Iran’s declining oil production — zero exports by 2015
The other day a very political US government paper appeared on Iran’s “collapsing” oil industry. Here’s how it was reported:
Iran is experiencing a staggering decline in revenue from its oil exports and, if the trend continues, income could virtually disappear by 2015, according to an analysis released yesterday by the National Academy of Sciences. Iran’s economic woes could make the country unstable and vulnerable with its oil industry crippled, Roger Stern, an economic geographer at Johns Hopkins University, said in the report and in an interview. Iran earns about $50 billion a year in oil exports. The decline is estimated at 10 percent to 12 percent annually. In less than five years, exports could be halved and then disappear by 2015, Mr. Stern predicted…
“If we look at that shortfall, and failure to rectify leaks in their refineries, that adds up to a loss of about $10 billion to $11 billion a year,” he said. “That is a picture of an industry in collapse.” If the United States can “hold its breath” for a few years, it may find Iran a much more conciliatory country, he said. And that, Mr. Stern said, is good reason to control any instinct to take on Iran militarily. “What they are doing to themselves is much worse than anything we could do,” he said. “The one thing that would unite the country right now is to bomb them,” Mr. Stern said. “Here is one problem that might solve itself.”
Given that the purpose of the paper appears to be entirely political in nature, in order to forestall any US military action against Iran, we automatically questioned the science and methodology behind it. We don’t have firm conclusions on the matter, but it has been very interesting looking into Iranian oil production. You would think that a quick internet search would produce half a dozen reliable ten year forecasts for this OPEC member, but that does not appear to be the case. We will quote from the NAS paper on the murkiness of Iran’s future oil production:
The paper goes on to describe how Western JV’s and other arrangements are increasingly being shelved or delayed, and that a gas development contract was even issued to the Revolutionary Guards — who have no oil and gas experience whatsoever. Whether Iran has become impossible to deal with in business matters, or whether the US and its allies are waging a clandestine commercial war against Iran’s oil and gas industry is hard to tell from the paper. It looks like a little of both to us. (Strangling Iran’s oil and gas industry would be an excellent strategy for the US — like Reagan’s military spending with the USSR — since 2/3 of its state revenue comes from the oil sector.)
We view as laughable Roger Stern’s assertion in the NAS report that “Iran’s claim to need nuclear power could be genuine” — after all, it would be much easier for Iran to fix a few contracts and exploit its abundant oil reserves than to do the Iranian/Russian nuclear project. However, it does appear plausible from the NAS paper that the US may be working behind the scenes to sabotage such Iranian efforts as exist to maintain its oil output — and if that’s the case, bravo.
UPDATE
Daniel Freedman has been covering this issue for a while, as has Business Week, and it appears that a combination of Iranian ineptitude and American pressure is probably working to diminish Iran’s oil production capabilities.
UPDATE II
Business Week has some numbers to consider:
The country’s 137 billion barrels of oil reserves are second only to Saudi Arabia’s, and its supply of gas trails only Russia’s, according to the BP Statistical Review of World Energy. Getting it all out of the ground, though, is another matter. Iran has been producing just 3.9 million barrels of oil a day this year, 5% below its OPEC quota, because of delays in new projects and a shortage of technical skills. By contrast, in 1974, five years before the Islamic Revolution, Iran pumped 6.1 million barrels daily.
The situation could get even tougher for the National Iranian Oil Co. (NIOC), which is responsible for all of Iran’s output. Without substantial upgrades in facilities, production at Iran’s core fields, several of which date from the 1920s, could go into a precipitous decline. In September, Oil Minister Kazem Vaziri-Hamaneh suggested that with no new investment, output from Iran’s fields would fall by about 13% a year, roughly twice the rate that outside oil experts had expected…
Iran’s looming crisis is the result of years of neglect and underinvestment…It allocates only $3 billion a year for investment, less than a third of what’s needed to get production growing again…Iran will import about $5 billion in gasoline this year, or about 40% of its needs. The government is planning a $16 billion refinery building program to boost capacity by 60%. But unless Iran raises fuel prices, the new plants will just mean more consumption.
An oil squeeze could spell trouble for President Mahmoud Ahmadinejad. The populist leader has won backing at home through generous handouts. Ahmadinejad has ratcheted up public spending this year by 21%, to $213 billion…
Iran badly needs fresh foreign investment to shore up the oil industry…new investment has largely dried up in recent years…Outsiders are offered contracts only to drill wells–rather than operate fields–and get just a small share of profits from output…
Endless haggling and delays have set back some of Iran’s biggest oil initiatives. One top priority had been the Azagedan field in southern Iran, which is expected eventually to produce 260,000 barrels a day. But in October, Tehran scrapped a $2 billion contract, agreed to in 2004, with Japan’s Inpex to develop the project. And Shell’s $800 million Soroush/Nowrooz project in the Persian Gulf has been plagued by cost overruns and technical glitches. In January, meanwhile, Statoil wrote down the entire $329 million book value of its South Pars project because of “productivity and quality problems” with a local contractor.
Would it be surprising if some of the “endless haggling and delays” were the result of US influence, as well as Iranian internal politics and paranoia?