What should the new entrants provide?

 By Manon Sasso

Manouchehr Takin, recognised world expert in technical and economic aspects of oil supply and demand, with 40 years’ oil and gas industry experience offers us an exclusive interview ahead of his participation at the 5th Iran International Oil, Gas & Petrochemical Summit 2017.

1- What should new entrants do?

They should demonstrate that they are able to provide capital (up to hundreds of million or even billions of Dollars), while the returns will be over a period of several years. They will also need to have a track record of the successful application of ‘new technology’ and the implementation of field development projects in other world oil provinces.

2- What are the challenges facing new entrants?

The challenges facing for the new entrants include:

  • Imperfect understanding of Iranian hydrocarbon industry and its institutional arrangements.

  • Technical challenges, e.g. choosing a suitable IOR and EOR method for Iran’s old producing fields. Basic research and pilot operations might be required choosing a local partner.

3- What are potentials does Iran hold?

  • Huge volumes of proved oil and gas reserves that can support higher rates of production.

  • Government is keen to attract investors and has improved its regulatory terms with the new Iran Petroleum Contract model.

  • There is much less competition among new entrants while the US government is not allowing the American oil/gas companies to enter Iran.

4- What is the geopolitical challenge?

In spite of the internationally approved Joint Comprehensive Plan of Action on Iran’s nuclear technology, the United States continues to impose its own sanctions on the country and is trying to discourage new investors to enter Iran.

Most importantly, the US is putting pressure on all banks not to provide even ordinary financial services related to Iran.

If you want to learn more, please register to IOGP 2017 Summit!

 

Sustainable and profitable solutions, BASF has the answer

By Cristina Rivero

 

With primary and secondary recovery methods the amount of crude oil that can be extracted from an oil field is limited to about 20-40%. By using tertiary recovery methods, also referred to asenhanced oil recovery (EOR) could be further recovered 30 to 60%. Within a range of different EOR methods, the injection of chemicals (chemical EOR) is among the most attractive because of the significant amount of incremental oil that could be produced by their use.

To have a better understanding on how this technic can be useful for the Iranian oil & gas market, we interviewed Thomas Altmann, EOR Business Development Manager Eastern Hemisphere of BASF, the world’s leading chemical company and silver sponsor for the 4th Iran Europe Oil, Gas & Energy Summit who gave us an interesting approach to a sustainable and profitable solution.

 What are the objectives of applying IOR/EOR techniques?

In general, EOR encompasses a bundle of different methods for the recovery of additional amounts of original oil in place – e.g. by injection of gas, steam, microbes or chemicals. Especially the latter method is focused on the application of polymers and surfactants and is an attractive option to improve the economics of petroleum production (chemical EOR is good for brown fields and for even green fields).

Among several technologies chemical flooding, especially polymers, has become a more routinely operation in many countries, and it is not only used as tertiary recovery technology, but also at an earlier stage of the water flooding in order to improve reservoir management and boost oil production quicker. This latter might help to the overall economics, enabling a faster return of the CAPEX investment.

How EOR and IOR could help Iran’s objectives in the near future?

As mentioned before, EOR /IOR, also considered to be Tertiary Recovery, not necessarily has to be implemented late in the life cycle of an oilfield. Recent field development experience clearly states that EOR applied at an early stage is more economical and in general leads to higher ultimate recovery factors. Thus EOR/IOR will support Iran’s objectives by higher output, faster return on investment and higher recovery of reservoirs.

“Thus EOR/IOR will support Iran’s objectives by higher output, faster return on investment and higher recovery of reservoirs.”

Is there any specific technique that you reckon could help to raise the well’s productivity index, given the complex nature of Iranian reservoirs?

Chemical EOR like Polymer and / or Surfactant Flood is definitely among these techniques which is applicable to most types of reservoirs. However good planning and selection of techniques is essential for a long-term strategy.

What do you think are the specific well or field development challenges that these techniques could address?

Challenges are high temperature, high salinity and low permeability reservoirs (harsh conditions) which are very demanding for a specific chemistry. In addition carbonate formations and / or offshore locations are occasionally limiting economic factors. Current chemical packages and the outlook to new developments will make EOR even more successful under such harsh conditions in the next decade.

