Iran oil industry on the verge of collapse

[southsider2k5]

I know someone mentioned this the other day, but here is an interesting write up about the state of Iran's oil industry. I think the nuclear power play, is a straight up Kim Jung Il move to try to get concessions out of the rest of the world before Iran's economy circles the drain.

 

http://www.chicagotribune.com/news/nationw...1&cset=true

 

Study: Oil decline threatens Iran

 

By Barry Schweid

Associated Press

Published December 26, 2006

 

 

WASHINGTON -- Iran is suffering a staggering decline in revenue from its oil exports, and if the trend continues income could virtually disappear by 2015, according to an analysis published Monday in a journal of the National Academy of Sciences.

 

Iran's economic woes could make the country unstable and vulnerable, with its oil industry crippled, Roger Stern, an economic geographer at Johns Hopkins University, said in the report and in an interview.

 

Iran earns about $50 billion a year from oil exports. The decline is estimated at 10 to 12 percent annually. In less than five years exports could be halved and then disappear by 2015, Stern predicted.

 

For two decades, the United States has deployed military forces in the region in a strategy to pre-empt emergence of a regional superpower.

 

Iraq was stopped in the 1991 Persian Gulf war, but a hostile Iran remains a target of U.S. threats.

 

The U.S. military exercises have not stopped Iran's drive. But the report said the country could be destabilized by declining oil exports, hostility to foreign investment to develop new oil resources and poor state planning, Stern said.

 

Stern's analysis, which appears in this week's edition of the Proceedings of the National Academy of Sciences, supports U.S. and European suspicions that Iran is trying to develop nuclear weapons. But, Stern says, there could be merit to Iran's assertion that it needs nuclear power for civilian purposes "as badly as it claims."

 

He said oil production is declining and both gas and oil are being sold domestically at highly subsidized rates. At the same time, Iran is neglecting to reinvest in its oil production.

 

"With an explosive demand at home and poor management, the appeal of nuclear power, financed by Russia, could fill a real need for production of more electricity."

 

Iran produces about 3.7 million barrels of oil a day, about 300,000 barrels below the quota set for Iran by the oil cartel, the Organization of the Petroleum Exporting Countries.

 

The shortfall represents a loss of about $5.5billion a year, Stern said. In 2004, Iran's oil profits were 65 percent of the government's revenues.

 

"If we look at that shortfall, and failure to rectify leaks in their refineries, that adds up to a loss of about $10billion to $11billion a year," he said. "That is a picture of an industry in collapse."

 

If the United States can "hold its breath" for a few years it may find Iran a much more conciliatory country, he said. And that, Stern said, is good reason to belay any instinct to take on Iran militarily.

 

"What they are doing to themselves is much worse than anything we could do," he said.

 

"The one thing that would unite the country right now is to bomb them," Stern said. "Here is one problem that might solve itself."

[NorthSideSox72]

I know someone mentioned this the other day, but here is an interesting write up about the state of Iran's oil industry. I think the nuclear power play, is a straight up Kim Jung Il move to try to get concessions out of the rest of the world before Iran's economy circles the drain.

 

http://www.chicagotribune.com/news/nationw...1&cset=true

So we're seeing this as a good thing here, in a way, because we may be able to avoid military conflict. And that is good. But here is a theoretical to consider - what if the Saudis or some other country in the region elect to help Iran get their infrastructure at least semi-functional, in exchange for financial gains from those operations? Maybe we shouldn't be so worried about a political or state-based regional power, but instead focus on the possibility of energy companies' breadth of control over the supply in the region.

[Mplssoxfan]

So we're seeing this as a good thing here, in a way, because we may be able to avoid military conflict. And that is good. But here is a theoretical to consider - what if the Saudis or some other country in the region elect to help Iran get their infrastructure at least semi-functional, in exchange for financial gains from those operations? Maybe we shouldn't be so worried about a political or state-based regional power, but instead focus on the possibility of energy companies' breadth of control over the supply in the region.

The only issue with a scenario that has the Saudis helping Iran is that they can't stand each other. You have the basic Arab-Persian divide and the Sunni-Shia divide. So any aid would be far-fetched, IMO.

Edited December 27, 2006 by Mplssoxfan

[NorthSideSox72]

The only issue with a scenario that has the Saudis helping Iran is that they can't stand each other. You have the basic Arab-Persian divide and the Sunni-Shia divide. So any aid would be far-fetched, IMO.

