Tech Talk - An Introduction to Iran

The theme of these posts over the past eighteen months is to look at the leading producer nations that provide crude oil to the world, and to see if it is realistic to anticipate significant increases in their production. Posts have now looked at North America, Russia, Saudi Arabia and China based on the original list of rankings produced by the EIA in 2009. And, as I noted before beginning the China posts, the interesting question at the moment relates to a) how much oil Iran is currently producing and b) how much, realistically, can it be expected to produce?

These are not questions with the same answer, since the current sanctions imposed on the country have clearly already had an impact on the amount of oil that is being exported from Iran. Nevertheless, the volumes produced have fallen below those now achieved by China, and for that reason China was given priority when it came to the order of writing these posts. But back at the beginning of 2011, there was no doubt that Iran was one of the top 5 producers, particularly if one combines the USA and Canada into the new “politically correct” term of North America as a way of dodging questions on long-term US production levels.

If one looks at the latest September OPEC Monthly Oil Market Report (MOMR), for example, there is now a gap of 1 mbd between the official production claims, which are shown below, and the reports from other sources, which follow.

Figure 1. OPEC production reports, from the originating country (OPEC September MOMR)

Figure 2. OPEC production reports, as provided by secondary sources (OPEC September MOMR)

In passing, it should be noted that OPEC is anticipating global oil demand to grow 0.9 mbd in 2012, and 0.8 mbd in 2013. To meet that, OPEC anticipates that non-OPEC production gains will be 0.7 mbd in 2012, and 0.9 mbd in 2013, taking some of the pressure away from the OPEC producers. Within OPEC production, the gains from NGL’s are anticipated to further increase by 0.4 mbd in 2012, and 0.2 mbd in 2013. These figures again ease the need for OPEC to show increases in production to meet export demands at the same time that their internal consumption continues to rise.

Iran is thus, by the original criterion, the last of the Big Five to be looked at, although in light of current production numbers, it has clearly fallen into the second tier, and with current production below 3 mbd, it joins others (Mexico and Venezuela, for example) who have fallen through from upper second tier into the lower second tier of nations that produce below 3 mbd, though this is likely transient, depending on how long sanctions last and more critically, are effective.

If there is little likelihood of major increases in production from Russia, Saudi Arabia, and China, and I take some of the optimism over North American production gains with a considerable grain of salt, then global increases in production must come from nations now producing below 3 mbd. With that size of an industry it is difficult to anticipate spectacular increases from a single producer. Rather, individual country gains (with the exception of Iraq, which could increase production to 4 mbd) will perhaps only be on the order of 100 kbd. As a result, if global needs are to be satisfied, there has to be a whole series of overall gains in a multiplicity of countries. Only in this way can the total combine to sustain the optimism of those who see a cornucopia of oil flooding our future through the next ten years.

That Iraq has moved into the second tier above 3 mbd this month (by both their own and other counts) makes it a separate point of discussion. But first there is Iran. And with President Mahmoud Ahmadinejad giving a more subdued speech before the UN this week as sanctions continue to bite, the role of crude in the Iranian economy may be becoming more evident to their government. Domestic consumption runs at about half of production, but the country needs the income from exports.

Figure 3. Iranian Oil statistics (Energy Export Databrowser)

Euan Mearns illustrated the range of Iranian oil facilities in his post last December prior to the embargo.

Figure 4. Iranian oil and gas fields and infrastructure (Euan Mearns at TOD)

Oil production in Iran has increased since the days in 2005, when it appeared for a while that the country had reached a point of declining oil production, and where natural gas injection was being debated as the possible answer. At that time, as the debate over Iran “going nuclear” was beginning to build, there was already a rationale for the development of nuclear power in the country.

Jump forward seven years and that debate is now at a much more intense level. The Israeli Prime Minister is seriously concerned over the development of nuclear weapons in Iran, as are other countries in the region, and around the world. The relative need for Iran to establish a nuclear-based electricity program, while used as a justification of the program by their government, has been largely neglected in the concern over the potential for weapons development.

Sharing the largest gas field in the world (the South Pars: North Field) with Qatar, Iran has a resource that is used at an increasing rate internally, with slight amounts imported in the remote northern part of the country, where it is easier to use gas from abroad than to lay the delivery lines in country.

Figure 5. The South Pars: North Field Gas field shared by Iran and Qatar (Petroleum reports via The Encyclopedia of Earth)

Figure 6. Iranian natural gas statistics (Energy Export Databrowser)

And so, with the above as background, the next couple of posts will look at the Iranian situation in a little more detail.

