Oil & Gas Laws And Regulations Report 2023 Iran

• Law Firm: Asgari & Associates
• Subject Matter: Antitrust/Competition Law, Energy and Natural Resources, Antitrust, EU Competition , Energy Law, Oil, Gas & Electricity
• Author: Ms Anahita Asgari Fard
• Published date: 19 May 2023

1. Overview of Natural Gas Sector

1.1 A brief outline of your jurisdiction's natural gas sector, including a general description of: natural gas reserves; natural gas production including the extent to which production is associated or non-associated natural gas; import and export of natural gas, including liquefied natural gas ("LNG") liquefaction and export facilities, and/or receiving and re-gasification facilities ("LNG facilities"); natural gas pipeline transportation and distribution/transmission network; natural gas storage; and commodity sales and trading.

Iran holds the world's second-largest natural gas reserves. The natural resources are estimated at 133 trillion cubic metres (116.5 trillion cubic feet), of which 33% is associated gas and 67% is in non-associated gas fields.

According to the National Iranian Gas Company (NIGC) report, national gas production in Iran increased by 4 billion cubic metres in 2022 at a pace of roughly 840-850 million cubic metres per day.

South Pars is the largest gas field reserve in the world, located in the Iranian waters of the Persian Gulf. Iran shares the field with Qatar, holding approximately 50% of the Iranian domestic gas reserve. It is divided into 24 standard phases of development in the first stage, and most of the phases are fully operational.

Kish is another gas field close to Kish Island, which is under development and is expected to start commercial production in 2023.

Farzad is another offshore gas field in the Fars Province that Iran shared with Saudi Arabia. Iran planned to develop it through an Indian consortium that had discovered the field in 2008 as part of an Exploration Service Contract (ESC). However, negotiations on a Development Service Contract remained inconclusive due to complex terms and international sanctions on Iran. Iran finally decided to develop the field through an Iranian company in 2021.

Another major gas field is the Balal (Belal) gas field, developed at a water depth of 70 m in the Persian Gulf near Iran's maritime border with Qatar. Petropars, a subsidiary of the National Iranian Oil Company (NIOC), has been managing this project's development since 2019.

Forouz B is one of the developed gas fields between Kish, Sirri, and Farour Island, producing natural gas and condensate since 2010.

Iran has two main gas storage facilities and plans to develop 14 more, including the Bidboland Persian Gulf gas refining facility in Mahshahr, Shourije 1 & 2, the natural gas storage facility in the Khorasan Razavi Province, the most extensive gas storage facility in Iran and the Middle East, the Sarajeh underground storage facility near Qom, Gezel Tappeh, and one of the country's most exceptional hydrocarbon fields in terms of temperature and pressure, Nasrabad and Yortsha.

Iran exports natural gas by pipeline to Turkey, Armenia, Azerbaijan, and Iraq, receiving imports from Azerbaijan and Turkmenistan. Iran's natural gas exports to Armenia and Azerbaijan are based on a long-term swap agreement. Russia and Iran are currently negotiating a swap agreement for importing Russian gas to Iran in exchange for Iranian oil.

Iran accounts for 35% of the total active and operational transmission pipeline length in the Middle East from more than 90 pipelines, making the country the leading country in the region.

One critical upcoming transmission project is the Iranian Gas Trunkline-IGAT XI, an onshore gas pipeline that extends from Bushehr to Tehran. The Iran-Oman gas pipeline is also a pipeline project that would run from Iran to Oman.

At the moment, Iran has no functional LNG plant. However, recently, NIGC has invited investors to submit proposals for building small LNG units. Iran has planned four LNG plants targeting European, Indian, and Far Eastern countries and two gas-to-liquid (GTL) facilities.

1.2 To what extent are your jurisdiction's energy requirements met using natural gas (including LNG)?

Most energy in Iran is generated through natural gas. Natural gas accounts for 71% of total energy consumption, followed by crude oil 28% and other sources 1% (hydro, nuclear). The power sector is the largest gas consumer, closely followed by the residential service sector and industry. Iran has the world's most considerable growth rate in natural gas consumption. Over the past decade, Iran's natural gas consumption grew by about 50% due to the following: highly subsidised prices; an extensive new transmission network; domestic production increases; and Government attempts to substitute oil with natural gas in the residential, commercial, and electric power sectors.