I think we need to look at it differently. Even countries that hate each other will cooperate for financial survival (Iran) or financial gain (Saudi Arabia). The leaders in that part of the world talk a lot of political smack, but they all know that oil is everything. They are business leaders first.

[southsider2k5]

I think we need to look at it differently. Even countries that hate each other will cooperate for financial survival (Iran) or financial gain (Saudi Arabia). The leaders in that part of the world talk a lot of political smack, but they all know that oil is everything. They are business leaders first.

 

What would Saudi Arabia gain by helping Iran produce more oil, and keeping them in power? If Iran's production collapses, the price of energies on the open market skyrockets, while the Saudis are the only country in OPEC with excess capacity.

[NorthSideSox72]

What would Saudi Arabia gain by helping Iran produce more oil, and keeping them in power? If Iran's production collapses, the price of energies on the open market skyrockets, while the Saudis are the only country in OPEC with excess capacity.

Its about control. Saudis come in, like any business to another failing business, and tell them they'll take over operations. They will help get infrastructure good enough to function (though not great - have to be careful there), and tell Iran that they will get a large part of the profit. Meanwhile, the Saudi (or whomever, Saudi is just one possible) company brings a chunk of the profit home, and gains greater control of the oil market than they had before. Its an investment, which would generate income in the mid-term, and control in the long term.

 

Or, same scenario, but instead, a global oil conglomerate. They could do something similar, although, they would be even more hated than the Saudi umbrella company would be.

[Balta1701]

So we're seeing this as a good thing here, in a way, because we may be able to avoid military conflict. And that is good. But here is a theoretical to consider - what if the Saudis or some other country in the region elect to help Iran get their infrastructure at least semi-functional, in exchange for financial gains from those operations? Maybe we shouldn't be so worried about a political or state-based regional power, but instead focus on the possibility of energy companies' breadth of control over the supply in the region.

You're assuming that "Fixing their oil infrastructure" is the actual solution to the problem here. In reality, that may not be the case at all. Like most countries in the Middle East, Iran has been pumping on its oil stores for nearly a century now, and has been doing so for decades with no major new resources discovered. It may very well be that Iran's production has fully peaked, and no additional measure of technology will be able to bring Iran's production back up.

 

That would leave basically Saudi Arabia and Iraq as about the only countries in the world who aren't on the verge of going over the other side of the peak and seeing production declines...and Saudi Arabia may be right on the cusp also (they have never been very truthful about their supply estimates).

[NorthSideSox72]

You're assuming that "Fixing their oil infrastructure" is the actual solution to the problem here. In reality, that may not be the case at all. Like most countries in the Middle East, Iran has been pumping on its oil stores for nearly a century now, and has been doing so for decades with no major new resources discovered. It may very well be that Iran's production has fully peaked, and no additional measure of technology will be able to bring Iran's production back up.

 

That would leave basically Saudi Arabia and Iraq as about the only countries in the world who aren't on the verge of going over the other side of the peak and seeing production declines...and Saudi Arabia may be right on the cusp also (they have never been very truthful about their supply estimates).

If it is about drying up existing tables, then that is definitely a more expensive ball of wax. But the possibility is still there.

 

In terms of new oil fields, keep in mind too that many countries NOT in OPEC are increasing their internal production dramatically, or are about to - Russia and China come to mind for example. That will also have an effect.

[Balta1701]

If it is about drying up existing tables, then that is definitely a more expensive ball of wax. But the possibility is still there.

 

In terms of new oil fields, keep in mind too that many countries NOT in OPEC are increasing their internal production dramatically, or are about to - Russia and China come to mind for example. That will also have an effect.

Yes, there is some expansion of supply outside of Opec, but first of all, it is not nearly on the scale of the potential drop in OPEC production, and secondly, it's in many cases not even enough to keep up with demand growth (China's oil demand is expected to grow by something like 7% this year, and those estimates on Chinese growth keep winding up on the low side)

[NorthSideSox72]

Yes, there is some expansion of supply outside of Opec, but first of all, it is not nearly on the scale of the potential drop in OPEC production, and secondly, it's in many cases not even enough to keep up with demand growth (China's oil demand is expected to grow by something like 7% this year, and those estimates on Chinese growth keep winding up on the low side)

Oh I am not saying its enough to keep up with growth. Just that it is part of the equation.