-By Dr Sara Vakhshouri*

Iran and the P5+1 group of world powers are nearing the final deadline for their nuclear talks, with the prospect of some sort of an agreement strengthening. The impact this possible nuclear deal could have on Iran’s oil supplies has been estimated by numerous authors and has been the subject of much speculation, particularly at a time when the energy market is facing considerable volatility. The US is producing about 1.2mn b/d more than year-ago levels (see p14), and China is consuming less energy and boosting efficiency, while in the EU there is economic stagnation. Globally, there is an oversupply in the oil market, which contributed to oil prices plummeting in 2014.

This downward trend created huge uncertainty and speculation in the market. The sharp oil price fall in 2014, due to oversupply and Middle East turmoil on the one hand, and doubts over energy security on the other, have resulted in a volatile market. From the rise of Islamic State (IS) in Iraq, to uncertainties over the prospects of Iraqi oil production growth, to turmoil in Yemen, all have combined to create doubt and uncertainties over short and mid-term supplies of crude oil.

Iran’s Petroleum Minister, Bijan Zanganeh says that Iran is capable of producing an extra 1mn b/d of oil in a short period of time after the nuclear deal, and in turn the National Iranian Oil Company (NIOC) has been preparing for the day that it can increase its exports and production. Over the past few months NIOC has regularly been checking its pipelines, storage capacity and export facilities, and has employed a number of maneuvers to boost production at some of its southern oilfields.

There is no doubt that any nuclear deal will have an immediate downward effect on prices, even before Iranian actual production rises. This is mainly down to the psychological impact on the oil market, due to the expectation of a production rebound in Iran shortly after the removal of oil export related sanctions. Iran’s 36-37mn barrels of liquids stored offshore in its floating storage could be released immediately, also contributing to an immediate market reaction to a possible nuclear deal.

Nevertheless, the impact of any Iranian oil production boost post-deal depends on a combination of different factors, namely Iran’s technical capabilities and ability to regain its lost market share in the current low oil price environment. Hence the removal of oil export-related sanctions is the key factor for Iran’s production and export increase. Therefore if there is to be a nuclear deal, the rise in Iran’s oil production will likely be gradual, and more towards the end of 2015 when the easing of sanctions will begin to take effect. The quality of Iran’s new production is also key, as some of its extra oil supply will be condensate, for which the market is limited and substantially different to that for Iran’s crude.

Tables included Table 1: Additional Condensate Production From South Pars (2015-2016)

Table 1: Additional Condensate Production From South Pars (2015-2016)
Phase Production Capacity (b/d) Latest Status
12 120,000 (Current output c.71,000-80,000 b/d) Completed & inaugurated in March 2015
15 & 16 75,000 Expected completion by end-2015
17 & 18 80,000 Expected completion by mid-2016
Source: ‘Iran Upstream Oil and Gas Report’, SVB Energy International, June 2015.

Tables included Table 2: Iran’S Oil Production Boost Scenario Post-Prospective July-15 Nuclear Deal

Table 2: Iran’s Oil Production Boost Scenario Post-Prospective July-15 Nuclear Deal
Product Immediately after deal 4Q15 2016
Crude Oil - 150,000- 200,000 b/d 300,000- 400,000 b/d (200,000- 300,000 b/d using EOR activities in current mature fields and 100,000 b/d of new crude oil production).
Condensate 20,000 – 50,000 b/d 50,000 b/d 80,000- 100,000 b/d
Floating Storage 36 - 37mn liquids The remaining crude oil, condensate and fuel oil, depending on NIOC’s success in marketing and selling these products. Some condensate will remain in storage; due to the production rise and also high mercaptan and sulfur content of this product.
Source: ‘Iran Upstream Oil and Gas Report’, SVB Energy International, June 2015.


Iran has 546mn barrels of oil in place, with 158-159mn barrels of it recoverable. Onshore oil fields constitute 70% of Iran’s total oil reserves. Almost 86% of the country’s production comes from South Western reservoirs, located in Central Zagros region.

