Iran and China exploit Saudi weakness with new oil project
Iran and China exploit Saudi weakness with new oil projects
Iran and China to exploit Saudi oil shortage with new projects
Iran wants to strip Saudi oil contracts of new projects
Iran prepares to exploit Saudi market share through new oil projects
Iran prepares to take over Saudi market share
Iran wants to take aggressive market share in Saudi oil market
Iran has seriously sought to strip important oil supply contracts from Saudi Arabia since the Houthi attacks on Tehran on two of the Kingdom’s most important oil facilities on September 14, 2019, especially for sought-after Asian customers. Following Saudi Arabia’s decision to unilaterally cut one million barrels per day (bpd) under its latest OPEC + quota originally set last month, Tehran announced last week that the National Iranian Oil Company (NIOC) had contracts of US $ 1.2 billion for eight new projects. designed to significantly increase its crude oil production. Although these projects will be broadly managed by Iranian companies, they are part of a patchwork of projects put together with the 25-year agreement reached with China in 2019, in which Chinese companies are a ‘contract-only’. basis, although many contracts in all sectors at all sites.
When Iranian Foreign Minister Mohammad Zarif visited his counterpart in China, Wang Li, in August 2019 to present to his Chinese hosts a roadmap on the comprehensive strategic partnership between China and Iran originally signed in 2016, is a dramatic upscaling of the initial framework for strategic cooperation in 2016 was agreed. In turn, Iran would impose a number of favorable conditions on China, starting with the granting of Chinese companies the first option to bid on any new or stagnant or unfinished oil (and gas) field development. China also had to get the right to buy all oil (gas and petrochemical) production at a minimum guaranteed discount of 12 percent on the average average price of six months of comparable standard products, plus another 6 to 8 percent of that benchmark for risk-adjusted compensation. Of critical importance was also that China was allowed to pay for all the oil (and gas and pet chemistry) products in soft currencies that it gained by doing business in Africa and the former states of the Soviet Union, giving a further discount to China gave up to 12 percent, giving a total discount of about 32 percent for China on all oil gas and petchems purchases. Related: UAE oil head turns into hydrogen
In turn, China’s most important commitment to oil is above and beyond the most important political commitment to support Iran in the UN Security Council (of which it has one of only five permanent members, with Russia, France, the USA and the United Kingdom) the other) – would increase the production of crude oil from the West Karoun oilfields group. At that time, the Western Karoun fields – which include the large oil reservoirs of southern and northern Azadegan, southern and northern Yaran and Yadavaran, including lesser known sites – produced only about 355,000 bpd of oil, based on a recovery only in the West Karoun oil region between 3.5 and 5.5 percent. According to the Iranian Ministry of Petroleum, each percentage increase in the recovery rate of the West Karoun fields will increase recoverable reserves by 670 million barrels, or US $ 33.5 billion in additional revenue with oil at an average of US $ 50 per barrel. Since the average levy cost per barrel of crude oil in Iran is almost exactly the same as in Saudi Arabia, at US $ 1-2 per barrel, there is no reason why the recovery rates in each country should not be exactly the same as well, rather than the average of 4 percent in Iran and the current 50 percent average in Saudi Arabia (with realistic plans to increase it to at least 70 percent). It was decided in August 2019 between Zarif and Wang that Chinese companies would increase production of 355,000 bpd from Western Karoun by another 145,000 bpd in the first phase (up to 500,000 bpd) and then by another 500,000 bpd (up to 1 million bpd).
It was at this point, however, that the trade war rhetoric by former US President Donald Trump began to escalate, coupled with a constant build-up of sanctions against Iran and those trading with it following the US unilateral withdrawal from the Joint Comprehensive Plan of action in 2018. It also meant that China felt it needed to tread more gently in its dealings with Iran, but that its aid was more needed than ever before. One year after the US withdrew from the JCPOA, OilPrice.com showed exclusively true economic attention. figures from Iran, which made grim reading if you were an Iranian man. Using a comparative measure of November 2019, from May / June 2020, Iran’s GDP growth was minus 22 percent, unemployment was about 37 percent, inflation was over 65 percent and the interest rate fell at least 65 percent that period against a basket of global currencies. Iran also currently has an 80 percent budget deficit and a trade deficit of negative US $ 6.5 billion. Related: Saudi production reduces demand for Russia’s Ural crude
As a result of these dynamics, two peculiar types of software announcements have appeared about new developments in Iran (and also Iran sponsored by Iran). The first of these projects involved extraordinary cost projects announced in Iran, confusing because it was technically bankrupt, and the second mentioned a contractual involvement by various companies, all of which were Chinese. Two key examples of this new kind of announcement were made in July 2020, both regarding developments for supergiant fields in the West Karoun region. The second announcement – the biggest – comes from the Iranian Ministry of Petroleum that it has awarded a $ 1.3 billion development agreement to more than double oil production in the South Azadegan oil field, while the second such oil project signed that month , was a $ 300 million development. contract for the Yaran oil site. The reality of the situation was that various Chinese companies awarded 11 ‘contract-only’ projects in a number of South Azadegan oilfield development operations in Iran, including drilling-only contracts, field-only maintenance, engineering-only, construction-only, and technology only. A further indication of what is really going on with South Azadegan is that the alleged Iranian main partner in South Azadegan – Petropars – at that time was also the partner of the China National Petroleum Corporation in the trapped Phase 11 project of the super giant South Pars non. -related natural gas field. “In reality, it does not matter what name is on the publicly available contract, China is just continuing with what has already been agreed,” a senior oil and gas industry in Iran said exclusively OilPrice.com at that point.
In exactly the same vein, it also does not matter what the name of the funding is for the projects announced last week to promote the production of crude oil from Western Karoun, because the money that Iran needs to achieve the goals that agreed in the 25-year agreement China, Beijing, would be happy to provide, given how irreplaceable Iran is in its multi-generation global balance of power shifting ‘One Belt, One Road’ plan. It is true that Iranian Oil Minister Bijan Zanganeh said last week that the oil projects will be funded by bond issues, but it is equally true that any of these bonds that are not easily bought in the market, by Chinese whether China will be bought. related entities. As exclusively reported by OilPrice.com in October 2019, it was indeed China that agreed with Iran to act as a backstop bid for a new kind of securities that would be an issue that would be denominated in Iranian rials , but – especially for potential foreign buyers – with them the option to be redeemed not only in rials, but also in a range of more common currencies at the prevailing sight rate of the day on which the buyer decided to use the paper . Although the full range of currencies had yet to be finalized, for the time being it included Chinese renminbi and Russian rubles, plus potential euros, Japanese yen and Swiss francs.
In addition, again, as highlighted exclusively by OilPrice.com, in May 2020, a small and tedious announcement of the ratification of a securities regulation issued appeared on Iranian government agencies unexpectedly ignored by the rest of the country is. world’s international media. However, the empty statement that Iran’s first Vice President, Eshaq Jahangiri, signed in the calendar year 1399 (which began on March 20, 2020) on the issuance of Islamic security bonds, meant that Iran would have access to a massive new stream capital. which he would use to continue his oil and gas development program. OilPrice.com, which was emphasized at the time, would all be stopped by China, and this is exactly what Masoud Karbasian, managing director of NIOC, alluded to last week when he spoke about the sale of IRR30 trillion (US $ 712.5 million ) effects to finance the new projects, with plans to issue at least another IRR20 trillion more in the near future.
By Simon Watkins for Oilprice.com
More lectures from Oilprice.com: