At this week’s annual exhibition for Iran’s beleaguered oil and gas industry, the stands set aside for western companies have some noticeable vacancies.
With even stalwarts of the long-suffering oil sector such as France’s Total staying away for the first time this year, the gaps are being filled by business from Asia, eastern Europe and Iran itself.
Like any oil exporter, the Islamic Republic needs access to international technology and investment to keep production growing. As western-led sanctions restrict that access, the energy industry is turning to other suppliers and backdoor channels as part of a wider national effort to minimise the devastating impact of international isolation on its economy.
The changing make-up of the attendees of the exhibition is a tangible illustration of that impact. Of the 1,255 Iranian and foreign companies present, companies from Asia, as well as Russia and Ukraine, are increasingly visible. Western representation in the four-day event, which closes on Thursday, is largely limited to Norway’s Statoil and Austria’s OMV, plus Beh Total, a joint venture between the French company and a state-owned Iranian company.
“Sanctions are a kind of good opportunity for us,” says a Ukrainian oil executive.
The same can be said for many Iranian companies, which either run as licensees of foreign groups or are based outside the country. Global Petro Tech Kish, for instance, is an Iranian company founded in 2006 in the neighbouring United Arab Emirates. It says it is privately owned in spite of having some links to an Iranian state-run company.
Over the past five years, the number of offshore jackup rigs it operates has increased from two to nine. “Sanctions have created a chance for this company to expand and grow,” says Mehdi Hosseini, a company official.
For the most part, he says, the company buys or rents Chinese rigs instead of western ones and insists the quality is good because they are usually built under the licence of European or US companies.
The need for access to international technology, in spite of the tight sanctions regime, is increasing the opacity of Iran’s energy industry. A growing number of companies at the exhibition this year appeared to be operating as representatives for smaller Asian and European businesses, with onlookers speculating that such companies are established to help the country evade sanctions.
Such back channels, and a shift towards partners from friendlier nations such as China, India and Russia, have helped Iran’s oil and gas sector survive even if such partners offer a product that may not be up to the standards of the market leaders.
“You can say the quality of Chinese products is poor, and I say that’s right,” says Hatef Haeri, chief executive of ICG energy consultancy in Tehran. “But that Chinese equipment is helping us continue work even if we have to change parts frequently.”
The difficulty in accessing foreign technology and investment and the costs and delays caused by crippling new sanctions on financial transactions, means Iran’s hydrocarbons sector is lagging behind government plans to develop and maintain the country’s oil and gasfields.
Along with the unattractive terms that Iran offers to operators in the oil and gas sector, and a purge of experienced oil officials, such challenges have undermined the country’s energy projects in recent years. Iran is increasingly giving its multibillion-dollar contracts to state-owned or quasi-private Iranian companies.
Rostam Ghasemi, the oil minister, said at the exhibition on Tuesday that Iran needs more than $40bn in investment for its oil and gas projects by next April. It is achievable, he said, as is the goal to increase production to 1.4bn cubic metres of gas and 5m barrels of oil a day by 2015.
“Foreign investments are not sufficient but Iran has given up ambitions of 8 per cent economic growth and can survive with the current growth rate of 1 to 3 per cent,” Mr Haeri says. “In the short run, Iran’s oil and gas sectors will not kneel down vis a vis sanctions.”