Mysteries of Iran

zagros-mountains-iran

People are usually shocked to learn Iran imports 50% of its gasoline. This effectively destroys a good portion of their export earnings from oil. Obviously, therefore, it would make sense for Iran to expand its domestic refining capacity. So do they? Well, it’s unclear.

Yesterday, Iran announced it had made a series of new oil discoveries. Whether these are reserve upgrades of previously known fields, or actual first-time discoveries we do not know. Iran State Radio threw the “billions” word around quite liberally in their announcement.

These kinds of declarations are not uncommon among the oil producing nations whose oil industries are dominated by a National Oil Company (NOC). I’ve seen these over the years from Saudi Arabia, and Mexico for example. Often, the declaration may actually refer to an expanded assessment of production capacity. Other times it’s a call on reserve additions. Very rarely, however, do these newsflashes refer to actual new fields–at least of any size. After all, these countries have all long since been explored.

Iran has been steadily producing about 4 Mb/day for some years now. What also intrigues is the country’s massive reserves of untapped natural gas. My question for a long while has been as follows: What has Iran been doing with all the capital from oil exports, that it did not spend on either expanding refining capacity, or developing its natural gas?

Some claim that Iran would have expanded its refining capacity were it not for multi-decade old sanctions. The assertion is that Iran has not been able to source the engineered materials and equipment required. And yet, my research shows that Iran has expanded its refining capacity moderately over the years. Furthermore, no one has adequately explained why Iran would find it easier to obtain the tools to explore nuclear development–but–not the tools to turn more oil into gasoline.

And yet, everyone does have an explanation. For Iran. And this is why Iran is a mystery. Because no one actually knows, but everyone has an explanation.

Let’s pretend therefore that Iran can source the materials to develop its oil, natural gas, and nuclear power to the fullest extent possible. And let’s further pretend those in the leadership are rational actors. So what would they do? My answer: before pulling talent into nuclear power generation development, it would make sense to 1. build refining capacity to capture more fully the earnings of oil exports. 2. develop natural gas reserves for power generation. 3. Migrate any remaining industrial use of oil or power generation use of oil, to natural gas.

Alas, this is not what Iran has done. In fact, it’s sacrificed alot both diplomatically and infrastructurally, all for the sake of the nuclear program. Perhaps Iran is not such a mystery after all.

-Gregor

Photo: The Zagros Mountains in Iran – NASA Jet Propulsion Laboratory

  • http://opensourcegeopolitics.blogspot.com Freude Bud

    Erm, well, to begin with, Iran has budgeted no money for diesel imports come the end of March, meaning that they expect no imports. This is due mostly to a reduction in industrial demand … winter is over and there is a major global economic slow down in progress.

    Because of refining capacity additions underway, Iran is expected to bring down its gasoline import requirement to zero by 2012. This is after their rationing program effectively cut their import requirement in half from 2006. Indeed, Iran is expected to be a net exporter of gasoline by 2012 … the last estimate I saw was of 165.5 kb/d, ramping up to 275.4 kb/d by 2015. This will be into a world with a whole bunch of new–and sophisticated–refining capacity.

    Iran has spent quite a bit on expanding its natural gas production capacity … though, due to international pressures & a rather inhospitable investment climate, it has not been able to move at the rate it had scheduled for itself. Predictions that the country was going to go into deep freeze this winter due to a heating oil/natural gas shortage proved false. Much of the natural gas is caught in a debate in the Majlis where a significant element–influenced by a lobby led one of the country's most prestigious oil field engineers–wants the natural gas used for reinjection to oil fields to boost crude production as opposed to export or other uses. Gas reinjection is expected to account for 31.5% of 25.2 bscf/d consumption in 2010. Wikipedia actually doesn't have the worst round up on the slated uses of South Pars phases 1 – 24.

    All to say that:

    a) Iran has invested in expanding its refining capacity … indeed they are investing in doubling capacity to 3 mb/d nameplate throughput.

    b) Iran has developed South Pars for power generation … and their power generation requirements are growing by leaps and bounds … much of South Pars phases 6 – 9 was dedicated to power generation … and the shortfall was met by an import agreement with Turkmenistan. Phases 9 – 10 and 12 are also slated for the domestic market, ie generation and CNG.

    c) Iran has not only tried to migrate as much industrial use to natural gas as possible, but they have also attempted the adoption of cars that run on CNG, meaning transportation use .. .having nearly half a million of them in Tehran … on top of a gasoline rationing system.

