Is Cooperation Possible to Develop Joint Oil Fields in the Arabo-Persian Gulf?

The crisis between Qatar and its neighbors has highlighted the tensions across the Arabo-Persian Gulf, which are not limited to hostility between Tehran and Riyadh. Cooperation in the exploitation of hydrocarbons could help to ease regional crises.

Offshore complex “North Field Bravo”, North Dome/South Pars shared field.

To unitize oil and gas (O&G) fields between two entities holding leases over a specific discovery is a merely technical and economical common sense, all over the world, for neighbour countries and oil and gas companies. It is, from far, the most efficient way to efficiently develop and produce a joint field to get the maximum possible cumulative production over the life of the field, together with the best cost-effective capital and operating expenditures. Moreover, unitization—that is to say the joint development of a hydrocarbon reservoir which extends across two or more licence or contract areas—may be a concrete part of an “economic diplomacy,” by creating a business venture for a pretty long period of time, decades, between two countries and, sometimes, opening a path for peace. Unhappily, Arabo-Persian Gulf and Middle East are not really favouring such a practical philosophy.

A geological O&G reservoir is an impregnated underground zone laying thousands of meters beneath in the underground. It consists of porous and permeable rock topped by a tight zone. This reservoir may spread over hundreds of square kilometers and be hundreds of meters thick.

To study, develop and produce such a reservoir, a global understanding of its full picture is of the essence. If it could have been a fierce fight between competitors to be granted a lease, it is then just natural cooperation between countries/companies in the exploitation of a shared discovery.

Unitization is not a usual Middle-East pattern at all, because of the absence of mutual trust and of the deep and many rivalries between the different countries, all pretty jingoistic. Some examples :

➞ Arash/Dora offshore gas field owned by Saudi Arabia, Kuwaït and Iran, was discovered in 1967 and, in spite of the huge gas needs of the first two countries, never started,
➞ North Dome/South Pars offshore gas field owned by Qatar (2/3) and Iran (1/3) is the world biggest gas field from far. Productions started respectively in 1988 and 2002 with very limited cooperation, if any, and enormous losses because of no common global development and production strategies,
➞ South Azadegan, Yadavaran . . ., joint oil fields between Irak and Iran. Very recently, after decades of no communication, things are moving forward possibly to first unitization between Iran and Irak—economic diplomacy?

Abu Al Bukoosh/Salman Case

Abu Al Bukoosh (ABK) is the Abu Dhabian part of the Iranian Salman offshore field and a typical example of a non-unitized joint field with two different productions and offloading facilities on each side of the Iran/Abu Dhabi border in the middle of the arabo-Persian Gulf, only one mile away from each other.

In November 1986, during the Irak/Iran war, ABK was struck by an Iraki air attack causing heavy damages and casualties, but also a lot of astonishment since Abu Dhabi was supporting Irak in the war, on the one hand, and ABK was operated by a French company. The briefing of Iraki planes was presumably too brief for so close facilities.

After immediate deep apologies by Irak, a second air attack struck Salman far more seriously in terms of casualties and damages than the first strike on ABK. The two parts of the joint field were shut down.

After a few months, ABK started again production, but Iranian airplanes then struck ABK to deliver a clear message not to produce before they can restart on their side as well.

It is obvious that a unitized ABK/Salman field should have been discarded by Iraki Air Command as a target, during the whole war.

A Missed Opportunity for Iran

The sacrosanct principle that National Iranian Oil Company (NIOC) is the only authorized entity to produce oil and gas in Iran was established by Mohammed Mossadegh in the early ’50s. This worked pretty well during the Shah time, largely due to the efficiency of Oil Service Company of Iran (OSCO) composed of 8 oil majors, which helped NIOC to reach 6.1 Mb/d oil production in 1978, to be compared to 3.7 Mb/d today.

