d of gasoline and relied upon
imports to meet almost half of its fuel needs costing $5 billion.

Gasoline

Iran is the second biggest gasoline importer in the world after the
United States, consuming over 400,000 bbl/d.

According to FACTS Global Energy, Iran imported over 192,000 bbl/d of
gasoline in 2006 costing $5 billion. The gasoline consumption growth
rate has averaged ten percent annually over the past six years,
and the cost of imports is expected to reach $6 billion in 2007, up
from $2.8 billion in 2005. Gasoline prices are heavily subsidized,
and sold below the market price at around 42 cents per gallon, which
has encouraged increased consumption. An increase in vehicle sales
in recent years has also contributed to the problem.

According to PFC Energy, car ownership in Iran grew 250 percent
between 1990 and 2006, and a majority of these vehicles are older
models. Gasoline powered vehicles in Iran are expected to reach 14.9
million by the end of 2007. Iran does not have sufficient refining
capacity to meets its domestic gasoline and other light fuel needs.

Therefore Iran imports gasoline from India, Turkmenistan, Azerbaijan,
the Netherlands, France, Singapore, and the United Arab Emirates.

Iran also imports from large, multinational wholesalers such as BP,
Shell, Total, Vitol, LUKoil, and several Chinese companies.

New Gasoline Rationing System

In June 2007, the Iranian government instituted a gasoline rationing
system. The decision followed a 25 percent price increase to 42 cents
per gallon in May. NIORDC is responsible for the program which allows
private cars to purchase 26 gallons per month and taxis to buy 211
gallons per month.

The rations and increased costs are politically unpopular in Iran.

Customers are allowed to purchase their ration six months in advance.

Part-time taxis, commercial vehicles, and government vehicles also
have special allowances. Records are maintained on smart cards, and
later this year the government is expected to announce the price for
gasoline bought beyond quota levels.

Iran’s gasoline consumption dropped 30 percent immediately after the
rationing scheme was adopted. NIOC executive, Hojjatollah Ghanimifard,
stated that Iranian gasoline imports for August 2007 dropped 14
percent, although an additional $1.5 billion was requested by the
Iranian Oil Ministry to increase gasoline imports through March 2008.

The International Energy Agency reported in its August 2007 Oil Market
Update that gasoline consumption will likely increase again due to the
fact that Iran allows advance purchase of gasoline at a subsidized
rate. The combination of rationing, price hikes, increased refining
capacity, as well as compressed natural gas (CNG) production, will
reduce Iranian gasoline import demand by an estimated 30,000 bbl/d
in the next three years according to FACTS Global Energy.

Natural Gas

Iran is the world’s third largest consumer of natural gas, and
the South Pars Natural Gas offshore field the most significant
development project in the country’s energy sector. According to Oil
and Gas Journal, Iran has an estimated 974 trillion cubic feet (Tcf)
in proven natural gas reserves. Iran holds the world’s second largest
reserves after Russia.

Around 62 percent of Iranian natural gas reserves are located in
non-associated fields, and have not been developed. Major natural
gas fields include: South and North Pars, Tabnak, and Kangan-Nar. In
2005, Iran produced and consumed 3.6 Tcf of natural gas. Natural gas
consumption is expected to grow around 7 percent annually for the
next decade.

Both production and consumption have grown rapidly over the past 20
years, and natural gas is often used for re-injection into mature
oilfields in Iran.

According to FACTS Global Energy, Iran’s natural gas exports will be
minimal due to rising domestic demand even with future expansion and
production from the massive South Pars project. In 2005, 65 percent
of Iranian natural gas was marketed production, while 18 percent was
for EOR gas re-injection, and 17 percent was lost due to flaring and
the reduction of wet natural gas from hydrocarbon extraction. Like
the oil industry, natural gas prices in Iran are heavily subsidized
by the government.

Sector Organization

The National Iranian Gas Company (NIGC) is responsible for natural
gas infrastructure, transportation, and distribution.

Due to the poor investment climate, some foreign companies including
British Petroleum (BP) and Chile’s Sipetrol have chosen to divest in
Iran’s natural gas sector.

Total, Eni, and Shell are the largest remaining foreign investors. In
response, Iran has looked toward eastern firms, like state-owned Indian
Oil Corp. and China Petroleum & Chemical Corporation, or Sinopec,
to take an increased role in Iranian natural gas upstream development.

Under Iran’s buy-back scheme, foreign firms hand over operations
of fields to NIOC, and after development they receive payment from
natural gas production to cover their investment.

Liquefied Natural Gas (LNG)

According to FACTS, Global Energy, Iran may only be able to reach peak
LNG exports of around 1,462 Bcf as a lifetime ceiling. LNG projects
in Iran lag behind neighboring Qatar, the world’s largest LNG exporter.

A $500-million contract for Iran LNG is part of the South Pars Phase
12 development. Pars Oil and Gas Company (PAGC) is responsible for
upstream LNG development, and downstream development is divided amongst
various companies including the National Iranian Gas Export Company
(NIGEC).

