BMI View: Despite seeing a small increase in oil production and exports following the Geneva Interim Agreement, a more significant increase can only result from an easing or lifting of international sanctions. We are increasingly bullish on the prospects of the success of a deal by June 2015, and a subsequent lifting of the sanctions. In such a situation, a significant ramp-up in production and exports to pre-sanction levels would take three to four years from when sanctions are lifted. Years of underinvestment, maturing oil fields and a lack of field and well maintenance has damaged fields. Gas production will continue to grow, with further development of South Pars phases. Despite strong growth, limited access to capital and technology will still prevent production from accelerating sufficiently to meet demand. This will translate into gas shortages and limits the options of large regional gas exports in the short to medium term.
|Crude, NGPL & other liquids prod, 000b/d||3,289.3||3,439.5||3,472.5||3,489.3||3,572.3||3,653.9||3,695.8|
|Dry natural gas production, bcm||162.6||182.1||192.1||211.3||221.9||230.7||240.0|
|Dry natural gas consumption, bcm||158.9||178.0||188.6||207.5||217.9||226.6||235.7|
|Refined products production & ethanol, 000b/d||1,800.0||1,872.0||1,872.0||1,872.0||1,928.2||1,986.0||1,995.9|
|Refined products consumption & ethanol, 000b/d||1,810.0||1,820.0||1,821.8||1,858.3||1,876.8||1,905.0||1,943.1|
We highlight the following trends and developments in Iran's oil and gas sector:
Iran holds the fourth-largest oil reserves and second-largest gas reserves in the world. Given the maturity of the country's fields, the replenishment of oil reserves remains an important issue. A vast majority of gas reserves in the country remain undeveloped, a situation which will endure in a context of continued international sanctions.
We estimate that crude and condensates production in 2014 stood at about 3.26mn b/d, a 150,000b/d increase on 2013. We factor in a small year-on-year crude and condensates output growth over our forecast period. This is with the assumption that international sanctions on the country remain in place, limiting crude oil exports to 1.0mn-1.1mn b/d. A progressive ramp-up in condensates production (which can be exported) from the South Pars field, and increased production to meet rising domestic refining demand are responsible for the small y-o-y oil production growth: we forecast crude and condensates production will rise from 3.26mn b/d in 2014 to 3.67mn b/d in 2024.
Our Country Risk team is increasingly positive on a breakthrough in the nuclear talks in June 2015. At present, our forecast continues to assume a continuation of sanctions until a final deal is signed. However, should a final deal be reached in June 2015, we estimate that Iran could bring back online some 550,000-650,000b/d of additional crude oil production in the one to two years following a lifting of oil sanctions. Additional production would not materialise before early 2016 at best.
We forecast small y-o-y oil exports growth over our forecast, based on the assumption of continued international sanctions limiting crude oil exports to 1.0-1.1mn b/d. Rising condensates production and exports will be responsible for the small y-o-y export growth. A more significant increase of Iranian crude exports can only result from a more dramatic easing of the oil sanctions placed on Iran. Should a final nuclear deal be reached in June 2015, we expect Iran will begin to export additional crude oil volumes by Q116 at the earliest. We estimate additional exports will start at +50,000-100,000b/d, ramping up to 400,000b/d by Q316 and 600,000-650,000b/d by Q416.
With refining capacity expansions and fuels subsidy cuts, Iran is close to self-sufficiency in refined fuels. Since 2011, Iran has notably reduced its net gasoline import needs by over 90%. Iran could even have been gasoline self-sufficient in 2014. Should the first phase of the Persian Gulf Star refinery come online by 2017, we believe Iran could remain close to fuel self-sufficiency until the early 2020s, with notable upside risk should further capacity expansions materialise.
We have revised Iran's gas production outlook, based on tangible progress made on the South pars field development, despite the continued sanctions regime. Iran's successful start-up of Phase 12 however highlights that the country is managing to partly develop these phases despite continued sanctions. Despite the slow pace at which development is occurring, this is prompting us to review our production forecast to the upside, with output likely to continue increasing in the coming years.
Despite our revised outlook for gas production, output will not be sufficient to satisfy domestic demand in the short to medium term, with pent-up demand seeing consumption rise in tandem with production. This will lead to a situation where gas shortages will continue to occur in the coming years, notably in winter.
While Iran has the potential to become a major regional gas exporter over the long term, this is unlikely to materialise under the current sanctions scenario. In the case of a lifting of sanctions, pent-up domestic gas demand and the time and investment required to significantly boost production will cap larger Iranian gas exports for years to come.