Iran: Iran's oil sector enjoys greater chance to absorb foreign investment

A senior energy expert believes that despite a huge decrease in world upstream oil and gas sectors, Iran has a better luck of absorbing foreign investments than other oil producers.

Iran has announced that $185 billion investment is needed in its upstream oil and gas sector, inclunding $70 billion in petrochemical and $200 billion in optimizing energy consumer sectors to halve its energy intensity, which is two times additional than world averages.

This is while, according to OPEC's estimation, OPEC would need to invest an average of close to $40 billion annually in the remaining years of this decade. This figure was $120 billion in 2014 or three times additional than the annual investment all. However, according to Wood Mackenzie's estimations, the plunge in oil price since last summer caused the suspension of 46 large oil and gas projects. The worth of suspended projects in 2015 is estimated to reach about $200 billion.

Sam Barden, the director of SBI Markets, an international commodity trading and advisory company which advises governments and private firms on transaction financing and facilitation told Trend July 30 that Iran will be additional successful than other producers in a low price oil environment, as the availability of cheaply extractable oil and gas in Iran and Iraq, will mean that Iran could indeed receive a disproportionate all of next investment , as additional expensive extraction nations are wound back in favor of investment into Iran.

The cost of oil production in Iran's onshore sector, which shares 70 % of total reserves is about $7 per barrel, but regarding the fact that additional than 80 % of Iran's operative fields are in their second half-life, this figure is high.

Currently, the cost of producing 3 to 3.5 million barrels of oil in Iran's active fields is $10 billion annually, mostly due to re-injection of 93 million cubic meters per day of gas to old oilfields, while this figure would reach $50 billion in next 10 years.

Iran and P5+1 reached a comprehensive nuclear transaction on July 14, but the implementation of this transaction depends on Iran-IAEA (International Atomic Energy Agency) cooperation around some suspected activities. Iran says the sanctions would be removed in four to six months.

While European delegations from Germany visited Iran and delegations from France, Italy, Austria, UK and Poland are to visit this country to discuss economic ties, Iran hopes to attract tens of billion dollars in oil and gas sector.

"There is no doubt that European investment into Iran will be the initial, ahead of US. The simple trade will be the exchange of technology from Europe for the opportunity of market share in Iran for European large companies. Given Iran has been "closed" to International investment for so long, there is no limit on which industry's Europe may want to parent or invest into Iran in. Of course Oil and gas sector will be top of the inventory, however I would do expect European investment into the car industry, for parts and manufacturing, into the airline industry, to begin the long needed upgrade of Iran's aging jet liners with modern European made pads anger jets, into large scale infrastructure such as road and rail, into energy efficiency such as renewable energy or much additional efficient gas fired electricity generation, and of course into the banking and stock market services sector generally", Barden said.

UNCTAD estimated that EU's outflow direct investments in 2014 was $250 billion.

The director of SBI Markets said that "I think it is hard to estimate how much Iran can absorb (investments). This is where the risk really lies for the Iranian economy, in that a flood of capital could create bubbles in investment classes. I think the key here is how the investment flows into the oil and gas sector. If it is in the traditional sense, through banks, again the risk could be increased as the Iranian banking sector is one area which needs modernizing. There are lot of banks in Iran, but not much banking".

Iran had as well defined a long-term (20-25 years) new model arrangement that it calls its integrated petroleum arrangement (IPC) to replace the old, less popular buyback agreements to attract foreign companies. However, it’s not clear whether IPC could compete with production sharing agreements (PSA) that is popular with companies, but is banned in Iran.

Responding to a question that "at the same time as the European investments can start to flow to Iran?", Barden said that "at the same time as sanctions lift in early 2016. I think the risk to try and invest before is high, however I have no doubt that agreements for deals someday are being arranged and agreed presently".