I found this a very explanatory overview of Iran/OPEC within world contexts. Thank you.
One minor point though - perhaps this is an understatement?

For it is only in this way that the total can combine to sustain the optimism of those who see a cornucopia of oil flooding our future through at least the next ten years.

Could you mean that a one extra Mbo/day from Iraq and much smaller incremental increases elsewhere in the world might result in:
1. a cornucopian flood over the next 10 years
2. 'optimism' might be sustained by a small and continuing overall yearly increase in total liquids that could sustain exports world wide
3. the world total might just not decline in the next decade, even if exports are available in declining quantities

There are only a few places that we can realistically see increases in production. Most of these will be small, but that does not stop our cornucopian friends from telling everyone that "there is no problem." Perhaps, to use an increasingly popular phrase, I wrote inelegantly.


In passing it should be noted that OPEC is anticipating global oil demand to grow 0.9 mbd in 2012, and 0.8 mbd in 2013. To meet that OPEC anticipates that non-OPEC production gains will be 0.7 mbd in 2012, and 0.9 mbd in 2013, taking some of the pressure away from the OPEC producers.
Bolding by me

If I am reading what is quoted right OPEC says they are close to producing flat out.

The chart below shows the split of OPEC and Non OPEC crude oil and condensates supplies as from January 2001 and as of June 2012 (data from EIA). Non OPEC is further split into three economic groups, OECD, Russia and Rest Of World (ROW).

For all practical purposes annualized Non OPEC crude and condensates supplies has remained flat since 2004 (well in recent months there has been a slight decline).

Growth in Canada and US has primarily offset declines from other OECD producers, mainly in the North Sea.

Brazil and China has recently had some declines, future developments in supplies from these will be interesting.

Growth in supplies from Russia has slowed down.

Fact is (and that if EIA data are to be believed) all growth in world (C+C) supplies since 2004/2005 has come from OPEC.

And now OPEC points at Non OPEC to take almost all growth in world (C+C) supplies during 2012 and 2013.

The words interesting and times keeps popping up.

Israel finance minister says Iran economy "on verge of collapse"

Iran has been living under sanctions for 30+ years. In the short run, sanctions have an affect. But in the long turn, it helps Iran become more independent and they continually seek to increase domestic production instead of importing, and at the same time, cut subsidies, like the one they have on gasoline. They also save money in the long run by building indigenous refineries, as they then decrease in imports of petroleum products. I doubt Irans economy will collapse anytime soon, many countries still rely on Irans export of oil, mainly to India, China and Japan.

Europe's ban on Iranian oil is having some effect, but there are reports European refineries are still importing Iranian oil through third parties.

Pre EU ban:

"In passing it should be noted that OPEC is anticipating global oil demand to grow 0.9 mbd in 2012, and 0.8 mbd in 2013."

Could someone clarify to me what this means? As I understand it, unless there is massive additions to / releases from strategic petroleum reserves, demand = production. So is this just another way of saying that global production will increase 0.9 and 0.8 mbd?

And wouldn't demand totally depend on price? So when they say that demand will grow, this basically means they are predicting inflation adjusted price to stay the same or even drop?

Am I interpreting this correctly, or reading too much into it? Does someone have a reference to that OPEC prediction?

You are correct Null. The prediction is on page 1 of the OPEC Oil Market Report for September.

World oil demand growth in 2012 is forecast at 0.9 mb/d, unchanged from the previous report.
Global economic turbulence has not slowed oil consumption seasonality from its summer trend.
World oil demand rose in July, leading to growth of 1.1 mb/d in the third quarter y-o-y. Non-OECD
consumed 42.9 mb/d of oil in July, an increase of 1.0 mb/d y-o-y. In 2013, world oil demand is
forecast to grow at a slightly lower 0.8 mb/d compared to the previous year. Downside risk exists as
the economic slowdown in the developed countries could increasingly spill over into the non-OECD.
Non-OPEC supply is anticipated to increase by 0.7 mb/d in 2012. Growth is supported by expected
gains in the US, Canada, Brazil, Russia, China, and Colombia, while output from South Sudan and
Sudan, Syria, the UK and Norway is projected to decline. In 2013, non-OPEC oil supply is forecast
to grow by 0.9 mb/d. OPEC NGLs and non-conventional oils are expected to average 5.7 mb/d in
2012 and 5.9 mb/d in 2013, representing growth of 0.4 mb/d and 0.2 mb/d, respectively. In August,
OPEC crude oil production stood at 31.41 mb/d, representing an increase of 254 tb/d from the
previous month, according to secondary sources.

