Iran seeks to poach Saudi oil contracts with new projects



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Iran, China seek to exploit Saudi oil deficit with new boost in West Karoun

Iran, China exploit Saudi Arabia’s weakness with new oil megaproject
Iran, China capitalize on Saudi Arabia’s weakness with new oil projects
Iran, China to exploit Saudi oil deficit with new plans
Iran seeks to poach Saudi oil contracts with new projects
Iran prepares to seize Saudi market share with new oil projects
Iran prepares to regain Saudi market share
Iran seeks to act aggressively on Saudi Arabian oil market share

Iran is seriously seeking to poach Saudi Arabia’s major oil supply contracts since the Tehran-backed Houthi attacks on two of the Kingdom’s major oil facilities on September 14, 2019, especially for coveted Asian customers. Following Saudi Arabia’s decision to unilaterally reduce one million barrels per day (b / d) below its latest OPEC + quota initially set last month, Tehran announced last week that National Iranian Oil Company (NIOC) had signed contracts worth US $ 1.2 billion for eight new projects. designed to dramatically increase its production of crude oil. Although these projects are largely managed by Iranian companies, they are part of a patchwork of projects that were formulated in tandem with the 25-year agreement reached with China in 2019, which will feature Chinese companies working on a basic “ contract only ”, although many contracts in all lines of business in all areas.

When Iranian Foreign Minister Mohammad Zarif visited his Chinese counterpart, Wang Li, in August 2019 to present his Chinese hosts with a roadmap on the China-Iran comprehensive strategic partnership that was originally signed in 2016 , an initial 2016 strategic cooperation framework was approved. For its part, Iran was to give a series of favorable terms to China, starting with giving Chinese companies the first option to bid on any new or blocked or unfinished oil (and gas) field development. China was also to have the right to purchase all oil production (gas and petchems) with a guaranteed minimum discount of 12% from the six-month rolling average price of comparable benchmarks, plus 6 to 8 per percent of this metric for risk-adjusted compensation. Critically, too, China was allowed to pay for all oil products (and gas and petchems) in soft currencies that it accumulated while doing business in Africa and the states of the former Soviet Union, which effectively gave China an additional rebate of at most 12 percent, or a total discount of about 32 percent for China on all purchases of oil gas and petchems. Related: UAE’s Oil Sector Turns To Hydrogen

For its part, China’s key pledge on oil – beyond its key political pledge to support Iran in the UN Security Council (on which it holds one of five permanent member votes (Russia, France, the United States and the United Kingdom being the others) – was to increase crude oil production from the West Karun oilfield cluster in Iran. At that time, the West Karoun fields – which include the huge oil reservoirs of southern and northern Azadegan, southern and northern Yaran and Yadavaran, among other lesser-known sites – together produced around 355,000 bpd. oil only, on a recovery basis. rates in the West Karoun oil region between only 3.5 and 5.5 percent. According to Iran’s Petroleum Ministry, each 1% increase in the recovery rate of the West Karoun fields will increase recoverable reserves by 670 million barrels, or $ 33.5 billion in additional revenue with oil at an average of $ 50 the barrel. Since the average lifting cost per barrel of crude oil in Iran is almost exactly the same as in Saudi Arabia, at $ 1-2 per barrel, there is no reason why the recovery rates in each country are not nearly exactly the same as they finally are, rather than the average of around 4 percent in Iran and the current average of 50 percent in Saudi Arabia (with realistic plans to increase it to at least 70 percent). It was decided between Zarif and Wang in August 2019 that Chinese companies would increase West Karoun’s production of 355,000 b / d by an additional 145,000 b / d in the first phase (to 500,000 b / d), then by 500 Additional 000 bpd (at 1 million bpd).

