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Report estimates Iran’s oil reserves

strait_hormuzIran holds the world’s fourth largest proved crude oil reserves and the world’s second largest natural gas reserves, according to a report produced by US Energy Information Administration.

Despite the country’s abundant reserves, Iran’s oil production has substantially declined over the past few years, and natural gas production growth has slowed. International sanctions have profoundly affected Iran’s energy sector. Sanctions have prompted a number of cancellations or delays of upstream projects, resulting in declining oil production capacity.

Iran holds some of the world’s largest deposits of proved oil and natural gas reserves, ranking as the world’s fourth and second largest reserve holder of oil and natural gas, respectively. Iran also ranks among the world’s top 10 oil producers and top 5 natural gas producers. Iran produced 3.2 million barrels per day (bbl/d) of petroleum and other liquids in 2013 and more than 5.6 trillion cubic feet (Tcf) of dry natural gas in 2012.

The Strait of Hormuz, on the southeastern coast of Iran, is an important route for oil exports from Iran and other Persian Gulf countries. At its narrowest point, the Strait of Hormuz is 21 miles wide, yet an estimated 17 million bbl/d of crude oil and oil products flowed through it in 2013 (roughly one -third of all seaborne traded oil and almost 20% of total oil produced globally).

Liquefied natural gas (LNG) volumes also flow through the Strait of Hormuz. Approximately 3.9 Tcf of LNG was transported via the Strait of Hormuz in 2013, almost all of which was from Qatar, accounting for about one-third of global LNG trade.

Iran’s oil production has declined substantially over the past few years, and natural gas production growth has slowed, despite the country’s abundant reserves. International sanctions have stymied progress across Iran’s energy sector, especially affecting upstream investment in both oil and natural gas projects. The sanctions have prompted a number of cancellations and delays of upstream projects, resulting in declining oil production capacity. The United States and the European Union (EU) enacted measures at the end of 2011 and during the summer of 2012 that have affected the Iranian energy sector more profoundly than any previously enacted sanctions. The sanctions impeded Iran’s ability to sell oil, resulting in a 1.0-million bbl/d drop in crude oil and condensate exports in 2012 compared with the previous year.

According to the International Monetary Fund (IMF), Iran’s oil and natural gas export revenue was $118 billion in the 2011/2012 fiscal year (ending March 20, 2012). In the 2012/2013 fiscal year, oil and natural gas export revenue dropped by 47% to $63 billion. The IMF estimates that Iran’s oil and natural gas export revenue fell again in the 2013/2014 fiscal year by 11% to $56 billion. The revenue loss is attributed to the precipitous decline in the volume of oil exports from 2011 to 2013. Iran’s natural gas exports actually increased slightly over the past few years.

However, Iran exports a small volume of natural gas, as most of its production is domestically consumed. Nonetheless, international sanctions have also affected Iran’s natural gas sector. Iran’s natural gas sector has been expanding, but production growth has been lower than expected as a result of the lack of foreign investment and technology. The South Pars natural gas field is the largest hydrocarbon upstream project currently being developed in Iran and continues to encounter delays. South Pars, located offshore in the Persian Gulf, holds roughly 40% of Iran’s proved natural gas reserves. It is currently being developed mostly by Iranian companies as most international companies have pulled out. The field’s development entails 24 phases, of which phases 1-10 are completed, and phase 12 started production in February 2014.

On November 24, 2013, a Joint Plan of Action (JPOA) was established between Iran and the five permanent members of the United Nations Security Council (the United States, United Kingdom, France, Russia, and China) plus Germany (P5+1). Implementation of the JPOA started in January 2014. Under the JPOA, Iran agreed to scale back or freeze some of its nuclear activities during the six months of negotiations in exchange for some sanctions relief. The period of negotiations was recently extended for another four months to November 24. The JPOA aims to reach a long term comprehensive plan that ensures that Iran’s nuclear program is peaceful, which may lead to the lifting of international sanctions.

The JPOA does not directly allow for additional Iranian oil sales, although it does suspend sanctions on associated insurance and transportation services. However, Iran and the countries that are continuing to import Iranian oil have increasingly been able to find alternatives to European Protection and Indemnity Clubs (P&I) coverage from EU companies.

Iran’s crude oil and condensate exports increased in late 2013 and have maintained a level above the 2013 average. From January to May 2014, Iran’s crude oil and condensate exports averaged 1.4 million bbl/d, roughly 300,000 bbl/d higher than the 2013 average, according to the International Energy Agency (IEA). Exports to China and India account for almost all of the  increase.-US Energy Information Administration