This is just how they talk. Of course demand will depend on supply and is totally dependent upon price. But they like to pretend that it does not. They like to say "The world is well supplied with oil". What they mean is "the world is well supplied with oil at the current price". If supply drops then the price will go up and the world will still be well supplied with oil. However the world could then slide into recession and the price will then drop. If that happens the world will still be well supplied with oil.

Ron P.

Null – As Ron points out the world will always be well supplied with oil since price determined demand will balance with supply. With one exception: low prices. Every buyer that can afford to pay the current price has all the oil they want. But what if prices drop to, let’s say $70/bbl...will the world be well supplied? Just my WAG but I doubt it. And it wouldn’t matter if the KSA has the max ability to flow 10 mmbopd or 15 mmbopd. In addition to supplying pent up demand it would also fuel economic growth and increase demand even more.

Every business selling a product seeks that sweet spot in their pricing: optimum cash flow. Price a product to high and they don’t sell enough product. Price too low and they deplete inventories while minimizing their margin. While I don’t think the KSA is pricing oil high enough just to hide their true production limit there is some benefit: if the people/politicians were to universally understand the situation adjustments to conservation and alts could reduce the KSA control of the market place. And while the KSA might see a nice bump in cash flow (which they desperately need to keep the political system stable) if they were to lower prices, they know better than anyone how much reserves they truly have. Logically they should price their oil to max their long term income. IOW IF they had the production capability they claim to have and IF they have those huge reserves they claim they have then you would think they would sell as much oil as possible (by producing at the max) and thus max their cash flow. That thought can’t be quantified but I think it speaks volumes regarding the real proven reserve volume.

If there is little likelihood of major increases in production from Russia, Saudi Arabia, and China, and that I take some of the optimism over North American production gains with a considerable grain of salt, then global increases in production must come from nations that are now producing below 3 mbd.

Then they will have to turn things around from what they have been doing for the last 7 years. Their combined production is down about 2 mb/d since their peak in 2005. The data below is from the EIA. The data is from all producers except Saudi Arabia, Canada, China, Russia and the USA.

Combined C+C production of all producers currently producing less than 3 mb/d in kb/d. The last data point is June 2012.

Under 3 mb/d

Ron P.

Thanks, Ron,
your picture expresses my concerns in a single frame


You're welcome Dave. I capture data fro JODI, the EIA and the OPEC OMR. It is remarkably easy to generate charts of just about any combination of data one wishes with Excel. So if you wish to see the combined production of any group of producers just let me know. But I only collect Crude + Condensate from the EIA and JODI or crude only from the OPEC OMR.

I have lost confidence however in JODI. They report what is reported to them in most cases, and from OPEC in particular. They report those absurd numbers from IRAN that IRAN "says" they produce. And we all know that is a lie. They also report what Venezuela says they produce, which is about half a million barrels a day above what everyone else says they produce. In other words the data they produce is highly political, especially as far as OPEC is concerned. Of course they are based in Riyadh, Saudi Arabia so that might be expected.

Non-OPEC C+C under 3 mb/d in kb/d according to the EIA. Last data point is June 2012. Data excludes Canada, China, Russia and the USA.

Non OPEC under 3 mbd

Ron P.

The depletion rate for small producers is more than 6,5% per year now, as we could see (monthly depletion is a scaring 10%). It was 1,5% per year between 2005 and 2009 with lower prices. We are heading to a big supply crunch pretty soon and other "unexpected" riots in small countries depending on crude exports.
Check my personal "who's in big troubles?" list (with EIA production growth forecasts for 2013, in million barrels per day):

1. Mexico ... (-0.066)
2. U.K. ....... (-0.021)
3. Oman ..... (-0.006)

data from EIA, Global Crude Oil and Liquid Fuels Overview (last update: september 2012);

The Shah overproduced in the 70s by stacking giant oil fields one on top of each other

Graph is in the following article, with field data kindly provided by Jean Lahererre

Iran's 2nd and last oil peak

"The Shah overproduced"? Let's say foreign oil firms did it. Year 1953, the Iranian coup d'état, officially orchestrated by the intelligence agencies of the United Kingdom ("Operation Boot") and the United States ("TPAJAX Project"), was the 1st cause of the 1st oil peak in Iran. Without the facts leading to the '79 revolution and the Iraq-Iran was in the 80's, Iran would have peaked in a hubbert-style bell-curve around 9.5 Mb/d in the mid of the 90's...