$30–40B investment can raise oil output to 5.3mb/d
By Hamid Hosseini
Energy expert
You won’t find any industry in Iran’s economy that generates as much added value as oil sector investments. This very fact puts greater responsibility on the Oil Ministry as it must draw up and carry out attractive contracts to speed up and facilitate domestic and foreign investment, even from institutions and organizations.
Sometimes, very high figures are mentioned for required investments in this sector. For instance, some officials talk about the need for $200–300 billion in investment, while our current oil and gas industry lacks the absorption capacity for such sums — unless there’s a breakthrough in Iran’s foreign relations, allowing capital, technology, and technical know-how to flow in, and major oil companies step in to operate in Iran.
If we want to ramp up oil production capacity to 5.3 million barrels per day, for every additional barrel in onshore fields, at least $10,000–15,000 is needed, while offshore fields require $25,000−35,000 per barrel.
Iran’s current oil production capacity stands at around 3.6 million barrels per day. If we aim to push up production by about 1.5 million barrels, we’ll need roughly $30–40 billion in investment. Attracting around $10 billion annually in sanctions-hit conditions would be a major achievement — whereas, in recent years, oil sector investments have been drying up. In past years, apart from the National Iranian Oil Company’s 14.5% share of oil revenues, a few IPC contracts, and minimal bank investments, no other funding has come into the oil and gas sector.
We have to engage with the global economy. The JCPOA brought 16% economic growth, while Trump’s withdrawal cut back growth by 14%.
While upstream investments are highly valuable, Iran has poured most resources into downstream projects to curb crude sales. For example, under Mr. Zanganeh, the former Oil Minister, we focused on gas refineries — yet due to low domestic gas prices, added value in this sector remains limited.
Unfortunately, oil bonds were not allowed to go through. Some feared that selling these bonds would spin off part of the NIOC. This excuse snuffed out even the faint hope of private sector involvement. By issuing oil bonds, we could have easily brought in public funds, channeled them into oil investments, and paid back investors in dollars. This would not only have secured funding but also kept liquidity away from unproductive markets, curbing inflation. If we want the private sector to step into oil and gas investments, we must bring about major policy shifts. With outdated, government-dominated approaches, no real progress will happen.
How much can oil production grow?
Increasing output to 4.3 million barrels is essentially bringing back lost capacity. But pushing it further to 5.3 million is far tougher. My question is: If we struggle to secure funds just to restore production, how will we come up with resources for expansion?
If we invest $15,000 per additional barrel and sell oil at $60, the investment pays for itself in 250 days. Can you find any other industry with a sub-one-year return?
Saudi Arabia reached its status by boosting production from 4 to 10 million barrels. Russia grew powerful by scaling up from 3.5 to over 10 million barrels. The US cut its reliance on the Persian Gulf by ramping up output from 4 to 14 million barrels — even with costly shale oil, which still paved the way for economic growth.
The article first
appeared in Persian on
Tahlil Bazaar.