South Pars Field

The most significant energy development project in Iran is the offshore
South Pars field, which is estimated to have 450 Tcf of natural gas
reserves, or around 47 percent of Iran’s total natural gas reserves.

Discovered in 1990, and located 62 miles offshore in the Persian Gulf,
South Pars has a 25 phase development scheme spanning 20 years.

The Iranian government expects each phase to yield 1 Bcf/d, and is
developing the South Pars field primarily to meet its domestic market
demand. The first five phases are completed, while the next five are
due by the end of 2007. The Iranian government plans for the first
16 phases to be online by 2010, keeping pace with Qatar’s connected
North Field.

The majority of South Pars natural gas development will be allocated
to the domestic market for consumption and gas re-injection, with
the remainder exported to South Asia or Europe, LNG production,
and gas to liquids (GTL).

Exploration and Production

Iranian natural gas field exploration occurs in the Fars province
including the Varavi, Shanol, and Homa fields, and in the Persian Gulf
Salman gas field. Former Oil Minister Kazem Vaziri-Hamaneh announced in
August 2007, that a natural gas discovery in the Fars province should
produce up to 30 million cubic feet per day (Mcf/d) from 17 new wells.

Iran also announced new agreements with IOCs associated with the
South Pars project, and SKS, a private Malaysian company to develop
non-associated Golshan and Ferdos fields for LNG exports. Their
investment will amount to $16 billion, but is in early stages. Iran
and Kuwait have recently settled a dispute over the Arash (Al Dorra)
offshore natural gas field in the Persian Gulf which they will jointly
develop and explore. The field lies on the continental shelf between
Iran, Kuwait, and Saudi Arabia.

Pipelines

Iran’s domestic natural gas pipelines increased over recent years,
and future projects are planned for the IGAT (1-8) pipeline series.

The 745 mile Iran-Turkey pipeline completed in 2001 can move 1.4 Bcf/d.

Iran imports 800 Mcf/d from Turkmenistan via pipeline from the
bordering Korpedze field to Iran’s Kurt Kul town for consumption in
northern Iran.

This $195-million pipeline is the first in the Caspian region to
bypass Russia.

In March 2007, the 87-mile long Iran-Armenia pipeline was completed
in Agarak, and will transport 200 Mcf/d to Armenia in exchange for
electricity.

The Nabucco pipeline is an another proposed project which will run 2050
miles from Iran and other Caspian states through Turkey to Austria
and the European Union. Construction is slated to start in 2009,
and the project will cost an estimated $6.8 billion with a capacity
to transport 300 Mcf/d.

The most controversial pipeline proposal is the $7.4-billion
Iran-Pakistan-India (IPI) line which would transport Iranian natural
gas south to the Asian subcontinent. With a proposed 1724 miles and
a 5.4 Bcf/d capacity, the pipeline has been stalled in the past due
in part to disputes over the cost of the shipments.

NIOC’s Director of International Affairs Hojjatollah Ghanimifard
invited President Musharraf of Pakistan and Prime Minister Singh of
India to discuss the pipeline in July 2007, but the final arrangement
has not been announced. Pakistan and India still need to settle
transportation tariffs. Iran would probably extend its domestic IGAT-7
pipeline into Pakistan, and not create a new parallel pipeline. The
545-mile IGAT-7 has a total capacity of 5.4 Bcf/d and runs from
Assaluyeh to Iranshahr. The IGAT-7 should be completed by 2011.

Electricity

Iran’s electricity demand is projected to grow 6 percent annually
through 2015. In 2004, Iran generated 156 billion kilowatthours
(Bkwh) and consumed 145 Bkwh. 146 Bkwh was generated by conventional
thermal electric power, and the remaining 11 Bkwh was generated by
hydroelectric power. As of 2004, EIA shows no significant generation
from nuclear electric power.

Iran will need to increase its electricity generation to meet its
rapid consumption growth. The IEA estimates that energy intensity in
Iran is 30 percent higher than in OECD countries. According to FACTS
Global Energy, Iran’s electricity demand is projected to grow at 6
percent per year through 2015.

In Iran multiple sources of power generation are being explored. One
option for meeting electricity demand includes using fuel oil for
power generation, particularly efficient for plants located close to
oil refineries.

Iran also plans to boost natural gas production use to meet its
electricity demand. Hydroelectric plants and the controversial nuclear
power program will also be part of Iran’s overall electricity plan
if technological advances, investment, and political pressure allow.

State-owned Tavanir and other regional subsidiaries dominate the power
sector, and are responsible for power generation, transmission, and
distribution. However, the Iranian government has moved to attract
private investment in its electricity sector.

International Cooperation

According to Middle East Economic Survey (MEES), Pakistan’s
governmental Central Development Working Party has approved a plan to
import 100-400 MW of electric power from Iran for up to 6.3 cents per
kwh over 30 years. Iran and Turkey plan to build three power plants
together using natural gas to generate 6,000 MW, and they plan to
build joint hydroelectric plants starting in 2008.