Do you expect this technique will be more in demand in Iran in the future?

It is not only that exploration for new reservoirs is becoming less successful, also the cost due to application of complex technologies is increasing. Field proven technologies of EOR/IOR are meanwhile accepted to reset proven recoverable reserves of a company. Therefore cEOR will become a wide spread technology throughout Iran. Chemical EOR will be a cost effective way to maintain or even improve production from existing fields.

How do you think BASF’s technology applies to Iran’s mature fields?

As stated above Chemical EOR is considered as one of the most suitable technology for mature fields but can also be immediately applied to reservoirs when switched to water flood from primary recovery. Field specific chemical formulations which are developed in close partnership offer the opportunity to identify the most cost effective cEOR solution.

“Chemical EOR will be a cost effective way to maintain or even improve production from existing fields.”

 

IRAN’S GAS OUTPUT RISES

Iran’s gas output rose 9.8% to 102bn m³ in the first half of current fiscal year (March 21-September 22). The country’s gas exports increased by 3.4%, while imports dropped 25.1% year on year, Mehdi Jamshidi Dana, director of the Dispatching Department of the National Iranian Gas Company (NIGC) told newsagency Shana.

Iran exported 4bn m³ to Turkey he said, but did not mention any figure for imports, which come from Turkmenistan

Iran’s gas deals with Turkmenistan and Turkey are lower in summer. Iran exported 8.6bn m³ to Turkey in 2015 and imported 9bn m³ from Turkmenistan last year. During 1H FY, Iran also stored 1bn m³ in the two undergrad gas storage facilities, Shourijeh and Serajeh, which indicate a 17% growth year-on-year.

A third of the country’s gas output growth was in the power sector, which was up 8.2% to 39bn m³ in 1H FY. Iran’s power plants consumed 57bn m³ of gas in the last fiscal year and is expected to reach 67bn m³ in the current year. Iran plans to add 30bn m³ to output.

Source: NATURAL GAS WORLD

Saudis See Oil-Freeze Deal Possible in November, Not This Week

A deal by major oil exporters to freeze output may have to wait another couple of months.

As producing countries gather in Algiers for talks on Wednesday, Saudi Arabia signaled for the first time it may accept the idea that Iran keep output at maximum levels but doesn’t expect an accord to be reached this week. A deal in November is possible, Saudi Oil Minister Khalid Al-Falih said in a briefing in the Algerian capital.

“Saudi Arabia will be a willing partner in this freeze agreement,” Falih said. “Three countries have special conditions, namely Libya, Nigeria and Iran.”

Saudi Arabia will suffer a fiscal deficit equal to 13.5 percent of gross domestic product this year, compared with one of less than 2.5 percent of GDP for Iran, the International Monetary Fund estimates. The IMF says the Saudis need oil close to $67 a barrel to square the books. For Iran, it’s lower, at $61.50. Brent crude, the global benchmark, fell below $46 a barrel in London on Tuesday.

Source: BLOOMBERG

The Start Of Something Big? Iran Changes Oil Contracts

It’s been an eventful week in oil. With reports from top producer Saudi Arabia showing record August production of 7.622 million barrels per day — weighing on market sentiment. And on the flip side, oil workers in Norway launching a strike involving a full 300 members that could halt production.

But the news was decidedly positive from one critical corner of the oil and gas world.

Iran.

Crude sellers in this emerging producer got a lift from India. When that nation announced it will likely buy 6 million barrels of Iranian crude in order to fill a strategic petroleum reserve.

But the biggest news came from Iran’s parliament. Which said it has finally agreed on a long-awaited new model for foreign petroleum contracts in the country.

The oil and gas world has been eagerly awaiting this new contract model — which Iran’s lawmakers have been promising will offer more attractive terms for international developers in country.

But some last-minute rapids appeared in unveiling the contracts. With reports last month suggesting that parliamentary hardliners were opposing key measures of the contract reform such as ownership of in-ground reserves for foreign operators.

Those issues have apparently been resolved. But not without some discussion, with observers saying that several changes were made that “took into account the concerns of the critics and sympathizers of the establishment”.

