Official elaborates on Iran’s new oil contract model: Paradise opens its doors

TEHRAN (FNA)- Mehdi Hosseini, director of the Iranian Oil Ministry-appointed committee tasked with revising oil contracts to make them more attractive, elaborates on the framework of Iran’s new oil contracts.

The following is the third and final part of the interview with Mr. Hosseini on the revision of Iran’s oil contracts.

Q: It is said that Iraq and Saudi Arabia have proven to be capable of replacing Iran’s oil, is that so?

A: No, that’s not so. We have to view this issue in the short-term and in the long-term. When the US invaded Iraq, some said the oil prices will go up to 100 dollars, which were around 20 dollars. I noted in an interview at that time that the oil prices will not rise despite attack on Iraq. Iraq was invaded and the oil prices did not rise. I was saying that this issue could be managed in the short term because there are huge strategic stocks in the world and they had reached their maximum at that time. Oil storage kept the prices low. Saudi Arabia’s extra production capacity was between two and three million barrels a day and therefore Iraq’s exit from the oil market was manageable.

Iran and Iraq could be eliminated [from the market] in the short-term, but I hold a long-term view. Shell, BP, International Energy Agency and OPEC say oil supply must reach 105 to 110 mb/d. It means demand for an extra 20 to 25mb/d. How is that possible? How much investment is needed? How much investment can oil-rich countries make in this sector? What has world done for that purpose? This issue has become a major cause of concern for the world. The US is worried. China, a leading consumer, is worried now. So is India. Everyone is worried that supply and demand are distant from each other. Take into account demographic growth in the world. According to UN estimates, the world population will see a growth as big as the 1950 world population in 2050. Living standards are also growing. The Chinese are dropping bicycles and running cars.

Q: That’s right, but in industrialized countries, energy saving has proven effective.

A: I’ll explain later. We have also economic growth factor. Oil consumption will rise by every one-percent rise in the gross domestic product. The world will see three percent average economic growth. This three-percent growth will occur for energy too.

Environmental considerations and energy efficiency use were effective in the 1980s and 1990s, but they have reached limits. Once, the daily fuel consumption of an American car which burnt 30 liters a day was slashed to 6 liters which could be again reduced to four liters, but it could not be cut to zero or one liter.

In the coming decade, oil and gas will have 55 to 60 percent share in the world energy basket. Therefore, Iran could not be ignored. These sanctions are targeting the entire world. The US and European oil companies have been deprived of a golden opportunity for trading. We are trying to prepare the conditions for oil companies to invest in Iran as sanctions are eased. In the meantime, we take into account our national interests while we plan to accomplish our energy supply task.

Q: One important point recently focused upon is to move towards long-term contracts. The history of oil contracts in Iran is marked by D’Arcy Concession, the 1933 contract and nationalization of the oil industry in Iran. Then we reach the coup against Prime Minister Mohammad Mosaddeq, formation of consortium, Islamic Revolution, exit of oil companies and buy-back deals. It seems that Iran’s oil contracts have seen more ups and downs than other countries. What will be the advantage of long-term contracts?

A: The revision committee is discussing various options. Oil companies which enter high-risk oil trading activities are willing to be present in all stages of work. Oil projects are different from other businesses. Their inclination for presence in all stages of the project has two aspects: the first one is financial benefits. The company would prefer a 20-year contract to a 2-year one because the former is more profitable. The second aspect is that a 20 or 30-year process will bring in technologies and knowhow. These companies have experienced countries with various amounts of oil reserves. They have documented everything and make decisions based on their findings. They can work better on the long term.

Therefore, companies prefer long-term projects for both technical and economic reasons. But how they will benefit us? Naturally, if we are supposed to develop our fields for optimal recovery we will need more sophisticated technologies than the technology required for the development of green fields. There is a 20, 25 or 30-year process for each field to reach its peak of activity. The fields are like human beings and they are different from factories. You need to deal with them based on your knowledge. A younger man does not refer to doctor as much as an older one. An old man would need medications and even surgery.

When a company is present such processes could be done much better. Moreover, we will need investment throughout the process. One may ask here if foreigners are supposed to do all the work. That is exactly what we are thinking about. We have to reach frameworks. Now, we have a legal framework requiring a 51-percent share for Iran in any contract. This 51 percent share is reserved for local content. We also need to define frameworks in which our domestic industry will grow regularly to catch up with other companies like Shell, Total and other oil companies. Therefore, we plan to define these works so that we could become an exporter of oil technology and not remain a consumer forever.

Q: If the London Conference proves successful and the sanctions are lifted, how long do you think it will take for international oil companies to start work in Iran?

A: We have officially started our work long before the London conference and the lifting of sanctions. As part of our efforts, we are making preparations to define a framework for contracts and save time. In the past, we had to spend two, three or four years on discussing the terms of the contracts with foreign companies. If the contracts are transparent and drafted in clear terms, agreement will be reached in a shorter period of time. For us, no company – Asian, European and American – will face restrictions for presence in Iran. They slapped sanctions [on us] and now they can return to Iran. There are numerous valuable opportunities in the upstream oil and gas sectors in Iran for foreign companies.

It also depends on international companies that how quickly they intend to enter this phase. Following the 1996 London conference and the definition of buy-back deals, 80 to 90 companies immediately showed willingness to come to Iran. We have also the experience of Azerbaijan where companies quickly operated oil and gas projects following the collapse of the Soviet Union. Iraq is another example. It offered tender bids and foreign companies rushed to invest in that country. We can also expect foreign companies to invest in Iran, but I cannot set any timeframe. I think that international oil companies know pretty well that Iran is a paradise for their investment. This paradise will soon open its doors and the lucky ones will enter sooner than others.

By Fars News Agency

 

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