Iran’s Deputy Energy Minister Mohmmad Ahmadian stated that Iran
would like to link with Russia’s electricity network, though such
a project would require at least two years to fulfill. Iran has
expressed interest in increasing supplies to Azerbaijan after the
necessary infrastructure is built.

Energy Overview Proven Oil Reserves (January 1, 2007E) 136 billion
barrels Oil Production (2006E) 4.16 million barrels per day, of which
3.8 million barrels per day was crude oil.

Oil Consumption (2006E) 1.6 million barrels per day Crude Oil
Distillation Capacity (2007E) 1,451 thousand barrels per day Proven
Natural Gas Reserves (January 1, 2007E) 974 trillion cubic feet Natural
Gas Production (2005E) 3.6 trillion cubic feet Natural Gas Consumption
(2005E) 3.6 trillion cubic feet Recoverable Coal Reserves (2007E)
462 million short tons Coal Production (2004E) 1 million short tons
Coal Consumption (2004E) 1.7 million short tons Electricity Installed
Capacity (2004E) 34.3 gigawatts Electricity Production (2004E) 156
billion kilowatt hours Electricity Consumption (2004E) 145 billion
kilowatt hours Total Energy Consumption (2004E) 6.4 quadrillion Btus*,
of which Natural Gas (49%), Oil (48%), Hydroelectricity (2%), Coal
(1%) Total Per Capita Energy Consumption (2004E) 95.5 million Btus
Energy Intensity (2004E) 10,280 Btu per $2000-PPP**

Environmental Overview Energy-Related Carbon Dioxide Emissions (2004E)
402 million metric tons, of which Oil (52%), Natural Gas (42%), Coal
(1%) Per-Capita, Energy-Related Carbon Dioxide Emissions (2004E)
6 metric tons Carbon Dioxide Intensity (2004E) 0.6 Metric tons per
thousand $2000-PPP**

Oil and Gas Industry Organization The Ministry of Petroleum (MoP)
manages: 1) National Iranian Oil Company (NIOC) – oil and gas
exploration and production, refining and oil transportation; 2)
National Iranian Gas Company (NIGC) – manages gathering, treatment,
processing, transmission, distribution, and exports of gas and gas
liquids; 3) National Iranian Petrochemical Company (NPC) – handles
petrochemical production, distribution, and exports; and 4) National
Iranian Oil Refining and Distribution Company (NIORDC) handles oil
refining and transportation, with some overlap to NIOC. The National
Iranian Offshore Oil Co. (IOOC) is in charge of offshore oil fields
in the Persian Gulf. The National Iranian South Oil Fields Co. (NIOC
South) is in charge of onshore oilfields in southern Iran. Pars Oil &
Gas Co. (POGC) is in charge of the offshore North and South Pars gas
fields. Khazar Exploration & Production Co. is in charge of Iran’s
Caspian Sea sector. Also, the National Iranian Tanker Company (NITC)
controls the second largest fleet of tankers in OPEC.

Major Oil/Gas Ports Kharg Island, Lavan Island, Sirri Island, Ras
Bahregan Foreign Company Involvement BG, BHP, Bow Valley, BP, Eni,
Gazprom, Lukoil, OMV, Petronas, Royal Dutch/Shell, Sheer Energy,
Sinopec, Statoil, Total Major Oil Fields Agha Jari, Ahwaz, Bangestan,
Bibi Hakimeh, Darkhovin, Doroud, Gachsaran, Mansouri (Bangestan),
Marun, Masjid-e Soleiman, Parsi, Rag-e-Safid, Soroush/Nowruz Major
Natural Gas Fields South Pars, North Pars, Khuff, Zireh, Tabnak,
Nar-Kangan, Aghar, Dalan, Sarkhoun, Mand Major Refineries (capacity,
bbl/d) Abadan (400,000), Isfahan (265,000), Bandar Abbas (232,000);
Tehran (225,000), Arak (150,000), Tabriz (112,000), Shiraz (40,000),
Kermanshah (30,000), Lavan Island (20,000) Major Export Terminals
(loading capacity, bbl/d) Kharg Island (5 million), Lavan Island
(200,000), Neka (50,000), Assaluyeh (250,000 gas liquids), Kish Island
and Abadan and Bandar Mahshahr

* The total energy consumption statistic includes petroleum, dry
natural gas, coal, net hydro, nuclear, geothermal, solar, wind, wood
and waste electric power. The renewable energy consumption statistic
is based on International Energy Agency (IEA) data and includes
hydropower, solar, wind, tide, geothermal, solid biomass and animal
products, biomass gas and liquids, industrial and municipal wastes.

Sectoral shares of energy consumption and carbon emissions are also
based on IEA data.

**GDP figures from OECD estimates based on purchasing power parity
(PPP) exchange rates.

Source: EIA

Tables, graph, maps at
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From: Emil Lazarian | Ararat NewsPress