Iran and China exploit Saudi weakness with a new oil megaproject
Iran and China are taking advantage of Saudi weakness with new oil projects
Iran and China will exploit Saudi oil deficit with new projects
Iran seeks to end Saudi oil contracts with new projects
Iran is preparing to seize Saudi market share through new oil projects
Iran is preparing to acquire Saudi market share
Iran appears to be making an aggressive move in the Saudi oil market share
Iran is seriously looking to steal major oil supply contracts from Saudi Arabia since Tehran-backed Houthi attacks on two of the UK’s major oil facilities on September 14, 2019, especially for to the coveted Asian customers. Following Saudi’s decision to unilaterally reduce one million barrels per day (bpd) below its last OPEC + quota initially set last month, Tehran announced last week that the National Iranian Oil Company (NIOC) signed contracts worth $ 1.2 trillion for eight new projects designed to significantly increase its crude oil production. Although these projects will be largely managed by Iranian companies, they are part of a mosaic of projects that were formulated along with the 25-year agreement reached with China in 2019, which will largely include Chinese companies. working on a “single contract”. basis, although many contracts in all business sectors in all fields.
When Iran’s Foreign Minister Mohammad Zarif visited his Chinese counterpart Wang Li in August 2019 to present to his Chinese hosts a roadmap on the comprehensive strategic partnership between China and China. Iran which had originally been signed in 2016, a dramatic gradual enlargement of agreed the initial framework for strategic cooperation in 2016. For its part, Iran had to give a number of advantageous conditions to China, starting to grant Chinese companies the first option to bid on any new, stagnant or incomplete development of the oil (and gas) field. China would also be given the right to buy any oil production (gas and shells) with a guaranteed minimum discount of 12% on the six-month average rolling price of comparable reference products, plus another 6 to 8 per of this metric for risk-adjusted compensation. Critically, China was allowed to pay for all petroleum products (and gas and shells) in soft currencies that it has accumulated to do business in Africa and the states of the former Soviet Union, which effectively gave China an additional discount of up to 12%, with a total discount of 32% for China on all gas and oil purchases. Related: UAE oil is converted to hydrogen
For its part, China’s key commitment to oil, beyond its key political commitment to support Iran in the UN Security Council (in which it has one of the five votes of permanent members, with Russia, France, the US and the UK) the others): consisted of increasing crude oil production from the oil field cluster of Western Karoun Iran. At that time, the fields of West Karoun, which included the huge oil depots of South and North Azadegan, South and North Yaran, and Yadavaran, among other lesser known places, together produced about 355,000 bpd of oil, based on a recovery in the West Karoun oil region of only between 3.5 and 5.5%. According to the Iranian Ministry of Petroleum, each 1% increase in the recovery rate of the West Karoun fields will increase recoverable reserves by 670 million barrels, or 33.5 billion US dollars in additional oil revenues to an average of US $ 50 per barrel. Given that the average cost of lifting per barrel of crude oil in Iran is almost exactly the same as in Saudi Arabia, at US $ 1-2 per barrel, there is no reason why recovery rates of each country is not nearly exactly the same as well, instead of about 4% of the average in Iran and 50% of the current average in Saudi Arabia (with realistic plans to increase it to 70% at least). In August 2019, it was decided between Zarif and Wang that Chinese companies would increase West Karoun’s production by 355,000 bpd by another 145,000 bpd in the first phase (up to 500,000 bpd) and then by 500,000 bpd (up to 1 million bpd).
It was around this time, however, that the rhetoric of the trade war began to be extended by former U.S. President Donald Trump, along with a steady rise in sanctions against Iran and those who trade with he after the unilateral withdrawal of the US from the joint comprehensive plan. of Action in 2018. This also meant that China felt that it should walk more gently in its dealings with Iran, but that its help was more needed than ever. A year after the U.S. withdrew from the JCPOA, OilPrice.com highlighted exclusively Iran’s true economy figures, which made for a gloomy read if you were Iranian. Using a comparison point from November 2019, as of May / June 2020, Iran’s GDP growth was 22%, unemployment was 37%, inflation was 65% and the rial s ‘had depreciated at least 65% this period against a basket of world base currencies. Currently, Iran also had an 80% budget deficit and a negative trade balance of US $ 6.5 billion. Related: The reduction in Saudi production increases the demand for crude oil in the Urals of Russia
As a product of these dynamics, two peculiar types of discreet announcements about new developments in Iran (and Iran-sponsored Iraq as well) began to appear. The first involved announcing extremely high costs in Iran, baffling given the fact that it was technically bankrupt, and the second mentioned the new “contract” participation of several companies, all of them Chinese. In July 2020, two main examples of this new type of announcement were made, both referring to developments for supergiant fields in the West Karoun region. The second, largest announcement came from the Iranian oil ministry, which awarded a US $ 1.3 billion development deal in addition to doubling oil production at the southern Azadegan field, while the second oil project signed that month was a development of 300 million US dollars contract for the Yaran site. The reality of the situation was that several Chinese companies had been awarded 11 “contractual only” projects in various operational areas of the development of the South Iranian Azadegan oil field, including drilling contracts, field maintenance only, engineering only, construction only and technology only, among others. Another indicator of what is really happening with South Azadegan is that the alleged main Iranian partner in South Azadegan – Petropars – was also the then partner of China National Petroleum Corporation in the paralyzed Phase 11 project of the supergiant South Pars no. -associated natural gas field. “It doesn’t really matter what the name of the publicly available contract is. China is moving forward with what has already been agreed,” said a major source in Iran’s oil and gas industry. OilPrice.com at the time.
Exactly in the same vein, it doesn’t matter the name of the funding for projects announced last week to increase West Karoun’s crude oil production, as the money Iran needs to achieve the goals agreed in the 25-year deal with China and Beijing will happily provide it, as Iran is irreplaceable in its multi-generational global power plan that changes the “One Belt, One Road” plan. It is true that Iran’s Oil Minister Bijan Zanganeh said last week that oil projects will be funded by bond issues, but it is equally true that any of these bonds that are not easily bought in the markets will be bought by Chinese or Chinese. related entities. In fact, as exclusively reported by OilPrice.com in October 2019, it was China that agreed with Iran to act as a protection offer for a new type of bond that would be an issue denominated in Iranian rials. but, above all, for potential foreign buyers with them the option can not only be exchanged in rials, but also in a large number of coins more common at the spot rate of the day the buyer decided to change the role. Although the full range of currencies had yet to be finalized, they preliminarily included the Chinese renminbi and Russian rubles, more possibly euros, Japanese yen and Swiss francs.
In addition, as OilPrice.com exclusively pointed out, in May 2020 a small and tedious announcement was published on websites affiliated with the Iranian government of the ratification of a regulatory regulation relating to the issuance of securities that the rest of the countries were surprisingly ignored. international media of the world. However, the blank statement that Iran’s first vice president, Eshaq Jahangiri, signed the issuance of Islam-conforming securities during the calendar year 1399 (which began on March 20, 2020) meant that the ‘Iran would have access to a new massive flow of capital. which it would use to boost its oil and gas development program. All this, OilPrice.com pointed out at the time, would be stopped by China and this is exactly what NIOC managing director Masoud Karbasian alluded to last week while talking about having sold 30,000 trillion in IRR ( 712.5 million US dollars) of bonds to finance new projects with plans to issue at least another IRR20 trillion more in the near future if needed.
By Simon Watkins for Oilprice.com
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