oil related 091007

Analysis: Iran, Pakistan energy ties bloom

Published: Oct. 8, 2007 at 6:10 PM

By DEREK SANDS

UPI Energy Correspondent

WASHINGTON, Oct. 8 (UPI) -- The approval of a $60 million electric line between Iran and Pakistan reflects a regional trend toward electrical grid interconnection, but its path through the unstable Baluchistan region of Iran and Pakistan also highlights the troubles facing energy cooperation between the two countries, as well as the difficulty in protecting a proposed $7.5 billion scheme to send natural gas from Iran to India via Pakistan.

In late September, Tehran and Islamabad made another step toward building a 220 volt power line between Iran and Gwadar in Pakistan. The estimated $60 million cost of building the transmission line will be borne by both countries and will supply Pakistan with 100 megawatts of electricity from Iran.

Pakistan's growth over the past several years has led to an explosion in electricity demand. According to the data arm of the U.S. Department of Energy, the Energy Information Administration, Pakistan will have to increase its electricity generation capacity by 50 percent between 2006 and 2010 to keep up with demand. The country currently operates two nuclear reactors that supply 2 percent of its electricity needs.

While the project has been in planning since early this year, its 100 km path leads through one of the most lawless parts of Iran, rife with banditry and drug smuggling. The region is also home to Iran's largest Sunni population, a population that feels oppressed by the Shiite majority. On Oct. 2 an Islamic cleric was murdered in the region, and attacks on government security forces in the area are common.

In July, 11 members of the Revolutionary Guard were killed in an ambush, by what were then described as smugglers, in the Baluchistan region. The exact motivation for attacks on security forces in the area is often unclear because smugglers are also involved in rebel groups on both sides of the Iran-Pakistan border.

These attacks and general unrest are also a concern for the planned, but controversial, Iran-Pakistan-India natural gas pipeline. The 1,700 km pipeline could potentially export 150 million cubic meters of natural gas to Pakistan and India per day. India is quickly becoming one of the world's top energy consumers. In 2005 it was the world's fifth-largest consumer of oil, according to the EIA.

India has been reluctant to commit to the pipeline, which has been discussed for almost 20 years, but details of the Iran-to-Pakistan section of the pipeline will likely be concluded in a mid-October meeting, the local press in Iran and Pakistan have reported.

Faced with long-term sanctions from the United States and an increasingly hostile Europe, Iran, which holds the world's second-largest traditional oil reserves, is reaching out to its neighbors to exploit its natural gas and oil resources.

At the beginning of October Iran and Pakistan announced they would cooperate on the construction of a large refinery on the coast of Pakistan. With a refinery shortage in the country, Iran has been looking abroad for refining capacity.

Tehran is also hoping to cooperate with Ankara to pipe natural gas to Eastern Europe from Central Asia, a plan the United States has been widely criticized.

Washington has been at odds with Tehran for more than a quarter century. Accusing the Islamic Republic of supporting terrorist groups, as well as attempting to develop nuclear weapons, the United States has banned companies from investing more than $20 million in Iran and pursued international sanctions through the U.N. Security Council. Iran denies that it is attempting to develop a nuclear weapon.

These efforts have met with some success. In the past year the Security Council passed two sets of sanctions against Iranian arms sales and against individuals involved in the country's nuclear program. Europe, most notably France, has also taken a more severe stance toward Iran, pressuring French companies to stop new investment in Iran and invoking harsher rhetoric about Tehran's nuclear program.

Iran's international concerns aside, the connection of national electrical grids across borders is increasingly common. The Gulf Cooperation Council countries -- Saudi Arabia, Kuwait, Qatar, Oman, Bahrain and the United Arab Emirates -- have expressed interest in interconnection, as have Saudi Arabia and Egypt. Farther abroad, the countries that surround the Mediterranean Sea have connected their electrical grids in the Mediterranean Ring project.

