Iran Can Raise Oil Output To 10M B/D Before 2010; Gas Reserves To 60 TCM.

Addressing a seminar in Tehran on Oct. 31, APS Energy Group President Pierre Shammas predicted that if Iran switched from the buy-back system to one favoured by foreign companies the country's recoverable reserves would be more than doubled to 200 bn barrels of oil and over 60 TCM of natural gas. If Tehran manages to attract as big a number of foreign E&P investors as that of the North Sea before 2004, he said, Iran would be able to raise its oil production capacity to 10m b/d by 2010.

Such a capacity, Shammas said, must be sustainable at least for 12 consecutive months. At present, Iran's oil production capacity of about 3.7m b/d is not sustainable as the country loses about 250,000 b/d of the production capability every year. This means Iran has to spend heavily every year to keep production from falling.

The seminar - "Iran, Energy & Recent Changes in the Region" - was organised by the International Institute for Caspian Studies, a Tehran-based NGO headed by former Iranian deputy foreign minister Dr. Abbas Maleki. Among VIPs addressing the seminar was Maj. Gen. Rahim Safavi, the general commander of Iran's Revolutionary Guards Corps.

Shammas' presentation came amid speculations in Tehran that, in view of a lack of good response to its buy-back system for E&P and a big change in Iraq anticipated worldwide, the Iranian theocracy might be compelled to amend its constitution to allow the government to offer PSAs for oil and gas. The critics of the buy-back approach in Iran have increased in recent weeks and the Energy Committee in Parliament, chaired by Hossein Afarideh, is said to be considering alternatives to the buy-back formula that would attract to the country the biggest number possible of foreign companies that have the best E&P technologies and funding capabilities.

Afarideh and Shammas are among speakers to address a big Tehran conference on this topic on Dec. 9-10. To be opened by Iranian Oil Minister Bijan Zanganeh, the 7th annual conference on "The Impact of Globalization on the Middle East Oil & Gas Industry" is organised by the International Institute for Energy Studies and the Iranian Association for Energy Economics.

Under the buy-back formula, the foreign investor does not have ownership and has to hand over operatorship once the project is completed. The investment is recouped at a fixed rate through the sale of the oil or gas that will be produced in the project over a set period to time. The age of buy-back contracts ranges from five to seven years. But a number of buy-back projects, to develop discovered oil or gas fields, remain in suspense for lack of interested foreign investors.

What has made the buy-back approach less attractive since 2000 is a clause in the contract which binds the foreign operator to bear the risks of its performance and pay a penalty if its oil or gas production target is not reached. For example, the lack of interest among foreign companies to bid for the South Pars oil project, in which Statoil of Normay is the only outsider still in the race, has apparently spurred a rethink by Oil Minister Zanganeh.

Uzbek gas export prices had been low in the previous years. In 2000 the price to Kazakhstan was $35/1,000 CM. In January 2001 the government raised that to $50/1,000 CM. But as KTG refused to pay such a price, the Uzbek government lowered it to $40/1,000 for 2001 deliveries which reached about 820 MCM. KTG later said this price should also apply for 2002 deliveries, while Tashkent insisted on $42 as a minimum.

The Uzbek government's plans foresee a considerable increment of revenue from gas exports. From 2005 gas export income should account for 35% of the country's total revenue, compared with less than 10% in 2000, and the volume for that year will be 11.8 BCM.

Tashkent has studied a proposed option to export gas through existing Russian pipelines to Belarus - where, it is said, the gas would then be transported by rail to Europe.

An alternative is to find markets in Asia. In the late 1990s Tashkent had signed an MoU with the governments of Ashgabat, Kabul, and Islamabad to participate in a pipeline project to export gas to Pakistan. Uzbekistan is also being considered for a proposed 6,000 km pipeline to bring gas from Turkmenistan, Uzbekistan, and eastern Kazakhstan to China.