Iran Gets New Wells, But Exports May Face Hurdles

Iranian Offshore Oil Company (IOOC) has announced tenders for the drilling of new wells at its Ilam and Nasr oil platforms the Siri region, Persian Gulf, plus overhaul of existing wells, beginning in late March. The move is consistent with previously announced Iranian plans to raise output by 500,000 bbl/day.

The firm has announced several measures to boost production. In November, IOOC said that it would revive 18 previously abandoned oil wells in the Siri field, adding nearly 18,000 bbl/day at a cost of over $200 million. Iran’s offshore gas developments proceed apace, with the South Pars 14A and 14C platforms expected to bring 22 wells online by March. And Russian firm Lukoil suggested in November that it was planning a return to Iranian oil development, with areas of focus including the onshore Abadan, Azar and Changuleh formations and offshore Caspian Sea and Persian Gulf fields – although its more recent statements suggest a scaleback of foreign investment activity in the face of low oil prices. 

The increased supply will have to find a market. Allied Shipbroking's head of research and asset valuations, George Lazaridis, recently told media that “the big challenge moving forward will be a demand one . . . with strategic reserves by most countries having peaked to some of their highest levels ever, it is difficult to see where all this new excess supply will be absorbed.” Forecasters Seeking Alpha suggest that India will be a main export destination, with Iranian oil displacing the nation's more distant suppliers at a time of relatively high tanker day rates. Iranian sources have suggested that as much as 200,000 bbl/day could flow to Europe.

But exports may still face a procedural hurdle. The National Iranian Tanker Company says that it has secured the required insurance and classification for its own tankers, courtesy of Lloyd's, but foreign tanker owners are still struggling to obtain liability and pollution coverage for cargoes.

Paddy Rogers, chief executive with tanker operator Euronav, said the umbrella International Group of P&I clubs were still unable to confirm payments under re-insurance contracts. "It has not been cleared yet. So, nobody can load at the moment it seems to me . . . unless somebody has some alternative method of insurance," he said.

Robert Hvide Macleod, chief executive with Fredriksen-controlled tanker group Frontline, concurred that the insurance and payment system was not there yet, but said that it "will get in place in the short-term".

While boosting crude exports is a primary focus, Iran's domestic downstream processing may also expand to absorb some of the additional supply. 

Italian oil services group Saipem announced Sunday that it had signed a series of MoUs with Persian Oil and Gas Development for upgrading the Pars Shiraz and Tabriz refineries, and National Petrochemical Company (NPC) head Abbas Shari-Moqaddam said Tuesday that international firms have expressed interest in Iran's petrochemical projects – with potential foreign investments of up to $70 billion in the sector. He suggested that Iran offers petrochemical firms the chance to take advantage of an abundant supply of oil and gas feedstocks and a perfect location for product exports by tanker.