National Iranian Oil Company

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The National Iranian Oil Company (NIOC) was as of late-2011 the world's second-largest oil company, after Saudi Arabia's Saudi Aramco.[1] The NIOC is exclusively responsible for directing and making policies for Iran's oil exploration, drilling, production, research and development, refining, distribution and export of oil, gas, and petroleum products. The NIOC's subsidiaries consist of seventeen production companies, eight technical service companies, seven management companies, six divisions (administrative units) and five organisational units.[2]

Supervised by the Iranian Ministry of Petroleum,[3] the company is wholly state-owned and cannot form production sharing ventures with international oil companies (IOCs) because of their prohibition in Iran's 1979 constitution; however, the NIOC has brought in a number of companies to work on a sub-contractor basis, leading to genuine partnerships in Iran's fledgling natural gas sector.[4]

The NIOC provides Iran's domestic refineries and manufacturing plants with the crude oil necessary for their operations, after which it exports any surplus production according to the framework of the production quotas determined by the Organisation of Petroleum Exporting Countries (OPEC), of which Iran is a member. The NIOC also signs some long term contracts on a "buy-back" basis with foreign companies to exploit and export oil from national fields.[5]

Contents

Production and reserves

The NIOC and its subsidiaries produced close to 4.2 million barrels per day (bpd) of oil in 2010, along with about 138 billion cubic meters (bcm) of natural gas;[6] it accounted for about 95 percent of Iran's total oil and gas production in 2008. Its main producing assets are located around the Khuzestan region in the southwest of the country, near Iran's main export routes. As of late-2011, the company claimed 158 billion barrels of oil[7] and over 29 trillion cubic meters (tcm) of proven gas reserves.[6]

History and development

The NIOC was established in 1948[5] and, after the nationalisation of the Iranian oil industry in 1951, was charged with administering the former assets of the Anglo-Iranian Oil Company.[8] Following the 1953 coup d'etat that overthrew Prime Minister Mohammed Mossadegh, the NIOC became a consortium of international oil companies, with Anglo-Iranian holding a 40 percent stake, five US companies holding 40 percent, and Royal Dutch/Shell and Compagnie Francaise de Petroles, later Total, holding 10% each. The consortium shared profits 50-50 with Iran, but did not allow Iranian auditors to open its books or allow Iranians onto its board of directors. The Islamic Revoution of 1979, however, voided the Consortium Agreement of 1954 and all regulations pertaining to it; the foundation of the new Islamic Republic led to the withdrawal of all foreign workers from Iran's oil sector, and domestic employees took full control.[9] The NIOC was granted sole control over all upstream operations and activities of Iran's petroleum sector following the nationalisation of Iran's oil and gas reserves in 1980.[4]

Since the formation of the affiliate company National Iranian Oil Refining and Distribution Company (NIORDC) in 1991, the NIOC has turned its focus primarily to the upstream sector, although it retains some downstream exposure through its transport subsidiaries such as the National Iranian Tanker Company and National Iranian Oil Terminals Company.[4]

As of mid-2011, the NIOC had a 12-point strategy designed to increase both reserves and production, especially by bringing newly discovered reservoirs on stream as quickly as possible and increasing overall production efficiency. International energy sanctions have complicated the NIOC's operations. While, according to legal research firm LexisNexis, the NIOC had expected Chinese investors to successfully make up for lost Western investors, since 2010 Chinese companies have slowed their upstream activities in Iran, with companies such as CNC and CNPC delaying scheduled projects. These developments have combined to delay Iran's energy expansion plans. With few international investors willing to risk sanctioning by the US or European Union, the NIOC has been forced to scrap several planned liquefied natural gas (LNG) projects.[4]

According to the US Institute of Peace, the NIOC does not have access to the necessary technology and financing to properly maintain its fields. Constraints placed on the company's finances by the government have hindered the development of new energy projects, and international sanctions have discouraged IOCs from investing in Iran's energy sector.[10] Still, a mid-2011 LexisNexis report stated that the NIOC's high export volumes provide medium- and long-term growth potential for the company and for Iran itself;[4] this was, however, before the imposition of US and EU sanctions in December 2011 and January 2012, respectively, which would curb Iran's ability to export oil.[11]

Organisational structure

The NIOC is totally owned by the Iranian government. The General Assembly, the company's highest decision-making authority, consists of the President, Vice President, Director General of the Management and Planning Organization, Ministers of Oil, Energy, Industries and Mines, Labor and Social Affairs, Economy and Finance. The General Assembly determines the company’s general policy framework, approves the annual budget, financial statements and balance sheets, and manages all operations. The company's Board of Directors approves the operational schemes within the framework ratified by the General Assembly; it also approves transactions and contracts and prepares annual budgets, balance sheets and reports for presentation to the General Assembly. The Board oversees the implementation of the general policy guidelines defined by the General Assembly, and pursues executive operations via the company’s Managing Director,[9] a position held as of January 2012 by Ahmad Ghalebani.[12]

The NIOC's directors act in primarily in policy-making and supervision, while its subsidiaries act as the company's executive arm in coordinating operations such as drilling, production and delivery of crude oil and natural gas for export and domestic consumption.[9]

Future development

The NIOC is under pressure to realise the potential of Iran's massive oil and gas reserves, but its fields face a natural depletion of about 500,000 barrels every year. Future growth is dependent on large new projects coming onstream to offset natural field depletion. However, the company's investment in exploration and production is hindered by disputes with international companies (IOCs) over costs and uncertainty resulting from international economic pressure over Iran's uranium enrichment program. As of mid-2011 many IOCs had delayed or frozen their investments and were approaching Iranian hydrocarbon development opportunities with caution.[4]

