Iran Oil and Gas Report Q3 2011

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Iran Oil and Gas Report Q3 2011 Published on August 2011

Report Summary We forecast that Iran will account for 22.5% of Middle East regional oil demand by 2015, while providing 14.6% of supply. Middle East regional oil use rose to an estimated 7.6mn b/d in 2010. It should average 7.9mn barrels per day (b/d) in 2011 and then climb to around 8.9mn b/d by 2015. Regional oil production was 22.83mn b/d in 2001 and averaged an estimated 24.5mn b/d in 2010. After an estimated 25.7mn b/d in 2011, it is set to rise to 30.5mn b/d by 2015. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average of 17.85mn b/d. This total will have eased to an estimated 16.88mn b/d in 2010 and is forecast to reach 21.54mn b/d by 2015. Iraq has the greatest export growth potential, followed by Qatar. In terms of natural gas, the region consumed an estimated 391bn cubic metres (bcm) in 2010, with demand of 487bcm targeted for 2015, representing 25% growth. Production of an estimated 455bcm in 2010 should reach 642bcm in 2015 (+41%), which implies net exports rising to 154bcm by the end of the period. Iran's estimated share of gas consumption in 2010 will have been 34.0%, while its share of production is put at 30.8%. By 2015, its share of gas consumption is forecast to be 29.9%, with the country accounting for 28.8% of supply. The 2010 full-year outturn was US$77.45/bbl for OPEC crude, which delivered an average for North Sea Brent of US$80.34/bbl and for West Texas Intermediate (WTI) of US$79.61/bbl. The BMI price target of US$77 was reached thanks to the early onset of particularly cold weather, which drove up demand for and the price of heating oil during the closing weeks of the year. We set our 2011 supply, demand and price forecasts in early January, targeting global oil demand growth of 1.53% and supply growth of 1.91%. With OECD inventories at the top of their five-year average range, we set a price forecast of US$80/bbl average for the OPEC basket in 2011. The unprecedented wave of popular uprisings in the Middle East and North Africa (MENA) that followed the removal of Tunisian President Ben Ali on January 14 2011 has obviously fundamentally altered our outlook, particularly since the unrest spread to Libya in mid-February. In H111, OPEC Basket averaged around US$106/bbl, while Brent crude averaged around US$111/bbl. We twice revised our price forecasts in the period, once in March and again in May. Our most recent price forecast was for Brent to average US$106/bbl over the course of 2011 with OPEC Basket averaging US$101.90/bbl. WTI, meanwhile, will continue to be weighed down by plentiful stored crude volumes at Cushing, Oklahoma and weak economic sentiment in the US. We see WTI averaging US$95.30/bbl. BMI calculates that Iran's real GDP grew by 1.5% in 2010, and we forecast average annual growth of 1.9% in 2010-2015. We expect oil demand to rise from an estimated 1.73mn b/d in 2010 to 2.02mn b/d in 2015. The state-owned National Iranian Oil Company (NIOC) is responsible for all upstream oil and gas activities, although there is some small-scale participation by international oil companies (IOCs) on a subcontractor basis. The lack of large-scale IOC investment contributes to modest output growth, with crude production forecast to increase from an estimated 4.19mn b/d in 2010 to 4.45mn b/d in 2015, subject to OPEC quotas and the possible impact of sanctions resulting from the nuclear energy standoff. Gas production should reach 185bcm by 2015, up from an estimated 140bcm in 2010. Consumption is expected to rise from 133bcm to 146bcm by the end of the forecast period, providing export potential of 39bcm. Between 2010 and 2020, we forecast an increase in Iranian oil production of 12.2%, with crude volumes rising towards 4.70mn b/d by the end of the 10-year forecast period, although there will have been an OPEC-induced dip in 2009/10. Oil consumption between 2010 and 2020 is set to increase by 31.0%, with growth slowing to an assumed 2.0% per annum towards the end of the period and the country using 2.27mn b/d by 2020. Gas production is expected to climb to 265bcm by the end of the period. With 2010- 2020 demand growth of 17.3%, this provides export potential rising to 109bcm by 2020. Details of BMI's 10-year forecasts can be found in the appendix to this report. Iran now ranks fifth, ahead of Oman and Bahrain, in BMI's composite Business Environment Ratings (BERs) table, which combines upstream and downstream scores. It holds sixth place in BMI's updated upstream ratings. Iran is five points behind Bahrain, in spite of

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>> Get this Report Now by email! a score benefiting from the region's biggest gas reserves base and a very healthy oil reserves position. Reserves-to-production ratios (RPRs) are high, but strict government control of the upstream industry prevents Iran's achieving a better overall score. Iran is now ranked second, behind Israel, in BMI's updated downstream ratings, with some high scores but progress further up the rankings unlikely. It is rated above Oman thanks to high scores for refining capacity, oil demand, gas consumption, retail site intensity and population. The growth outlooks for oil/gas consumption and refining capacity represent relatively weak suits. Oman is just one point behind it in the regional rankings and there is some long-term risk of it challenging for Iran's second place.

