Falling oil prices threaten Iran’s oil sector investment
Published: Thursday, November 13, 2008
14:35GMT—9:35AM/EST
OIL – INVESTMENT – ENERGY
Washington, 13 November (IranVNC)—As oil prices have fallen nearly 60 percent from record highs last June, Iran now faces difficulties in expanding its petroleum industry, Iranian government officials say.
Falling oil revenues mean less government funding for the industry, and Asian investors, who had spent billions of dollars on gas projects and fields in Iran, may be less willing and able to make further commitments, as the global economic crisis drains credit markets.
“The first effect of this reduction of the income will be on projects in the field of oil development and gas development,” Akbar Torkan, Iran’s deputy oil minister for planning, said in an interview published today with the Wall Street Journal.
The National Iranian Oil Company is spending $16 billion on petroleum projects this year, $4 billon more than 2007, the Wall Street Journal reports. And Iran’s Majlis [parliament] this year allocated an additional 3% of the country’s oil revenues to the South Pars offshore natural gas development.
But Torkan warned that oil investment next year could suffer because of falling oil prices. Oil hit a 22-month low today, falling to $55.03 per barrel. It was trading at $56.45 at 14:35GMT.
Lower investment in the industry could pose problems for consumer countries as well, since they are dependent on increases in oil production to meet their growing demand.
In a report released yesterday, the International Energy Agency [IEA] warned that the risk to future energy supply is not one of resources, but rather a lack of investment where it is needed.
Torkan told the Wall Street Journal that Iran needs an oil-export price of about $90 per barrel to avoid running a budget deficit. If prices average $60 for the second half of the year, the full-year average would still be between $92-93 per barrel.
The IEA today slashed its 2009 oil price forecast to $80 from $110, and said that this year’s increase in consumption was the slowest since 1985.
Furthermore, the agency warned today that the slowing investment in the oil sector would be felt in three to five years’ time, “after economic recovery regains a foothold”, AFP reports.
While Iran has called for an additional output cut for the Organization of Petroleum Exporting Countries [OPEC], the IEA said that Tehran itself is under pressure to sustain gas supplies for domestic power generation.
In Tehran, Iran’s Oil Minister Gholamhossein Nozari said today that the country would not cut domestic gas supplies this winter. Last winter, there was a public outcry following supply disruptions.
A deal in works to import gas from Turkmenistan would ensure adequate fuel, Reuters reports.
Although Iran has the world’s second-largest gas reserves, it has been slow to develop its gas sector.
Sources: Wall Street Journal, Agence France-Presse, Reuters
© IranVNC 2008. All rights reserved.