Source: Dave Forest

German exports to Iran soar after removal of sanctions

German exports to Iran, mostly machines and equipment, jumped in the first half of the year following the removal of international sanctions against the Islamic Republic, official trade data showed on Monday.

Exports to Iran surged by 15 percent year-on-year in the first six months of 2016 to 1.13 billion euros ($1.3 billion), the Federal Statistics Office said.

This compares with a rise of 1.4 percent in overall German exports in the same period and a fall of 14 percent in German exports to Iran in 2015.

“There is a huge demand in Iran for plant and equipment”, said Michael Tockuss, head of the German-Iranian Chamber of Commerce, adding that chemical products and electrical engineering were also doing well.

“And there is growing demand for technology from the renewable energy sector, mainly wind power stations,” Tockuss said, adding that the reluctance of banks to finance bigger deals between German and Iranian businesses was slowly eroding.

Tockuss said exports to Iran would further pick up in the coming months and are expected to rise by as much as 25 percent in the whole of 2016 and by 30 percent in 2017.

“The sanctions against Iran were built up over several years and it now will take some years to reverse them and establish new business ties,” he said.

Pipe Wire

With more than 34 trillion cubic meters under its domain, Iran owns the world’s largest natural gas reserves. The country is in a race to increase its presence in the market but needs to develop the necessary infrastructure to realize sales.

With the execution of a score of new projects, Iran’s aggregate gas pipeline length is expected to double to more than 70,000km, making it the third-largest transfer network after Russia and the US. To this end, the Ministry of Petroleum has claimed that a $55.8 billion in investment is required to implement gas transit pipeline projects by 2025. Becoming a regional gas hub through exports to neighboring countries is part of an ambitious plan to connect to Europe and Asia. Iran has signed a raft of initial agreements with a number of neighbors in recent years, and the end of sanctions is an opportunity to engage in gas trade with the Islamic Republic.

Persian Gulf countries are big consumers and potential customers of Iran’s gas production, except for self-sufficient Qatar. Oman took the lead in 2013, when Muscat and Tehran signed a deal to export Iranian gas to the Sultanate through a 400km gas subsea pipeline. The $60 billion contract will last 25 years, and both countries agreed to transfer daily amount of 28 million cubic meters of gas to Oman’s shores. The Iranian Offshore Engineering and Construction Company (IOEC) completed the draft study in early 2016 and announced that the project will be operational by end of 2017. The plan of the Sultanate is to use Iranian gas for domestic needs as well as exporting it to global markets after having it liquefied in its plants.

On the other side of the Islamic Republic, Pakistan was committed to the IP (Iran-Pakistan) project, a 2,700km gas pipeline from Iran’s South Pars fields in the Persian Gulf to Pakistan’s major cities of Karachi and Multan, and then further to New Delhi, India. Although Iran’s offer to cover 60% of the construction costs through experienced EPC contractors, such as SADID Industrial Group or Tadbir Energy Development Group, the IP gas pipeline still needs $2 billion in investments, which is expected to come from renowned multinationals. Leading companies including Gazprom, Petronas, Total, and Royal Dutch Shell have already negotiated exporting gas from South Pars to Pakistan. The pipeline will be able to carry 110 million cubic meters of gas per day, and it is expected to greatly benefit South Asian countries, which do not have sufficient natural gas to meet their rapidly increasing domestic demand for energy.

Pointing upward, Turkey is Iran’s biggest gas customer, importing 30 million cubic meters a day under a 25-year deal signed before sanctions imposed on Tehran. The Tabriz–Ankara pipeline is a 2,577km natural gas pipeline that runs from northwest Iran to Turkey’s capital. This is the first step for Iran to reach northern markets; however, as the Iran-Europe pipeline project is unlikely to initiate in the short-term, the only option for Iran to sell to the European market seems to export its gas in LNG by vessels. On a small scale, Iran also exports gas through pipeline to neighboring Azerbaijan and Armenia.

For the immediate future, Iran will build an extensive network of pipelines with a total length of 5,000km in its territory over the next five years. A $27 billion investment is needed for the construction of a domestic gas distribution network that will connect the rich fields from the south, such as South Pars, to sea ports like Chabahar and the other major projects in the country that need gas. Iran’s government has indeed acknowledged the importance of having a good distribution system within its territory in becoming a gas hub between north and south.