Table of Content Executive Summary .................... 7 SWOT Analysis ............................ 9 Iran Political SWOT ............... 9 Iran Economic SWOT ........... 10 Iran Business Environment SWOT ..................... 11 Iran Energy Market Overview .... 12 Regional Energy Market Overview ........................ 15 Oil Supply And Demand ............. 15 Table: Middle East Oil Consumption (000b/d) .. 16 Table: Middle East Oil Production (000b/d) ..... 17 Oil: Downstream ....................... 18 Table: Middle East Oil Refining Capacity (000b/d) ........................ 18 Gas Supply And Demand ........... 19 Table: Middle East Gas Consumption (bcm) ..... 19 Table: Middle East Gas Production (bcm) ........ 20 Liquefied Natural Gas .......... 21 Table: Middle East LNG Exports/(Imports) (bcm) .......................... 21 Business Environment Ratings 22 Middle East Region .................... 22 Composite Scores ....................... 22 Table: Regional Composite Business Environment Rating ............. 22 Upstream Scores ........................ 23 Table: Regional Upstream Business Environment Rating............... 23 Iran Upstream Rating ' Overview ..................... 24 Iran Upstream Rating ' Rewards ...................... 24 Iran Upstream Rating ' Risks ............................ 24 Downstream Scores ................... 25 Table: Regional Downstream Business Environment Rating ........... 25 Iran Downstream Rating ' Overview ................. 26 Iran Downstream Rating ' Rewards .................. 26 Iran Downstream Rating ' Risks ....................... 26 Business Environment ............. 27 Legal Framework ....................... 27 Property Rights .......................... 28 Intellectual Property Rights ....... 28 Corruption .... 28

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>> Get this Report Now by email! Physical Infrastructure .............. 28 Labour Force 29 Foreign Investment Policy ......... 31 Foreign Trade Regime ............... 31 Tax Regime ... 32 Security Risk . 32 Industry Forecast Scenario ....... 34 Oil And Gas Reserves ................ 34 Oil Supply And Demand ............. 35 Gas Supply And Demand ........... 36 LNG .............. 38 Refining And Oil Products Trade ............................ 39 Revenues/Import Costs............... 40 Table: Iran Oil And Gas ' Historical Data And Forecasts ............. 41 Other Energy 43 Table: Iran Other Energy ' Historical Data And Forecasts ........... 44 Key Risks To BMI's Forecast Scenario ................... 45 Long-Term Oil and Gas Outlook ............................ 45 Oil And Gas Infrastructure ........ 46 Oil Refineries 46 Table: Refineries In Iran ....... 46 Service Stations .......................... 48 Oil Storage Facilities ................. 48 Oil Terminals/Ports ................... 49 Oil Pipelines . 49 LNG Terminals .......................... 50 Gas Pipelines 51 Gas Storage .. 56 Macroeconomic Outlook ........... 57 Table: Iran - Economic Activity ......................... 59 Competitive Landscape ............ 60 Executive Summary .................... 60 Table: Key Players ' Iranian Oil And Gas Sector .......................... 61 Overview/State Role ................... 61 Licensing And Regulation ..... 62 Government Policy ............... 62 International Energy Relations .......................... 64 Table: Key Upstream Operators ' Iran Oil And Gas Sector ........... 71 Table: Key Downstream Operators ' Iran Energy Sector .............. 71 Company Monitor ...................... 72 National Iranian Oil Company (NIOC) .................. 72 National Iranian Oil Refining and Distribution Company (NIORDC) .. 78 Eni ................ 82 Total Iran ...... 85 Shell Development Iran .............. 88 China National Petroleum Corporation (CNPC) .... 91 ONGC Videsh (OVL) ................. 94 Statoil ' Summary ................. 97

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>> Get this Report Now by email! Inpex/Japex ' Summary ........ 97 Lukoil ' Summary ................. 97 CNOOC ' Summary.............. 98 PTTEP ' Summary ............... 98 OMV ' Summary................... 99 BP ' Summary ...................... 99 Sinopec ' Summary ..............100 Crescent Petroleum ' Summary ........................100 Gazprom ' Summary ...........100 Others ' Summary ...............101 Oil And Gas Outlook: Long-Term Forecasts ...... 102 Regional Oil Demand ...............102 Table: Middle East Oil Consumption (000b/d) .102 Regional Oil Supply ..................103 Table: Middle East Oil Production (000b/d) ....103 Regional Refining Capacity ......104 Table: Middle East Oil Refining Capacity (000b/d) .......................104 Regional Gas Demand ..............105 Table: Middle East Gas Consumption (bcm) ....105 Regional Gas Supply .................106 Table: Middle East Gas Production (bcm) .......106 Iran Country Overview .............106 Methodology And Risks To Forecasts ....................106 Glossary Of Terms .................. 108 BMI Methodology .................... 109 How We Generate Our Industry Forecasts .......109 Energy Industry ...................109 Cross checks ........................110 Oil And Gas Ratings Methodology....................110 Table: Structure Of BMI's Oil And Gas Business Environment Ratings ......................112 Indicators 113 Table: BMI's Upstream Oil And Gas Business Environment Ratings ' Methodology .113 Table: BMI's Downstream Oil And Gas Business Environment Ratings ' Methodology ..........................114 Sources ...115

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