Zanganeh Turns Focus on Iraqi Market Opportunities

EghtesadOnline: Iran should and will seize the opportunity to consolidate its position in Iraqi's multibillion-dollar economy, Oil Minister Bijan Namdar Zanganeh said.

News ID: ۷۴۳۴۷۴

26 August 2017

Iraq is recovering from a conflict with the self-styled Islamic State terrorist group that declared a self-proclaimed caliphate over swathes of lands in Iraq over three years ago. Despite being largely pushed back in recent months, the insurgency has left a massive trail of destruction, creating a multibillion-dollar market for the reconstruction of Iraqi towns, roads and facilities.

Iran's oil minister said on Thursday that oil and gas-rich Khuzestan Province, which shares borders with the southern Iraqi city of Basra, has played a central role in exports to Iraq, but there is plenty of room for growth, IRNA reported.

"Iraq is the closest market to Khuzestan Province (in the south) and so far has played a significant role in exports. We need to increase our share in the country's emerging market," Zanganeh told a meeting of provincial managers on Thursday, according to Financial Tribune.

Iran already supplies Iraq with electricity and natural gas, with the exports of the latter forecast to generate at least $4 billion in revenues for Iran annually. The exports will help Iraq reduce lengthy power outages across its major cities, a lingering issue and a source of public protest against the central government in Baghdad.

"There are some issues in exports to Iraq, but they can be tackled through new investments," Zanganeh said.

Proximity to the Iraqi market has created a unique opportunity to "establish and expand downstream facilities in Khuzestan to meet a large part of Iraq's demand," the minister added.

The downstream sector is processing, marketing and distribution of crude oil, natural gas and derivatives.

"Missing out on the large Iraqi market would be a major blow to Khuzestan's economy … taking stock of the current situation in Iraq. It would take years before they can meet their demand for many basic products," Zanganeh said.

Iraq is seen as Iran's largest export market in the foreseeable future. Government data show that Iran exported over $6 billion worth of commodities in the previous year (March 2016-17) to the western Arab neighbor, but officials and experts say export can increase by more than four times the amount.

Iraq and Iraq, OPEC's second and third-largest producers, could also converge their interests in the upstream petroleum industry. The two countries are reportedly tinkering with the idea of developing their massive joint reservoirs together by employing a single contractor for shared reservoirs.

---- Total Gas Deal

Zanganeh also expounded on huge potentials for domestic manufacturers in a deal with French company Total S.A. to develop Phase 11 of the vast South Pars Gas Field in the Persian Gulf,

"Total will only play a managerial role in implementing the $5 billion mega project and the rest, including drilling operations and manufacturing pipes, will be put out to tender.

"Based on the terms of the newly concluded contract, Total is obliged to use domestic firms that have already been qualified by the National Iranian Oil Company," he added, noting that Iranian enterprises can be the winner of all tenders and reap the substantial profit as there are no limits in this regard.

He noted that in value terms, more than 70% of all contracts within the framework of IPC will be given to Iranians.

"Iran Petroleum Contract is the first Iranian oil contract that clearly stipulates a role for domestic oil and gas equipment manufacturers," he said.

According to Zanganeh, domestic companies should meet international standards to participate in the SP Phase 11 project that is estimated to generate more than $80 billion over two decades.

He asserted that domestic contractors should forge partnership with multinationals to improve their credentials.

"The Oil Ministry is deprived of the much-needed budget to keep the wheels of the oil industry running; that is why it has to rely on attracting foreign finances," he said, adding that the industry needs cutting-edge technology and investment to grow.

The minister noted that reservoir engineering—a branch of petroleum engineering concerned with oil and gas reserves and finding the most efficient way to extract underground resources—would be one of the key technologies to be transferred in cooperation with Total.

"It is not just about reservoir engineering. Know-how means completing a project on time with the fewest number of injured staff," he said.

Zanganeh underlined the new contracts as a "golden opportunity" for creating jobs and wealth, and improving the technical and operational ability of domestic companies.

"Domestic companies are expected to take advantage of the $5 billion deal because NIOC will use their potential as the main or secondary contractors," he concluded.

Reportedly, Total has provided Iranian qualified firms with a complete list of equipment for the South Pars development project and whatever can be manufactured by domestic companies will not be imported.

The French firm has also agreed to share the know-how for manufacturing equipment that has not been indigenized in the country.