Published on October 11, 2007
IRAN and RUSSIA: Oil and Gas Policies: IRAN and RUSSIA: Oil and Gas Policies Abbas Maleki [email protected] Presented to Conference on Oil and Foreign Policy Institute for Political and International Studies (IPIS) Tehran, Sep. 28, 2004. Introduction: Introduction Oil and Gas Policies in the frame of Russo-Iran’s relations: 1-Comparative statistics of oil and gas sectors 2-Active companies in both countries 3-Caspian Sea 4-Oil swap Conclusions Russia: The Biggest Country in the World : Russia: The Biggest Country in the World Russia at a glance: Russia at a glance Population: 143.2 million (UN, 2003) Capital: Moscow Major language: Russian Major religions: Christianity, Islam Life expectancy: 61 years (men), 73 years (women) (UN) Monetary unit: 1 ruble = 100 kopecks Main exports: Oil and oil products, natural gas, wood and wood products, metals, chemicals, weapons and military equipment GNI per capita: US $2,130 (World Bank, 2002) Iran at a glance: Iran at a glance Population: 68.9 million (UN, 2003) Capital: Tehran Area: 1.65m sq km (636,313 sq miles) Major language: Persian Major religion: Islam Life expectancy: 69 years (men), 72 years (women) (UN) Monetary unit: 10 Iranian Rials = 1 Toman Main exports: Petroleum, carpets, agricultural products GNI per capita: US $1,720 (World Bank, 2002) Slide6: Countries with Oil Reserves >1 bill. t and Strategic Ellipse Distribution of Gas Reserves in both countries: Distribution of Gas Reserves in both countries Slide8: Development of Oil Production with Outlook to 2020 Slide9: Development of Gas Production with Outlook to 2020 Oil Proved Reserves: Oil Proved Reserves Oil Production: Oil Production Russian Oil Production in 2004 : Russian Oil Production in 2004 Production Rising again : Production Rising again In 1988, Soviet Union’s oil production was 12.3 mbd In 1996 fell production to only 6 mbd A turnaround in Russian oil output began in 1999, -rising world oil -new financial policy -devaluation of ruble. Oil Consumption: Oil Consumption US behavior impacts on Iran and Russia: US behavior impacts on Iran and Russia United States is the world’s largest energy producer, consumer, and importer as respectively 7.45, 20.07, 12.85 mbd US various sanctions on Iran like ILSA May 2002 Summit between Bush and Putin: Signing an agreement on “Energy Partnership”. Gas Proved Reserves: Gas Proved Reserves Gas Production: Gas Production Gas Consumption: Gas Consumption Russia’s Policies after 9/11: Russia’s Policies after 9/11 -Each country has its specific terrorists -Russian long-term Cooperation with US in energy market -New Terminals in Murmansk, Primorsk, Iran: an OPEC MemberRussia: a non-OPEC: Iran: an OPEC Member Russia: a non-OPEC Iran is obliged to OPEC share and therefore is avoiding flooding the market with its oil. Russia is not obligated to abide by any quota system. Russia as a non-OPEC producer, has produces and export more of its oil since the late 1990s and most of the increase in non-OPEC production has come from Russia This surge in Russia’s share in global oil markets is at the expense of OPEC. But OPEC and Russia have sought Moscow’s cooperation. -To restrain production to a certain level to prevent a collapse of oil prices -The investment in Siberia was very high -Russian oil companies wanted to recover market shares lost since the demise of the Soviet Union. Russia cut only 150,000 bd in the first quarter of 2002. Hurdles of Cooperation between Iran and Russia’s oil and gas sectors: : Hurdles of Cooperation between Iran and Russia’s oil and gas sectors: Major oil and gas industries in Russia has been largely privatized. 