Source: UPI

Iran’s oil output to exceed 4m bpd from Nov. 1

Tehran Times Economic Desk

TEHRAN – Iran will increase its daily oil output to over four million barrels as of Nov. 1, said Petroleum Ministry’s OPEC affairs manager here on Monday.

The move is in line with OPEC decision to hike its daily oil output by 500,000 barrels in an attempt to stabilize the jittery market, Javad Yarjani told MNA.

Of the OPEC rise, Iran’s quota stands at 70,000 barrels, indicating the country’s capability to boost production.

The members said it decided to keep its commitment to take necessary measures to ensure the sufficient supply in winter, and maintain the stability in the international oil market and the healthy development of world economy.

Saudi Arabia, the biggest oil producer in OPEC, pushed hard for the output boost, as some members like Iran and Algeria were opposed to it

Source: Teheran Times

Is Big Oil Losing The Race For Iraq?

Lionel Laurent, 10.08.07, 6:45 PM ET

LONDON -

If the war in Iraq was fought on behalf of major international oil companies, consider it lost. The race to gain access to the grand prize of Iraq’s vast energy reserves is actually being won by small risk-takers willing to carve out a profit at great risk, while the majors wait for firm legislation and improved security that may never come.

Iraq’s unproven reserves could top 200 billion barrels--second only to world leader Saudi Arabia’s 262 billion barrels--and there is no question that the country’s potential has oil companies very excited, despite the decades of under-investment and conflict under Saddam Hussein that kept production hovering around 3 million barrels per day before 2003, less than half Saudi Arabia’s daily output.

But while big oil companies like Shell and Total are biding their time, cultivating relationships with the Iraqi government and patiently awaiting privatization legislation that may never come, smaller wildcatters are beating them to the punch by signing production and exploration deals in Iraqi Kurdistan, a semiautonomous region in the north-east that is courting investment at the expense of national unity.

The Kurdistan Regional Government announced four new production sharing agreements on Oct. 2, naming France's Perenco and Canada's Heritage but keeping the identities of the other two "experienced international companies" under wraps.

"The Kurds are not only stealing a march on the Iraqi government, but also cementing their strong position relative to the central administration," said Global Insight energy analyst Samuel Ciszuk.

Although industry insiders say the Kurdistan Regional Government has tried to tempt the majors with production-sharing agreements that offer a generous 20%-25% cut of the profits, thus far no big player has proven willing to alienate Baghdad by signing a deal with the Kurds, who have enjoyed limited autonomy since the end of the first Gulf War in 1991.

"Like any other company, we would like to go into Iraq," said a spokesman for Norway’s Statoil, who confirmed that "a number" of meetings had been held with the Kurdistan Regional Government. "But we must have a national framework. Then, we could go into Kurdistan."

The Kurdish government passed its own legislation for foreign oil production in August, which the central Iraqi government does not recognize, and subsequently Oil Minister Hussein al-Shahristani has threatened to review all of the "illegal" agreements signed in Kurdistan once a national oil law is in place.

But smaller players are still willing to take the risk. Norway’s DNO, Switzerland’s Addax Petroleum and Turkey’s Genel Enerji are just three of the companies that have snubbed Baghdad and begun drilling for oil in Iraqi Kurdistan, while the larger international oil companies sit on the sidelines and wait for the passing of a draft oil law that shows no sign of getting the consensus support it needs.

“It is somewhat stalled at the moment largely because the law that has mainly been promulgated looks like it is much more centralizing than the Kurds are willing to accept,” said Colin Smith, analyst with Dresdner Kleinwort. Under the national framework, a central committee in Baghdad would have to approve all contracts.

Even if the law does get passed, the security situation in Iraq is another major barrier to operating safely across most of the country. Insurgents frequently target oil infrastructure, with the most recent attack on the Kirkuk-Bayji pipeline killing 26 and injuring 59 on Sept. 18. The big energy companies cannot establish permanent bases inside the country because it is simply too dangerous; they are currently having to fly Iraqis out of the country for training.