Over the next five years, Iran seeks to raise gas production to 1.2 billion cubic meters a day from the current 800 million cubic meters. Huge reserves, vast processing and transfer networks, easy access to major markets, potential for piping gas to Europe and the Persian Gulf states, and swap arrangements with neighbors suggest a bright future ahead for the gas giant.

 

Source: THE BUSINESS YEAR

 

Saudi Arabia Is Changing Its Tone in the Oil Market

Saudi Arabia is talking the oil market up lately. That’s a big change from a few months when it was talking the market down.

In fact, Saudi Arabia has been doing much more than talking the oil market up – it has been hiking oil prices.

It was back in February when Ali al-Naimi, Saudi Arabia’s petroleum minister at the time,told American frackers publicly that they would be crushed by the market. By an oil oversupply, that is, due to the fact that they didn’t have the cost structure to survive an on-going price war that threatened to take oil close to $20.

Last week, Saudi Arabia’s new petroleum minister Khalid Al-Falihhad had a different message to American frackers. “We are out of it,” he said in an interview with Houston Chronicle. “The oversupply has disappeared. We just have to carry the overhang of inventory for a while until the system works it out.”

What happened? 

Several things. First, American frackers have indeed been crushed, slowing down the flow of new oil to the market–US oil-rig counts are about one-fourth of what they were at the peak, two years ago.  Second, Saudi Arabia has been paving the way for Aramco’s IPO, to raise very much needed cash to close the fiscal and social gaps opened by the two year price war, which took the oil price down from $107 to $26 (the higher the oil price, the sooner the gap will be closed).

Third, Saudi Arabia has a new oil minister to make sure that it will happen.

Will the Kingdom succeed in keeping oil price higher ahead of the Aramco IPO? It all depends onthese three factors.

First, the state of the global economy, which sets the pace for the demand for crude oil. Second, whether Iran will continue to pump out oil to increase market share, while undercutting Saudi Arabia’s Aramco IPO plans in the process. And third, how quickly American frackers will re-open rigs—US rig count has been turning north again in recent weeks.

In the meantime, oil markets should brace for another rough ride that might take crude oil to $40 or even $30 before it takes it to $60.

Fund

12-month performance

Market Vector Oil Services (NYSE:OIH)

-18.39%

Ipath S&P GSCI Crude Oil (NYSE:OIL)

-49.13

United States Oil Fund (NYSE:USO)

-42.96

Source: Finance.yahoo.com

The Oil Industry Needs To Change Its Strategy and Fast

I can recall, it was the month of September in the year 2012, when I last filled up my car with gasoline for $3.81/gallon ($57.15 for 15 gallons) in Dallas, Texas. The higher gasoline prices during the past 3-4 years had put severe financial stress on the monthly budget of an average American household.

Unfortunately, due to a car accident I ended up with multiple injuries and went into a deep coma.

On June 16, 2014, suddenly, I woke up from my coma and found myself in a hospital bed. After a week of being under observation, the hospital discharged me. While we were driving home, my wife stopped at the gas station. When she filled up the tank, I asked her how much she paid for the gas and she told me a total of $26.49. She further added that the gasoline was now selling at $1.76/gallon. I was shocked.

I asked my wife what had happen during this period. In her layman understanding she said that the U.S. shale oil boom had caused oil prices to collapse. Being in the oil and gas profession I knew about shale oil and I recalled that in 2012 I wrote an article entitled: “The US unconventional oil revolution: are we at the beginning of a new era for US oil?”, published in European Energy Review on June 18, 2012. Two years later, my forecast turned out to be true.

As I slowly recovered from coma, I returned back to my normal life and started carrying out my everyday research and forecasting. During the period when I was in a coma, things had changed quite a bit. Oil prices came down from over $100/bbl to below $30/bbl and lately revived close to $50/bbl. Two questions arose from this experience: First, what caused the collapse of oil prices and, second, what are the future prospects of the oil and gas industry?

Three things are simultaneously happening in the process. First, additional barrels of unconventional oil that were unexploitable in the past due to low permeability and technological constraints (including reserves in new frontiers/deep water, and shale gas condensate) are now available. In the process U.S. shale oil production increased from 1.2 million barrels per day (mb/d) in January 2007 to 5.6 mb/d in April 2015. Lately, it declined to 5.06 mb/d in March of 2016.

