Iran eyes shale oil revolution and natural gas renaissance

Vagif Sharifov's picture
Vagif Sharifov, Oil Price Analyst & Expert in Energy Markets, Trend News Agency
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Iran stated about discovering the shale reserves in the country though providing no figures. Probably the exact reserves are on the Iranian geologists’ clarification now or maybe Iran intends to hold the cards waiting for some winning situation in the market. The news about shale oil and gas reserves in Iran has been written by Iranian news agency Shana quoting Mohammad Reza Kamali, director of Iran's Research Institute of Petroleum Industry.

The shale oil extraction is more expensive than traditional crude oil production due to the technological reasons. Shale oil extraction capital expenditures are less than the same expenses within the conventional oil producing project. But operational expenditures in the shale oil projects much higher than in the conventional oil fields development. The world average cost of the shale oil barrel extraction begins at 30-40 dollars, depends on the well production rate, again, on the initial capital expenditures and the volume of operational costs. The cost of the conventional oil barrel production starts at 5-10 dollars in some areas. So whatever Iran will state about the new reserves’ figures there is a long way to go toward getting the first shale oil export profit. Iran therefore needs money, purchase a new technology, and build a new transport and export pipeline infrastructure to start the shale oil production.

Having no shale oil production experience Iran may attract the US skilled business to help. The breakeven price for shale oil production at the very early stages in the United States was around 100 dollars per barrel but the skillful oil guys got the hand to decrease the costs of shale extraction. Over the time the business along with a new technology as optimized the shale oil production line as to managed to survive within the cheap oil such as 40 dollars per barrel. Indeed, the technology and inventiveness are not enough for the successful project if there are no investors around. The US business usually has an access to the cheap credits in dollars in its country. Obviously Iran business hardly find the same cheap credits in US dollars and euros.

Due to the current weak world oil price no one can guarantee Iran the fast shale oil project investment return. The last update from the World Bank says the average oil price during this year is expected at 41 dollars per barrel, 50 dollars in the next year. EIA report says there are 420 billion barrel of technically recoverable shale oil reserves in the world comparing with 1.7 trillion barrel of conventional oil. USA holds the most shale oil reserves – 78.2 billion bbl., Russian has 74.6 billion bbl., China 32.2 billion bbl. This Trio owns almost half of the total world shale oil reserves. Additionally, 36 countries in world own technically recoverable shale oil reserves but in fact there are only three countries who are currently producing the shale oil: USA, Canada and Argentina.

During a year Iran produced a little more than 178 bcm of sweet gas and almost 260 bcm of raw gas. Iran’s internal market consumes more than 45 bcm of raw gas in the CNG and for the oil wells reinjection. Currently Iran produces 700 mcm/d of raw gas but the figure would reach 1,200 mcm/d in some five years. Iranian officials say beside the current contracts with Azerbaijan, Turkey, Pakistan, Iraq, Tehran is going to negotiate new export agreements with Oman, Afghanistan and Kuwait. According to the latest statistics of Iran's Oil Ministry, natural gas now shares almost 70% in Iran's primary energy consumption.

Join the Conversation: How will Iran overcome all the technical challenges to produce shale oil and further develop its natural gas industry? Leave your comment below.

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