Iran's Oil Exports May Dry Up Without Foreign Help

Despite sitting on 11% of the world's oil reserves, second only to Saudi Arabia, Iran's current output is only 3.9 million barrels a day (of which 2.5m are exported), versus over 6m barrels in the '70s. It recently reduced its 2010 production target from 5m b/d to 4.5m. Iran is facing a natural output decline of 8-10% per year, equal to 200-500,000 barrels a day, and lack of investment. It has signed no firm oil or natural gas contracts with foreign investors since June 2005. Oil sales of $47 billion in 2006 generated half its government's revenue, but lack of refining capacity means that Iran imports 40% of its gasoline. It spends $20b per year -- 15% of its economic output -- on gasoline subsidies to appease its population, resulting in a pump price of $0.35/gallon. That has led to double-digit domestic demand growth, to 1.5m b/d (triple its 1980 level), requiring the country to import 170,000 barrels of gasoline a day at a cost of over $4b in 2006. The government plans to start rationing gasoline in March, an unpopular move that has been postponed numerous times. If demand continues to grow at current rates, some analysts predict Iran's oil exports will dry up within 10 years. Iran buys gasoline from India, which is also planning a natural gas pipeline from Iran to India via Pakistan, and is trying to attract foreign investment from Russia, China and Europe to boost its oil and gas output. But potential partners have signed few deals so far, preferring to see how the political situation plays out. Royal Dutch Shell and Spain's Repsol recently agreed to develop South Pars, the world's largest natural gas field, though a final decision isn't due until end-2007; France's Total is also in talks.

Sources: New York Times
Commentary: No Need for More Cutbacks if Oil Prices Hold - Saudi Oil Minister • Russia and Iran Ponder an OPEC-Like Natural Gas Cartel • ONGEC Price Hike? Natural Gas Deeply Underpriced Anyway
Stocks/ETFs to watch: U.S. Oil Fund ETF (USO), Royal Dutch Shell plc (RDS.A), Repsol YPF S.A. (REP), Total S.A. (TOT).

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Comments

[Brian Croner]

Iran's really running out of oil, just like they've always said. What the hell is the US trying to do? I don't blame them for igniting the insurgency. I'm almost willing to believe Iran isn't even making nuclear weapons. 3000 cylinders isn't a whole lot. Plus, they let inspectors in, as long as they are independent, meaning they won't pull the same crap that happened with US/Iraq. We really should get out of there and let Iran fix up Iraq, maybe to split it with Saudi Arabia.