What caused the shale oil boom?

Persistent higher oil prices allowed the unconventional shale oil industry to grow and nurture and even counter the regime of declining oil prices. This was possible due to technological advancement (horizontal drilling, multi-fracturing, improved drilling efficiency and completion, supporting higher productivity per well, including well configuration and concentrating towards the most productive areas of the Basin).

In the process, Estimated Ultimate Recovery (EURs) in some of the basins also improved and reached 50-60 percent during the years 2015-2016. Consequently, oil productivity per rig in all seven basins recorded phenomenal improvements. For example, oil productivity per rig for Eagle Ford was 42 b/d in January 2007 which increased to 829 b/d by March 2016 – about 20-fold increase.

In this learning curve, the oil rig count peaked in October 2014 at 1257 and thereafter we saw a gradual drop and by March 2016, it fell to 307. Continuous declines in break-even costs – in some of the basins breakeven costs fell below $30/bbl – kept a number of companies producing despite a weaker oil price environment.

Structural shift in automotive industry

Secondly, over 72 percent of oil is predominately consumed in transportation sector (road, air, rail, sea, etc). Over 80 percent has been associated with road transport. Therefore, any revolution in auto-industry can disrupt the future global oil demand, thereby affecting the oil company’s growth.

During the last decade or so structural changes have been taking place in the transport sector. Over a century internal combustion vehicles (ICs) are in the process of being replaced by penetration of electric vehicles (EV), fuel cells vehicles (FCV), and natural gas vehicles (NGV). In addition, fuel efficiency, semi and fully autonomous vehicles will surely reduce global oil demand.

The quantitative assessment carried out by Andreas and this author looks at how much oil is expected to be displaced with the penetration of electric vehicles (EV) under alternative scenarios. The authors concluded that under reference case penetration of 424 million EVs in 2040 is likely to displace 13.1 million barrels daily (mb/d) and under high cases the displacement of 38.9 mb/d in 2040.

In 1995, there were only a few countries in global wind energy industry and by 2015 this group expanded to 105 countries. At the end of 2015 cumulative global wind power generation capacity increased to 432.42 gigawatts (GW), up from 4.8 GW in 1995. The substantial growth in renewable is associated with improvement in technology and falling cost.

The cost of wind and solar power are falling too quickly and even current rock bottom coal and natural gas prices have failed to arrest the momentum of wind and solar energy growth. In 2015 the global wind energy capacity increased by 63 GW as compared to 2014, which corresponds to about 60 nuclear reactors. This allowed wind power to surpass the dominance of nuclear energy 382.55 GW capacity in January 2016 (the London-based World Nuclear Association). Based on GWEC projections “wind power installations will nearly double in the next five years, led by China”.

For the sake of discussion if a senior executive of Oil and Gas Company falls into a deep sleep and wakes up in 2040, it would not be surprising to see that world would be completely changed. Major chunk of ICs fleet will be replaced by EVs, FCV and autonomous vehicles. Households would also be self- sufficient in generating their own energy needs. That is, most of the urban houses are covered with small units of solar panels to generate the required energy to meet electricity demand for their heating/cooling, cooking and charging EVs batteries etc.

Wind farms would be common in rural, remote mountains, offshore and isolated areas to generate enough electricity to meet the demand of the community. No hassle, as everything would be under one’s roof top or associated with community wind farms.

In such a scenario, what would be the reaction of this senior executive especially when the role of oil and gas is has been substantially reduced (say from current 57 percent to 30 percent)? In the light of current change in the global energy landscape, oil and gas companies need to correctly assess the reality and change their strategies accordingly to avoid complete disintegration.

By Salman Ghouri for Oilprice.com

Britain votes for Brexit: commentary from the oil and gas industry

On Thursday, the United Kingdom historically voted in favour of leaving the European Union.

As a result, the value of the pound sterling has fallen to its lowest level since 1985. The price of oil has also been affected in recent days leading to the EU Referendum due to economic uncertainty.

Below, we have commentary from a variety of oil and gas companies and professionals.