Under its fifth development plan, which stretches until 2015, the NIOC envisions investing $150 billion to increase oil production, which by mid-2011 had fallen to 3.7 million barrels per day (bpd) from its 2010 averages, to 4.7 million barrels per day, while also increasing gas production from 600 million to 1,470 million cubic meters. According to Mohsen Khojasteh-Mehr, Iran's deputy oil minister, if the country does not invest at least $32 billion to maintain its production capacity, output will fall to 2.7 million barrels per day by 2015.[13]

Notable among the NIOC's ongoing large-scale projects is the development of the combined North Dome and South Pars field, jointly owned by Qatar and Iran, respectively, with vast in-place reserves of 360 billion barrels of oil equivalent - making it larger than the world's biggest oil field, Saudi Arabia's Ghawar, which has 170 billion barrels of oil in place. If gas from the combined field is extracted at a 70 percent recovery factor, the in-place reserves would equal about 19 percent of the world's total natural gas reserves.[1] Iran plans to have full-scale production at the South Pars field by 2015, according to a press release by the NIOC.[14] Development of the field is to take place in 29 phases; Iran had signed development agreements for South Pars with Total, Gazprom, Petronas, Agip, Statoil, Shell, Repsol, India Oil Corporation and China's Sinopec and CNPC, among others.[1] However, all of those companies but one - CNPC - had abandoned their agreements by July 2010, largely in reaction to the risks posed by international sanctions.[15] A NIOC press release stated that the remaining eight phases of the South Pars project would be "entrusted to Iranian contractors and the foreign contractors have no longer any control over South Pars project", part of Iran's goal of becoming self-sufficient in maintaining and expanding its oil sector.[14]

Target of international sanctions

According to the Financial Times, 'Iran’s crude shipments halved in July 2012 to 1.1 million bpd compared to a year earlier as sanctions hit'. [16] Some of the NIOC's construction contractors, such as Khatam ol-Anbia and Oriental Kish, have been identified by the US government as controlled by Iran’s Revolutionary Guard and have been sanctioned under various executive orders. A provision of US House of Representatives Bill 6296, introduced 29 September 2010, would make sanctionable any joint project with the NIOC, anywhere in the world.[3] H.R. bill 6296 was never passed into law[17] but according to the news agency Reuters, after the US passed new sanctions seeking to stop Western companies doing business with Iran in December 2011, some senators were in January 2012 discussing provisions that could bar international companies from working with the NIOC.[18]

In July 2012, in response to the EU ban on insurance to tankers carrying Iranian crude, the NIOC announced its intentions of fully insuring any tankers, Iranian or foreign, carrying its products. Mohammad-Ali Khatibi, NIOC's director for international affairs said "Iran is fully prepared to provide complete insurance coverage for the transport of its oil. The commitments undertaken by the Iranian insurers are no different from those of Western insurance firms and all risks and hazards are covered". [19]

As of August 2012, South Korea- the first Asian country to stop imports from Tehran, began talks with the NIOC to resume oil trade. Tehran committed to provide up to US $1 billion in insurance cover for tankers carrying oil from Iran to South Korea.

External Links

NIOC website: en.nioc.ir/Portal/Home/Default.aspx

Global Operations by Country

Azerbaijan

Main article: NIOC Operations in Azerbaijan


References

  1. 1.0 1.1 1.2 "Iran: A Natural Gas Giant" Viable Opposition blog, 29 November 2011.
  2. "NIOC at a Glance" National Iranian Oil Company, 25 January 2012.
  3. 3.0 3.1 "Iran Sanctions" Congressional Research Service, 3 February 2011.
  4. 4.0 4.1 4.2 4.3 4.4 4.5 "National Iranian Oil Company (NIOC) - Q3 2011" LexisNexis, 1 July 2011.
  5. 5.0 5.1 "THE FOREIGN TRADE REGIME OF THE ISLAMIC REPUBLIC OF IRAN" Iran Ministry of Commerce, 2009.
  6. 6.0 6.1 "Iran" CIA World Factbook, Retrieved 25 January 2012.
  7. "Iran’s natural gas deposits will last up to 100 years" MehrNews.com, 4 November 2011.
  8. "A Brief History Of Major Oil Companies In The Gulf Region" University of Virginia, Retrieved 25 January 2012.
  9. 9.0 9.1 9.2 "National Iranian Oil Company" Beyond Oil Analytics, 5 March 2011.
  10. "Is Iran Facing an Economic Crisis?" US Institute of Peace, May 2007.
  11. "IMF: Halt In Iranian Oil Exports Could Push Global Oil Prices Up By 30%" RTT News, 26 January 2012.
  12. "Iran, Saudi Arabia sign agreement to develop joint oilfield" Mehr News Agency, 7 January 2012.
  13. "Oil Production Problems Are Brewing in Iran" Financial Sense, 9 June 2011.
  14. 14.0 14.1 "Iran to have full-scale production at South Pars field by 2015" NIOC website, Retrieved 25 January 2012.
  15. "Iran struggles over its gas field riches" Financial Times, 30 July 2010.
  16. "S Korea to restart Iranian oil imports" Financial Times, 8 August 2012.
  17. "H.R.6296 - Stop Iran's Nuclear Weapons Program Act of 2010" OpenCongress.org, Retrieved 25 January 2012.
  18. "BP and EU Lobbied US on Iran Sanctions - Sources" Reuters, 24 January 2012.
  19. "Iran ready to provide full insurance for tankers carrying its oil: NIOC official" Pavyand News, 12 July 2012.
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