    Alas, planners in Iran have attempted precisely that which you complain they lack the foresight to carry out.

  • gregor.us

    Hi FB. Thanks for your explanation.

    How much conviction do have, in your explanation.

    Best,

    G

  • http://opensourcegeopolitics.blogspot.com Freude Bud

    The data mostly comes from EIA which mostly gets it from FACTS Global Energy which is led by Fereidun Fesharaki who was, prior to the revolution, an Oxford-educated petroleum economist who was a key adviser to the Shah's OPEC delegation. Which is to say, the EIA trusts him because:

    a) he knows what he's talking about, and
    b) he has no love for the clerics in charge of Iran.

    So, I'd say the data is good … that does not mean Iran is not developing nuclear power in the pursuit of nuclear weapons, it merely means that its planners are addressing their energy mix requirements much in the way you assess they don't.

    That said, depending on the type of nuclear reactor and the cost of upgraded uranium or yellowcake on the markets, nuclear power may just be a rational economic decision for thermal generation for big oil & gas producers, because of the large profits potentially captured by the surplus generated for export of the two commodities. In any case, this appears to be the thinking of the UAE … whose nuclear program appears to have been OK'd by none other than the Bush Administration just prior to leaving office.

    Of course, it is entirely possible that some elites in Iran want nuclear capability for its perceived economic benefits while others want it because they want to pursue weaponization for the perceived deterrence value while still others want it because it addresses both concerns.

  • Bob Inget

    Iran is converting its entire transportation fleet to CNG.
    I was shocked… shocked, to learn NG needs no expensive refining.

    We would do that too, were it not that a chief exponent also financed 'Swift Boating”.
    Tough sell to pols with long memories and short terms.

  • gregor.us

    Well, I'm pretty comfortable with the position I take in this particular post–which is that the amount of development that Iran has put into its NG reserves, it's refining capacity, and its nuclear program do not, in total, change or alter my assertion that “it's not enough.” Crushing petrol demand via rationing would not count in my view as solving the problems of “not enough” refining capacity. Iran has also barely developed its NG reserves–and the South Pars project is frankly a multi-decade old discovery that they have dragged and dragged out. It's not enough.

    You wrote: “ it merely means that its planners are addressing their energy mix requirements much in the way you assess they don't.”

    No. It means they are addressing the issues “somewhat” but not to my standard which I continue to assert would be “enough” to really utilize their NG resources and also to change the blood loss from having to import petroleum product.

    Again, this is partly the point of my post, FB. For, in recent conversations I have actually taken what would appear to be “your” side of the argument. I have had to argue that Iran did, in fact, expand refining capacity (which I did write in this post) and that they were in fact wisely making a move to CNG. I know about all these things. This is all well known–as you quote EIA stuff in your remarks.

    My position is that it's not enough. And thereby it is some kind of choice. However, choice itself is a challenging concept imo wrt Iran because I see them as highly irrational and dysfunctional.

    Can I name a country that is not highly irrational and dysfunctional? I'd be hard pressed.

    G

  • gregor.us

    It appears that Iran has indeed been able to source all sorts of engineering equipment, all for the sake not of their NG resources, but for nuclear. I now have to conclude that the original query of this post was even more on the mark correct, and that Iran (like many countries in the world) is not run by rational actors. In short, it's truly clownish of them to have spent so much time and talent on nuclear when they should have been working on their refining capacity and their NG resources. The apologist explanation for Iran's failure to do these things now looks quite wrong.

    G

  • gregor.us

    It appears that Iran has indeed been able to source all sorts of engineering equipment, all for the sake not of their NG resources, but for nuclear. I now have to conclude that the original query of this post was even more on the mark correct, and that Iran (like many countries in the world) is not run by rational actors. In short, it's truly clownish of them to have spent so much time and talent on nuclear when they should have been working on their refining capacity and their NG resources. The apologist explanation for Iran's failure to do these things now looks quite wrong.

    G

  • gregor.us

    It appears that Iran has indeed been able to source all sorts of engineering equipment, all for the sake not of their NG resources, but for nuclear. I now have to conclude that the original query of this post was even more on the mark correct, and that Iran (like many countries in the world) is not run by rational actors. In short, it's truly clownish of them to have spent so much time and talent on nuclear when they should have been working on their refining capacity and their NG resources. The apologist explanation for Iran's failure to do these things now looks quite wrong.

    G