Iranian officials have announced that their country’s current oil production capacity is 3.8mn b/d. Before the 2012 oil export sanctions and limitations were imposed, Iran’s oil production was slightly above 4mn b/d. The latest status of Iranian oil and gas fields indicate that Iran’s current ‘crude oil’ production is about 2.9mn b/d, while its condensate and NGL production is about 692,000-710,000 b/d. Most of Iran’s condensate is the by-product of the non-associated gas in the giant South Pars giant gas field, shared with Qatar. Iran’s current condensate production is about 480,000 b/d and is expected to rise to 630,000 b/d by mid-2016.


The country’s production capacity has been hit by the maturity of many of its oil wells and a natural decline rate of 8% to 10% per year (450,000-480,000 b/d) where recovery rates are already low at around 20-24%. And this is only made worse by a lack of badly needed enhanced oil recovery/improved oil recovery (EOR/IOR) projects. Iran has also had to reduce its production from its oil fields since 2012 due to targeted international sanctions, and postponed some of its gas injection plans to maintain the production of its more mature fields.

In order to maintain this production, Iran has drawn up significant EOR plans. This involves injecting water and gas into its maturing oil fields. Iran planned to inject 330mn cmd of gas into its mature fields by the end of 2016. But since 2011, Iran hasn’t been able to execute more than 60% of its gas injection targets; in part due to the limitations it faces on its oil exports and production. On average, actual injected gas between March 2006 and March 2011 never topped 75% of that originally planned. Iran is expected to need at least three years (from the time it gets access to international investment and technology) to regain its pre-sanctions ‘crude oil’ production capacity.


Field-by-field oil and gas studies indicate that Iran would probably be capable of adding 500,000- 800,000 b/d of oil and liquids to its production in the next 6-12 months. Some 300,000 to 500,000 b/d of this will be crude oil and NIOC can also add additional 200,000 b/d of condensate to its liquid production by mid-2016. This additional condensate will be from Phases 12, 15, 16, 17 and 18 of the South Pars gas field (see table 1).

As previously mentioned, Iran’s supply rebound will be gradual and will start toward the end of 2015 as sanctions relief on its oil export kicks in. NIOC will probably add 150,000-200,000 b/d of oil to its supply by the last quarter of 2015. The seasonal demand in the last quarter of the year could also help NIOC to gain some of its lost market share. Iran could also add about 50,000- 70,000 b/d of condensate by the end of 2015.

We can also expect that upon a nuclear deal Iran will start sales negotiations to export the 36-37mn barrels of liquids it has in floating storage. About half of the liquids in floating storage is estimated to be condensate, and the other half a mix of crude oil and fuel oil.


NIOC’s main priorities for its production capacity boost in the coming years are:

1 - Preventing any further production drop and restoring the lost production capacity from mature fields, particularly those in the south using EOR/IOR operations.

2 - Produce new resources of crude oil from heavy oilfields located west of the Karun River, otherwise known as the ‘West Karun’ oilfields (North and South Azadegan, Yadavaran, Jofayr, Sohrab, Susangerd, Yaran).

NIOC announced that by 2017-18 its oil production capacity would reach 5.7mn b/d, of which 1 mn b/d would be condensate. Most of this condensate will be produced from all of the phases of the South Pars giant gas field.

The more realistic scenario is that Iran regains its lost production capacity within three years from the time it gets access to technology and investment. This scenario is based on the latest status of Iranian upstream projects and its historical EOR activities in the past few years.

Iran is also planning to increase its production from new development projects in the West Karun oilfields. Upon completion of these projects it will have an additional 650,000-700,000 b/d of crude oil production by 2020. The easing of sanctions on Iran’s upstream energy industry will also allow the country to raise its condensate production capacity to 1mn b/d by 2020.


Mr Zanganeh recently said approximately $40bn is urgently needed to pursue Iran’s South Pars development plans, and at least $20bn to complete the ongoing development projects west of the Karun River in three years. Iran’s National Development Fund (NDF) has already approved the allocation of $20bn for investment in West Karun.

In its fifth five-year plan, from March 2011 to March 2016, Iran planed to increase oil production to 5.152mn b/d by attracting investment of $155bn in its upstream oil and gas industry. This investment is mainly targeted for exploration and development projects, but international sanctions prevented these plans from getting off the ground. It is also estimated that an investment of about $200-250bn is needed to address Iran’s whole oil and gas industry including upstream exploration and production, downstream, petrochemicals, midstream and shipping.


Source: MEES Estimates.