After the establishment of the Islamic Republic of Iran and the Irak-Iran war, we have to wait 1995 to get a first attempt to break the Iranian isolation with the introduction of buy-back contracts, which never allowed any international oil companies (IOC) to participate in the production management of the developed fields, which has restricted IOC role to a engineering/procurement/construction/financing (EPCF) one. The major added value of an IOC is field management and NIOC missed it, as well as their presence on the long-term in Iran.

About gas, it is pretty awkward to figure that Iran, holding the world biggest gas reserves is a really small gas exporter and only through pipelines.

As a matter of fact liquefied natural gas (LNG) plants were also studied and first contracts were signed from 2004, namely Persian LNG (Shell operator) and Pars LNG (Total operator). They were not concerned by the Mossadegh principle since it was not a production issue but a transformation of NIOC produced gas into LNG to be sold in the international market. These contracts were merely establishing an usual consortium, based on international standard practices for this type of business, including a foreseen duration of several decades. However, during the first mandate of President Mahmoud Ahmadinejad all these efforts were delayed and delayed again. This is a fact that Iran purposely missed the 2004–2009 window of opportunities for big LNG plants, when Sanctions closed down any further discussion. This window is over for a decade or more, because of the glut of LNG in the market created by the next commissioning of projects (the USA, Russia, Australia, . . .) at that period of time.

It is also very likely that, with the long-term presence of different IOC: Total, Ente Nazionale Idrocarburi (ENI), Shell, Petronas, Österreichische Mineralölverwaltung (OMV), Oil and Natural Gas Corporation (ONGC), China National Petroleum Corporation (CNPC), . . . in buy-backs and/or other standard businesses as LNG, the international sanctions should have been lighter, if any.

Qatar: the LNG solution

Qatar constant policy has always been to protect its sovereignty, which is not easy surrounded by pretty bigger Suna Brother countries. In that respect for example, even though Qatar is holding huge gas reserves right in the middle of huge gas demands in these very countries (Irak, Kuwaït, KSA, UAE, Oman), there is only one gas pipeline, namely “Dolphin” to the UAE and Oman). Qatar definitely preferred the LNG solution which is not binding the seller and the buyers by a physical link for ages, as pipelines do. Sovereignty is at that price.

Beginning of June, President Trump designated Iran as the “Great Satan” of terrorism, pretty odd saying that from Ryad. However, it triggers GCC demands on Qatar, dangerous ones but not logical at all for different reasons:

➞ Oman, Irak and Koweit are not supporters of Gulf Cooperation Council (GCC) posture,
➞ The US Secretary of State, Rex Tillerson, had to promptly come and play the firefighter role between KSA and Qatar, the biggest US air base outside the USA is Al Udeid in Qatar, presently the key of United States Air Forces (USAF) and Royal Air Forces (RAF) for strikes against Islamic State and in Syria,
➞ the biggest Turkish Armed Forces deployment is in Qatar and President Erdogan declared that GCC present demands were a crime against Islam,
➞ EXXON is largely involved in Qatargas as well as TOTAL, which is also operating Al Shaheen, the biggest Qatari oilfield, and Shell operating Pearl, the world biggest gas to liquid unit—it is remarkable that, within the two weeks’ time following the GCC announcement, each chief executive officer (CEO) of those three companies paid a visit to the ruler of Qatar, Sheikh Hamad al Thani,
➞ most of the maritime logistical problems have been rapidly and swiftly solved by transshipment in some regional ports, like Salalah in Oman.

Economic Diplomacy

To stabilize the Middle East a little further after the recent defeats of the Islamic State, economic diplomacy is a sound and peaceful solution.

Unitization of joint fields is one of the most logical and cost-effective ways of enforcing this diplomacy. After the just starting discussions between Iran and Irak on possible unitization of joint fields, it could be sensible to revive some old patterns like the agreement signed by Qatar and Iran in 1990 for the joint development of the North Dome/South Pars gas field, since Qatar and Iran relations had almost always been good over the last 60 years. Both countries, working jointly, will gain a lot of efficiency and save a lot of costs working and will convert their positions as world leaders in gas market, and last but not least, it could be a swift way for Iran to enter the LNG market in a big way.