1.3 To what extent are your jurisdiction's natural gas requirements met through domestic natural gas production?

Iran cannot meet domestic demand, especially in cold and hot months when energy consumption rises to its highest level. Iran produces only a tiny share of its natural gas reserves due to sanctions and the need for more technology. Iran has been importing natural gas from Turkmenistan, about 23-30 million cubic metres per day (around 5% of the country's consumption).

Further, Iran recently agreed to purchase 9 million cubic metres per day from Russia, which is part of a swap agreement meaning Iran would import gas from Russia and deliver a certain quantity to another country with a gas purchase deal with Russia.

1.4 To what extent is your jurisdiction's natural gas production exported (pipeline or LNG)?

Iran exports natural gas by pipeline to Turkey, Armenia, Azerbaijan, and Iraq. Iran's natural gas export to Armenia and Azerbaijan are based on a long-term swap agreement.

Iran has a 25-year contract to export natural gas to Turkey until 2026. Iran exported 9.3 billion barrels to Turkey in 2022.

Iran has exported 2.3 billion cubic metres/year of natural gas to Armenia since 2009, and exports 10 million cubic metres/day of natural gas to Iraq.

Iran has signed contracts with Oman and Pakistan to export natural gas to both countries through pipelines; however, the contracts have not yet been implemented. Furthermore, Iran is negotiating with Russia to invest in its pipeline and LNG infrastructure. With the investment, Iran is planning to initiate its natural gas export to Oman and Pakistan.

2. Overview of Oil Sector

2.1 Please provide a brief outline of your jurisdiction's oil sector.

Iran has the third-largest oil reserves and is the fifth oil producer in the Organization of the Petroleum Exporting Countries (OPEC). According to NIOC, Iran produced around 2.5 million barrels/day of oil in 2022, which decreased by 200,000 barrels/day from 2021 production. According to the U.S. Energy Information Administration (EIA), Iran accounted for 24% of oil reserves in the Middle East and 12% in the world, and exported around 1.3 million barrels/day of crude oil in 2022. Iran exports more than 50% of its oil to China. In addition to China, Iran exports its petroleum to India and Venezuela.

The two most significant oil fields are the Ahvaz and Gachsaran oil fields. Ahvaz oil field is the largest oil field in Iran, accounting for 23% of Iran's oil reserves, and Gachsaran is the oldest operating conventional oil field. Azadegan oil field in southwestern Iran is another major oil field under development.

Iran has recently signed an agreement with Russia to invest USD 40 billion in the oil sector by 2030, which is a quarter of what is required to develop the oil industry in Iran. Iran also has signed preliminary agreements with China to develop its oil sector.

It is estimated that, if the U.S. lifts the sanctions, Iran's crude oil production could return to its total capacity of 3.7 million barrels/day.

2.2 To what extent are your jurisdiction's energy requirements met using oil?

The share of oil consumption in total final energy demand is 28%, the second-largest after natural gas. Iran's oil consumption is increasing in the post-pandemic era because of increased mobility, improved economics, and higher-vehicle sales that have boosted oil and gas demand. Furthermore, the shortage of natural gas production caused power plants, particularly electricity power and other infrastructure, to use more petroleum energy to compensate for the lack of natural gas for the residential and commercial sectors.

If sanctions are lifted, a reduction in oil consumption and an increase in the export of petroleum and petroleum products will happen.

2.3 To what extent are your jurisdiction's oil requirements met through domestic oil production?

Domestic oil production meets Iran's oil requirement (28% of the entire energy consumption). According to the EIA, as of mid-2022, Iran's total crude oil distillation and condensate splitter capacity was more than 2.4 million barrels/day.

2.4 To what extent is your jurisdiction's oil production exported?

Estimates based on ClipperData show that Iran's oil export was about 1.3 million barrels/day in the second half of 2022. These estimates show a decrease in export (around 37%) due to high prices that slow demand in China and competition from Russia's oil export.

The majority of Iran's oil exports are to China, about 600,000 barrels/day. After China, India is the second-largest importer of Iranian oil, importing around 500,000 barrels/day.

Since 2022, Iran has begun exporting 200,000 barrels/day of crude oil to Venezuela.

3. Development of Oil and Natural Gas

3.1 Outline broadly the legal/statutory and organisational framework for the exploration and production ("development") of oil and natural gas reserves including: principal legislation; in whom the State's mineral rights to oil and natural gas are vested; Government authority or authorities responsible for the regulation of oil and natural gas development; and current major initiatives or policies of the Government (if any) in relation to oil and natural gas development.

In brief, the Iranian oil and gas legal framework contains a series of critical pieces of legislation, including:

• The Iranian Constitution Law (1979).
• The...