TEHRAN (AFP) – It was just before dawn on May 26, 1908, and G B Reynolds was drilling one more hole in a final attempt to find oil in Iran before his superiors ended what had been an expensive and fruitless project.
Veteran prospector Reynolds, the chief engineer for Concessions Syndicate Ltd, struck a gusher at 360 metres (1,180) feet at Masjed Soleyman to find the first oil in Iran.
What he did transformed the country’s economy and history in an instant.
A century later, Iran is sitting on the world’s second-largest proven reserves of oil and is OPEC’s number two exporter.
Oil exports, worth 65 billion dollars last year, count for 80 percent of Iran’s foreign currency earnings, essentially propping up the entire economy.
But the country is still far from realising the potential of either its oil riches or its gas reserves, again the second-largest in the world.
Billions of dollars in revenues that could be ploughed back into the industry each year are being thrown away on massive subsidies to keep petrol and energy cheap for ordinary Iranians.
The lack of investment in exploiting new fields and obtaining the best recovery from existing ones is compounded by the unwillingness of foreign countries to deal with Iran at a time of tension over its nuclear programme.
The luxury of hydrocarbon riches has encouraged successive governments in Iran to heavily subsidize energy products, something no politician would dare change.
“We are paying 85 billion dollars a year on energy subsidies. If this is meant for low-income people, then it’s is not working out,” the deputy oil minister for planning, Akbar Torkan, told AFP in an exclusive interview.
“Thirty percent of the rich are in fact using 70 percent of the subsidies,” he explained.
Iran’s astonishingly profligate drivers, many of whom would not dream of travelling by bus or train, consumed 64.5 million litres of petrol and 89.5 million litres of diesel a day in the Iranian year that ended on March 19.
Torkan said “we should pay the subsidies based on a more focused mechanism. The current situation is not what the government is looking for and it is just a waste of money.”
Ironically, the budget of the mid-term investment plan for the oil industry projects is less that the subsidies paid per year for oil, gas and petrochemical products.
Hoped-for exploitation deals with European giants such as France’s Total have hit snags amid US warnings to cut dealing with Iran or face penalties in the United States.
In February 2004, Japan’s Inpex signed an initial deal to develop Iran’s biggest onshore oil field — Azadegan — but Tokyo hesitated amid pressure from its ally the United States. Mines left from the 1980-1988 war with Iraq were also a cause of problems.
Iran is now using domestic firms to develop the giant field — with estimated reserves of 42 billion barrels of oil — in small volumes after cutting Japan’s share to 10 percent in 2006.
“Some of the foreign investment is not being made,” Torkan admitted.
“Those who have slowed or stopped are the ones listed on the US stock exchange and due to US government pressures they cannot enter the Iranian market,” Torkan said.
According to the deputy oil minister for international affairs, Hossein Noghrehkar Shirazi, Iran aims to invest 142 billion dollars in the oil, gas and petrochemical sector by 2014.
“They have recently increased the pressures but we have to survive and have adopted new strategies to overcome problems,” Noghrehkar Shirazi told AFP.
In a bid to overcome the West’s cold shoulder, Iran is counting on more friendly states such as Bahrain, Kazakhstan, Kuwait, Oman, Russia and the United Arab Emirates, the deputy minister said.
Malaysia and China have both signed multi-billion-dollar deals with Iran. The oil minister said Iran is eyeing new projects with Norway, which is no stranger to Iran’s oil industry.
Iran’s Islamic authorities have sought “self sufficiency” in the oil industry, suspicious of the motives of Western countries especially after the US and British-backed coup that toppled oil-nationalising prime minister Mohammad Mossadeq in 1953.
But Iran still needs foreign technology to perform the increasingly difficult task of extracting oil from ageing wells whose pressure is rapidly decreasing.
Iran’s oil recovery factor — the proportion of resources that can be recovered to the resources originally in place – is only 26 percent, Torkan said.
“The most important issue is to increase the recovery factor,” he said
The problems with ageing wells means more sophisticated technology is needed, and Iran has been using water and gas injection in a bid to compensate.
Iran, with an OPEC export quota of 3.817 million barrels per day, should be enjoying record crude prices. However, its officials have repeatedly lamented “unrealistic prices” and increasing costs of oil and gas operations.
It has missed the target of producing 5.0 million barrels a day that was touted during the previous government of Mohammad Khatami (1997-2005) and is currently producing around 4.2 million bpd.
Iran’s latest figures for exploitable reserves stand at 138 billion barrels of oil and 28 trillion cubic meters (989 trillion cubic feet) of gas.
Arguing that its vast fossil fuels will run out in a few decades, Iran embarked over the last 20 years on a major drive to provide nuclear energy for its growing population of over 70 million.
But Western countries are suspicious. They say this masks a drive for a nuclear weapon, a charge Tehran vehemently denies.