China preparing to give Iran’s Oil Industry a Major Boost

With the 25-year deal with China now moving ahead at pace, Iran has a buyer for all of the crude oil it can produce, albeit @ discounted levels, so Tehran is pushing oil field development across the board.

This includes not only the major fields in the huge West Karoun cluster – across which China has pledged to increase collective output by at least 500,000 barrels per day (bpd) within the next two years, but also the more challenging fields that nonetheless are rich in oil, especially those that are shared with Iraq.

In order to meet these challenges, Iran is resuscitating a program of engaging top domestic universities to work on the scientific challenges of increasing recovery rates, in addition to utilizing human, technological, and financial resources from China and Russia as and when required, with the Azar field being a test-case for such co-operation.

Located in Mehran at the edge of the Zagros mountains and the other side of the shared reservoir that yields the Badra field on the Iraq side, Azar is poised to begin full Phase 1 production of 65,000 bpd.

With the successful commissioning of oil trains and the ancillary central processing facility, this project is on the verge of reaching its envisaged production capacity.

The SAT [Site Acceptance Testing] of the crude oil metering system in the joint field will be done soon and the production test of 21 out of 28 days of final production from this field will begin.” Even before the finalization of Phase 1 production, the Azar field had already produced more than 30 million barrels of crude oil.

This is a testament to the determination of Iran to optimize the output of fields that it shares with Iraq, the other key ones are Dehloran (Iraq side, Abu Ghurab), Naft-Shahr, Yadavaran (Sinbad) (Khorramshahr), Azadegan (Majnoon), Naft Shahr (Khorramshahr), as the Azar oil field is the most challenging all of the principal prospects in the Anaran bloc, which also includes Changuleh and Dehloran.

The entire area around the Azar field was peppered with a vast number of mines planted during the 1980-1988 Iran-Iraq war. Once they had been cleared, developers were left to deal with Azar’s surface stony ground and condensed reservoir rock, with each well taking an average of 500 days to drill.

The drive to complete Phase 1 of Azar has not just been a product of the general wish to optimize oil production from the fields it shares with Iraq but also of new studies that sharply revised up the in-place oil reserves of this field to 4 billion barrels, twice the previously estimated figure.

The Phase 2 production target of at least 71,500 bpd, plus around 80 million standard cubic feet of gas per day (mmscfd), is due to be reached by the end of this Iranian calendar year ending on 20 March 2021, Gregorian calendar equivalent.

There was always a plan for a third phase as well, which would involve pushing production up to over 100,000 barrels per day, but this was always contingent on the participation of a major IOC [international oil company].

This is essential due to the complexity of the field in terms of drilling and of the type of oil produced, which has an API gravity of 33, light by Arabian standards, but with high sulfur content, that requires high-spec technology and machinery made from advanced alloys.

Because of the difficulties with the Azar field, the original plan was to allow any participating IOC to also develop the nearby Changuleh and Dehloran fields under very beneficial terms to offset the extra costs associated with the Azar development.

Originally, Norway’s Statoil started developing the Anaran oil field in 2003 and when oil was found in 2005 (in both Azar and Changuleh) it was joined by Russia’s Lukoil in developing the site.

Lukoil pulled out of its 25% stake in the entire Anaran block in 2008/9 after various sanctions by the U.S. and E.U. countries were imposed, followed by Statoil from its 75% stake in 2011, after the sanctions were intensified.

When the JCPOA was agreed in principle in 2015, a number of IOCs signed memoranda of understandings for fields in the Anaran block, either for singular or multiple fields, including Norway’s DNO, Thailand’s PTTEP, and Russia’s Gazprom Neft and Lukoil again.

A corollary was that a preliminary agreement with Austria’s OMV was also reached to invest up to US$6 billion in a petrochemical plant at the Dehloran site.

Given the unilateral withdrawal of the USA from the JCPOA in 2018 and the subsequent far-reaching sanctions imposed, Iran has been left to look for assistance from China and Russia, although Tehran wants to indigenize as much of the technology, equipment, and expertise as quickly as possible in the process.

Specifically, this is to include using the expertise available in Iranian universities and similar academic institutions from their Chinese and Russian counterparts.

According to comments made last week by Iran’s Petroleum Minister, Bijan Zanganeh, the National Iranian Oil Company (NIOC) has just signed 13 contracts worth IRR7,160 billion (US$170 million) with local universities and research centers to carry out studies on oil and gas fields.

This will augment the 22 major research contracts with a total value of IRR 10,090 billion that have been geared towards improving enhanced oil recovery (EOR) techniques over the past five years, and thereby increasing the recovery rate across Iran’s oil fields.

In fact, about half of Iran’s current crude oil production of 2.5 million bpd is sourced from oil fields that are more than 70 years old – including the Ahwaz-Asmari, Marun, and Gachsaran fields – in which it will be necessary to employ further EOR techniques, over and above the re-injection of associated gas already having employed by Iran on its own.

Oil Price.com / ABC Flash Point news 2020.