5 companies have 70% of country’s oil production: Yokus, LUKoil, Surgutneftegaz, TNK and Sibneft. All of Iranian oil and gas companies are SOEs. Mergers like TNK-BP means more barriers for Russian companies for investing in Iran. Production costs are much higher in Russia than in Iran. Iran makes money at $10 per barrel, but production becomes unprofitable for Russian companies at this low price. Caspian importance for US: Caspian importance for US Caspian is not important for US as it was before 11/9 -War against terrorism -The change in US strategy in the region from political-economic to security-military approach -The importance of countries with strong ability to fight against terrorism instead of rich energy countries. Agreements among 5 Littoral States: Agreements among 5 Littoral States The Convention on Environment was signed in November 2003 in Tehran. Consensus over transportation as 1940 agreement says The different agreement on species of the Caspian, 50% of sturgeon trade is for Iran The next summit will be in Iran in 2006?? 14 round of negotiations among littoral states Several bilateral, trilateral discussions. PIPELINE ROUTES: AN IMPRESSION: PIPELINE ROUTES: AN IMPRESSION Bottlenecks and Pipelines 11 oil pipeline projects/ 6 operational 6 natural gas pipeline projects/2 operational. Of particular notice: CPC BTC TCP Pipelines: The Tariff Problem (1): Pipelines: The Tariff Problem (1) Alternative Caspian Routes: Per Barrel Costs (Tariffs) and Pipeline Owner Internal Rates of Return Owner IRRs BTC CPC Kazakh- Kazakhstan- China Turkmenistan- Kharg Island ---pct. ------ ----------------------------------US$/bbl/day---------- 20 1.61 1.78 2.72 0.59 (0.69*) 15 1.30 1.40 2.14 0.48 (0.55*) 10 0.98 1.03 1.58 0.38 (0.41*) 5 0.68 0.70 1.08 0.27 (0.29*) ____________________________ * Maximum Estimation Pipeline Tariffs (II): Pipeline Tariffs (II) Iranian line the least costly CPC versus BTC- Results reversed Costs not remarkable on a per bbl basis Income potential. Difference for BTC line and an IRR of 20 and one of 15 percent is $2.2-2.8 billions Incentive for higher tariffs as a means of reducing producer country revenues… Could well be a thorn in relationships between Caspian producer governments and the Western oil companies. Transit Fees and Sabotage: : Transit Fees and Sabotage: Known transit fees: CPC line is $3.00/bbl. BTC line is $0.12-.25/bbl (Georgia), $0.20/bbl (Turkey) and 0.15/bbl (Azerbaijan) Problem of regional restiveness: Chechnya closed down N. route to Black Sea BTC threats from PKK, and other groups Pipeline vulnerability (Colombia, Iraq) Conclusions (I): Conclusions (I) Russia wants to have good relations with Islamic countries. Iran is frontier of Islamic countries. Iran is eager to show to the US, Policies such ‘regime change’ is not working. The large hydrocarbon reserves can be used as a basis for either cooperation or rivalry between Russia and Iran. Iran-Russia energy policies should not be seen in zero-sum terms. Cooperation in oil pricing policy would serve the interests of both countries More cooperation between two countries means enhancing global energy security. Both countries are heavily dependent on oil revenues Both countries are dangerously vulnerable to the fluctuations of oil prices. Conclusions (II): Conclusions (II) Two countries benefit from keeping prices at a certain level (roughly between $25-30). Too-high prices tend to encourage conversation and developing other sources of energy in consuming countries. OPEC’s policy of reduced production benefits Russia by keeping prices high and enabling Moscow to sell more of its oil. Iran’s share of the world’s proven reserves (11.4%) higher than Russia (6%), encourages Russian companies to invest in Iran. Iran’s Transportation network is complimentary of Russian system and can support more oil production in Russia. Conclusions (III): Conclusions (III) Partnership on gas industries between the first and second gas owners: Iran has huge underexplored and unused gas deposits. Russia has the technological skills and expertise to develop them. The possibility of Russo-Iranian cooperation in the oil sector is remote.