It was then, however, that the trade war rhetoric began to be escalated by former US President Donald Trump, alongside a steady increase in sanctions against Iran and those who trade with him at following the unilateral withdrawal of the United States from the joint comprehensive plan. action in 2018. It also meant that China felt it had to walk more slowly in its relations with Iran but that its help was needed more than ever, a year after the US withdrawal from the JCPOA, OilPrice .com exclusively highlighted the real numbers from Iran, which made a grim reading if you were Iranian. Using a benchmark from November 2019, as of May / June 2020, Iran’s GDP growth was minus 22%, unemployment was around 37%, inflation was over 65%, and the rial had depreciated by at least 65% that period against a basket of major global currencies. Iran also currently has an 80% budget deficit and a negative trade balance of $ 6.5 billion. Related: Saudi Arabia’s Cutback Boosts Russian Urals Crude Demand

As a product of this dynamic, two particular types of low-key announcements began to appear regarding new developments in Iran (and also in Iran-sponsored Iraq). The first concerned extremely expensive projects announced in Iran, baffling given that it was technically bankrupt, and the second mentioned a new “contractual” involvement of various companies, all of which were Chinese. Two big examples of this new type of announcement were made in July 2020, both regarding developments for supergiant fields in the West Karoun region. The second – and most important – announcement came from Iran’s Oil Ministry that it had granted a US $ 1.3 billion development deal for more than double the oil output from the South Azadegan oilfield, while the second such oil project signed that month was a US $ 300 million development. contract for the Yaran oil site. The reality of the situation was that various Chinese companies had won 11 “ contract only ” projects in a number of operational areas of the development of the Iranian South Azadegan oil field, including contracts for drilling only, maintenance on the land only, engineering only, construction only and technology only, among others. Another indicator of what’s really going on with South Azadegan is that the supposed Iranian lead partner in South Azadegan – Petropars – was also the partner at that time of the China National Petroleum Corporation in the supergiant’s failed Phase 11 project. South Pars non-associated natural gas deposit. “In reality, the name on the publicly available contract makes no difference, China is only continuing what has already been agreed,” an oil and gas industry source in Iran said exclusively. OilPrice.com at the time.

On a related note, regardless of the name of the funding for the projects announced last week to increase West Karoun’s crude oil production, such as all the money Iran needs to meet the targets agreed to in the 25-year deal with China, Beijing will gladly provide, given how irreplaceable Iran is in its multigenerational global balance of the “One Belt, One Road” power transfer plan. It is true that Iranian Oil Minister Bijan Zanganeh said last week that oil projects would be financed by bond issues, but it is also true that all those bonds which are not easily bought in the markets will be bought by Chinese or Chinese. related entities. Indeed, as reported exclusively by OilPrice.com in October 2019, it was China that agreed with Iran to act as an offer of support for a new type of bond which would be an issue denominated in Iranian rials but – especially for potential foreign buyers – carrying with them, the possibility not only of being exchanged in rials, but also in a range of more common currencies at the spot rate in effect on the day the buyer decided to buy back the paper . Although the full range of currencies has not yet been finalized, they initially included the Chinese Renminbi and the Russian Ruble, more potentially the Euro, Japanese Yen and Swiss Franc.

Additionally, as OilPrice.com exclusive again, in May 2020, a tedious ad of the ratification of a securities issuance regulation appeared on websites affiliated with the Iranian government which was unsurprisingly ignored by the rest of the international media around the world. However, the blank statement that Iran’s First Vice President Eshaq Jahangiri approved the issuance of compliant Islamic securities in calendar year 1399 (which began on March 20, 2020) meant that Iran would have access to a massive new flow of capital. which he would use to advance his oil and gas development agenda. All of this, OilPrice.com pointed out at the time, would be backed by China and that is exactly what NIOC chief executive Masoud Karbasian was alluding to last week when he talked about selling $ 30 trillion. IRR ($ 712.5 million) bonds to fund new projects with plans to issue at least another IRR20 trillion more in the near future if needed.

By Simon Watkins for OilUSD

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