Ed Cox, Editor of global LNG at ICIS, the independent price reporting agency, says:

‘In the short term, all markets, including gas and power, are likely to experience a period of price volatility. The main reason for this will be fluctuations in the value of the British pound. Uncertainty over the future state of the UK economy could lead to a weaker pound against the Euro and US dollar which will bring up the cost of pipe gas and electricity imports from continental Europe, and also of global liquefied natural gas (LNG) imports. A sustained increase in prices at a wholesale level could then filter down to the retail sector.

The role of the UK in Europe’s internal energy market may not change. Both the UK and EU member states are likely to keep the ambition of an integrated energy market. This could mean that critical EU regulation over the UK’s connectivity to Europe and the construction of new energy infrastructure will continue to apply. If the UK does exit the internal energy market, however, the country runs the risk of losing access to its neighbours’ markets with trade restrictions one possibility.

The vote to leave could also undermine trade liquidity at the British wholesale gas hub, the NBP, amid regulatory uncertainty. This liquidity could be redirected towards the Dutch gas hub which has already surpassed the NBP as Europe’s most traded hub.’

 

Mihir Kapadia, CEO of Sun Global Investments commented:

‘The global economy, which has been less than robust recently, has been in a crisis mode this morning in response to news of Britain’s decision to exit the EU. In general there was a strong risk-off mood, with stocks opening lower, whilst money went into the safe haven assets of developed market bonds, Gold and the Yen. Risk assets fell with oil prices, which were coming off a two-week high, and opened 5% lower, curtailing any hopes to see them rise above $50 in the near future. To the extent that falling asset prices lead to a slowdown in the global economy, demand for oil will take a hit – something the industry can scarcely afford after its struggles in the past year.”Connor Campbell, senior market analyst atwww.spreadex.com, said:

Like with many things, the long-term impact of the Brexit on the energy and oil industry is unclear. In the short-term, however, investors are voting with their money, sending Brent Crude down nearly 4% with more dramatic losses across the oil and mining sector.

Petrotechnics, the operational excellence solutions provider to the oil and gas industry. Scott Lehmann, VP of Product Management & Product Marketing, said:

‘The UK’s decision to leave the EU brings a new period of uncertainty for the UK oil and gas sector – the full effects of which may not be realised for some time. As an international industry, success depends on our ability to attract highly skilled talent to our shores and leaving the EU may limit the mobility of people both in and out of the UK. However, as a mature oil and gas region, the low oil price environment is likely to have by far the biggest impact on the future prosperity of the UK North Sea.’

Airswift, the leading workforce solutions provider to the global energy, infrastructure and process industries. Peter Searle, CEO, said:

‘The poll we conducted prior to the vote revealed that only 32 per cent of energy sector workers would have voted to remain. That said, this result could create uncertainty for North Sea operators, particularly around the need to source talent for projects in and around the EU. However, leaving the EU could ultimately signal a more prosperous future for the UK North Sea. Norway, a key player in the energy industry, already exists successfully outside of the EU and now it’s the UK’s time to carve out its own future.’

Howard Cox founder of the FairFuelUK Campaign said: 

‘Any knee jerk reprisal by penalising UK drivers with higher prices at the pumps through higher oil prices, is nothing short of opportunistic, vindictive and unnecessary. We are horror-struck that there is hear-say, no matter if it is just grapevine gossip, that global oil prices may now be manipulated by economic region. We hope the new Brexit Government Team will ensure 37m UK drivers are not discriminated against. The Brexit victory shows it is London’s Westminster bubble that has been out of touch with the wider majority and it is the greedy currency speculators & parts of fuel supply chain who will probably unscrupulously hike pump prices simply because of this unanticipated result.’

Quentin Willson, TV Motoring Journalist and Lead Campaigner FairFuelUK said: 

‘The EU Referendum was about national pride. Time that famous British energy vision optimism determination and fairness is put us back on world stage. We can’t be a divided nation and must not let the result split Britain. We rejected the EU not our fundamental British values. But there must be political reassurances that 37m UK drivers will not be fleeced by extra taxation or opportunistic fuel supply chain profiteering as we slowly devolve from the European Union.’

Source: THE OIL VOICE