Even the memoranda of understanding that have been signed, such as Total and Chevron’s agreement to develop the oil field of Majnoon in southern Iraq, are wishful thinking rather than guaranteed business. Total and Chevron are not entitled to preferential treatment regarding Majnoon, and the field itself was temporarily closed last month after violence from locals demanding employment.

According to Credit Suisse analyst Mark Hume, it is still unclear just how long it will take before the majors can feasibly operate in Iraq. "Some companies think it is two years, some companies think it is seven to 10 years," he said. The Iraqi government has estimated it will take a decade to double the country’s output capacity, to 6 million barrels per day, from its prewar level of 3 million, which it has yet to reach since the U.S.-led invasion in 2003.

One rationale for playing Baghdad’s way is that 97% of Iraq’s proven reserves of 112 billion barrels lie outside Kurdish territory, including the oil fields of Kirkuk, currently part of a disputed area claimed by the Kurds and which is still awaiting a referendum. It would not be worth jeopardizing future business across the country for such a small gain.

But 3% is better than nothing, and the wildcatters in Kurdistan are taking advantage of accessible oil in relatively safer surroundings. And the more drilling goes on, the more percentages are likely to change: Addax Petroleum believes that its Taq Taq joint venture with Genel Enerji could yield 200,000 barrels a day by 2010, or four times what Majnoon is currently producing. The Kurdistan Regional Government says that total Kurdish output could hit 1 million barrels a day by 2012, or one-third of Iraq’s prewar levels.

"In Kurdistan is where it is happening," said Global Insight's Ciszuk. "Nothing is happening anywhere else."

Over the past two months, there have been signs that larger international companies are tempted by the lure of Kurdistan, whatever the political risk. DNO said on Aug. 22 that "a large international oil company" had offered $700 million for its Iraqi assets, an offer that the Norwegian firm decided not to pursue but one that indicates how valuable those assets are likely to become.

The announcement of U.S. firm Hunt Oil’s entry into Kurdistan on Sept. 8 has added further worry that even the Americans aren’t banking on Baghdad anymore. Not only is Hunt Oil the first American oil company to operate in Iraq since the 2003 war, but it could not have picked a more sensitive time to flout the central government’s wishes and further legitimize Kurdish separatism.

The move also raised some American hackles. Ohio Representative Dennis Kucinich said last month that the Hunt Oil deal could "lead to greater instability in Iraq," while a U.S. State Department spokesperson told Forbes.com that its policy was to support the central Iraqi government and the creation of a national oil law.

A U.S. State Department spokesperson told Forbes.com that its policy was to support the Iraqi government and the creation of a national oil law, though she would not comment on the Hunt Oil case.

Some commentators are adamant that no big player will follow in Hunt’s footsteps. "I don’t think the big boys will go into Kurdistan," said Sharif Ghalib, analyst with Energy Intelligence. "The potential is so enormous, I don’t think they want to annoy the central government.”

In the long run, there is a chance that the majors will be proven right. Despite the Kurdistan Regional Government’s hostile attitude towards Baghdad, which has fueled suspicion of its own ambitions for independence, it is in its long-term interest to eventually abide by central government’s wishes and share oil revenues with the rest of the country. The main export route from Kirkuk passes through Turkey, a country that only recognizes the government in Baghdad and would never countenance any independent Kurdish state.

Although the victorious powers after World War One outlined an independent Kurdistan in the 1920 Treaty of Sevres from the ashes of the Ottoman Empire, the subsequent military victory of Turkish nationalists under Mustafa Kemal led to a new Treaty of Lausanne in 1923 that divided Kurdish territory between Turkey, Syria, Iraq and Iran.

But there is also a chance that Baghdad will not make an example of the companies that knocked at the door of Kurdistan’s capital Erbil, especially if security remains a huge problem in the rest of Iraq. And if that is the case, Big Oil might be the last to join the party in the northeast.

Source: Forbes