Iran and China are exploiting Saudi weakness with a new oil megaproject
Iran and China capitalize on Saudi weakness with new oil projects
Iran and China will exploit Saudi Arabia’s oil deficit with new projects
Iran seeks to block Saudi Arabia’s oil contracts with new projects
Iran is preparing to take advantage of Saudi market share through new oil projects
Iran is preparing to take over the Saudi market share
Iran aims to make an aggressive move on Saudi oil market share
Iran is seriously seeking to poach major Saudi oil supply contracts since Tehran’s Houthi attacks on two of the kingdom’s main oil facilities on September 14, 2019, especially for coveted Asian customers. Following the Saudi decision to unilaterally reduce one million barrels per day (bpd) below its last OPEC + quota originally set last month, Tehran announced last week that the Iranian National Oil Company (NIOC) has signed contracts worth 1.2 billion for eight new projects designed to significantly increase crude oil production. Although these projects will generally be managed by Iranian companies, they are part of a patchwork of projects that were formulated in tandem with the 25-year agreement with China in 2019, which will largely include Chinese companies working on a “contract only”. based, although many contracts in all sectors of activity 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 comprehensive China-Iran strategic partnership that was originally signed in 2016, an escalation The initial strategic framework for strategic cooperation was agreed in 2016. Iran, in turn, was to offer a number of favorable conditions to China, starting with giving Chinese companies the first option to bid for any new, blocked or incomplete development of the oil field. (and gases). China will also be granted the right to purchase any oil production (gas and petchems) at a guaranteed minimum discount of 12% on the six-month average rolling price of comparable reference products, plus another 6-8 per cent. this value for risk-adjusted compensation. China has also been critically allowed to pay for all oil products (and gas and petchem) in soft currencies it has accumulated from business in Africa and the former Soviet Union states, which have effectively given an additional discount. China up 12 percent, offering a total discount of about 32 percent for China on all oil gas purchases and petchems. Related to: UAE oil is converted to hydrogen
In turn, China’s key commitment to oil – in addition to its key political commitment to support Iran in the UN Security Council (on which it has one of the five permanent votes of members, Russia, France, the US and the US Britain being the others) – oil production from the Iranian oil field group Karoun was to increase. At the time, the West Karoun fields – which included the huge oil reservoirs in southern and northern Azadegan, southern and northern Yaran and Yadavaran, among other lesser-known sites – together produced about 355,000 bpd of oil alone. a recovery in the West Karoun oil region of between 3.5 and 5.5%. According to the Iranian Ministry of Petroleum, each 1% increase in the recovery rate in the West Karoun fields will increase recoverable reserves by 670 million barrels or 33.5 billion US dollars in additional oil revenues to an average of $ 50 per barrel. . Given that the average cost of lifting per barrel of crude oil in Iran is almost exactly the same as in Saudi Arabia, at 1-2 USD per barrel, there is no reason why the recovery rates in each country should not be almost exact. same as Well, rather than the average of about 4% in Iran and the current average of 50% in Saudi Arabia (with realistic plans to increase this level to at least 70%). In August 2019, it was decided between Zarif and Wang that Chinese companies would increase production by 355,000 bpd in West Karoun by another 145,000 bpd in the first phase (to 500,000 bpd) and then by another 500,000 bpd (to 1 million bpd).
However, around this point, the rhetoric of the trade war began to be extended by former US President Donald Trump, along with a steady increase in sanctions against Iran and those who deal with it following the unilateral withdrawal of the US from the Common Comprehensive Plan. of action in 2018. This also meant that China felt that it should go easier in its relations with Iran, but that its aid was more necessary than ever. One year after the US withdrew from the JCPOA, OilPrice.com exclusively highlighted the true figures in Iran, which was a grim reading if you were Iranian. Using a comparison indicator from November 2019, starting with May / June 2020, Iran’s GDP growth was minus 22%, unemployment was about 37%, inflation exceeded 65%, and the real depreciated by at least 65% that period against a basic global currency basket. Iran also currently had an 80% budget deficit and a negative trade balance of $ 6.5 billion. Regarding: the reduction of Saudi production increases the demand for Ural crude oil in Russia
As a result of these dynamics, two distinct types of discreet announcements have begun to emerge regarding new developments in Iran (and Iran-sponsored Iraq as well). The first of these was announced in Iran as extremely expensive projects, astonishing given the fact that it was technically bankrupt, and the second mentioned a new “only contractual” involvement of various companies, all of them Chinese. Two primary examples of this new type of announcement were made in July 2020, both on developments for supergiant fields in the West Karoun region. The second – largest – announcement came from Iran’s oil ministry, which has granted a $ 1.3 billion development deal for more than double the oil production at 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 were awarded 11 “contract only” projects in a number of operational areas of the development of the oil field in southern Azadegan of Iran, including drilling contracts, land maintenance, engineering only, only for construction and only for technology, among others. Another indicator of what is really happening with South Azadegan is that the alleged main Iranian partner in South Azadegan – Petropars – was also the partner of China National Petroleum Corporation in the phase 11 project of the super-giant South Pars non. -associated natural gas field. “In reality, it makes no difference to the name of the public contract, China continues only with what has already been agreed,” said a major source in Iran’s oil and gas industry. OilPrice.com then.
Exactly in the same vein, it does not matter the name on the financing of projects announced last week to increase crude oil production in West Karoun, because the money Iran needs to achieve the goals agreed in the 25-year agreement China, Beijing a they will gladly provide, given how irreplaceable Iran is in its global multi-generational balance of power that changes the “One Belt, One Road” plan. It is true that Iranian Oil Minister Bijan Zanganeh said last week that oil projects will be financed by bond issues, but it is equally true that any of these bonds that are not easily bought in the markets will be bought by the Chinese. or China- related entities. Indeed, as reported exclusively by OilPrice.com in October 2019, China has agreed with Iran to act as a reserve bid for a new type of bond that would be an issue denominated in Iranian rials, but – Essentially for potential foreign buyers – who carry with them, the option not only to be redeemed in rials, but also in a range of more common currencies, at the predominant current exchange rate from the day the buyer decided to redeem the paper. Although the full range of currencies has not yet been finalized, they have included preliminary Chinese renminbi and Russian rubles, plus potential euro, Japanese yen and Swiss francs.
In addition, again, as highlighted exclusively by OilPrice.com, in May 2020 a small and boring announcement appeared regarding the ratification of a securities issuance statute that appeared on the sites affiliated to the Iranian government, which was surprisingly ignored by the rest of the world’s international media. However, the empty statement that Iran’s first vice president, Eshaq Jahangiri, signed the issuance of Islam-compliant securities in the calendar year 1399 (which began on March 20, 2020) meant that Iran will have access to a new massive flow. capital that it would use to drive its oil and gas development program. Everything, OilPrice.com pointed out at the time, would have been stopped by China, and this is exactly what NIOC CEO Masoud Karbasian was alluding to last week, while talking about selling 30 trillion. IRR ($ 712.5 million) of bonds to finance new projects with plans to issue at least another 20 trillion IRR in the near future, if necessary.
By Simon Watkins for Oilprice.com
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