Quick hike seen in Iranian oil output if sanctions lifted

Iran can push production of crude oil back to 3-3.5 million b/d “relatively quickly” in the absence of international sanctions, says a veteran observer of the Islamic Republic.

And with increased output of condensates, a category that often confounds analysis, total production can reach the 4 million-b/d rate heralded by Iranian officials, according to Fereidun Fesharaki, chairman of Facts Global Energy, London (OGJ Online, Dec. 19, 2013).

Before international sanctions were toughened to pressure the government into slowing nuclear development, the country’s production capacity fell by about 400,000 b/d/year from natural decline, Fesharaki wrote in a recent report. With discoveries, infill drilling, and secondary recovery, the state-owned industry added about 300,000 b/d/year. It made up the deficit with condensate stripped from natural gas, mainly from giant offshore South Pars field.

Production of condensate, which is exempt from quotas imposed by the Organization of Petroleum Exporting Countries but often included in reports of Iranian oil production, is about 400,000 b/d.

At first, the US treated Iranian condensates and LPG as natural gas and exempted them from sanctions. Although it has added condensate to exportable totals, it doesn’t enforce the limits as vigorously as it does those on crude, Fesharaki said.

Capacity decline slows

Because sanctions have cut crude oil production by 1-1.2 million b/d, the capacity decline rate has fallen to perhaps 200,000 b/d. Additions have been minor.

According to Fesharaki, Iranian fields are well-maintained and, contrary to some reports, largely undamaged. In anticipation of an easing of sanctions, the Iranian industry has worked to prepare fields to increase output. Fesharaki said his group believes capacity can return to 3-3.5 million b/d in about 180 days once sanctions are lifted.

South Pars condensate production, meanwhile, can rise by about 120,000 b/d by March 2015, with 40,000-80,000 possibly coming online by late-summer 2014.

Increasing production of crude oil much beyond 3.5 million b/d would require foreign investment and technology, in Fesharaki’s view.

“It may take more than 3 years to be able to increase crude production capacity when and if the sanctions are totally lifted,” he said.

He emphasized that nuclear issues don’t constitute the only point of conflict between Iran and the West—mainly the US—and that the recent easing of sanctions is partial. Iran has paused enrichment of nuclear material, begun open discussions with western powers, and received a substantial boost in revenue through unfrozen assets and a partial relaxation of export limits.

But current agreements don’t provide for increased Iranian access to outside investment or technology.

“We do not believe the sanctions on foreign investments as well as oil exports will be lifted anytime soon,” Fesharaki said. But partial, short-term relaxation is possible.

“We do believe Iran can be exporting 1.3-1.5 million b/d, as compared to 2.2 million b/d before sanctions, in the best-case scenario by the end of the year,” he said.