On January 19, JBR organized a Roundtable on opportunities in the energy sector in Iran. There was a great interest from prominent players of different sectors. During this Roundtable, we evaluated, together with three expert speakers, the geopolitical situation, oil & gas industry and renewable energy sector in Iran. Key findings of the Roundtable were great opportunities in both sectors but also large pitfalls and risks.
Opportunities in oil and gas industry
With an oil reserve of 158 billion barrels and gas reserve of nearly 30 trillion cubic meters, the country is an energy giant. Furthermore, the production cost in Iran is thanks to high-pressure fields, one of the lowest in the world. Despite the great potential, there is shortfall in production. For example, the oil production almost halved in comparison with 40 years ago, from 6 million barrels a day to 3,5 million. This is partly due to section period which made Iranians isolated, so they were not able to recover their damaged fields. Now the doors of the country seem to be opened, there are several projects for recovery and development of the existing fields. There are also exploration projects, which offer opportunities for offshore and maritime companies (especially drilling). To make this more attractive, Iranians launched the new contract system IPC (Iranian Petroleum Contract) which offers more certainty for investors.
Opportunities in solar and wind energy
You might expect that an oil-rich country like Iran has no interest in renewable energy, especially when you realize that only 0,02% of electricity used in the country is produced sustainably. But times change. In line with the 5-year plan of the country in which clean energy production is emphasized, Iran is looking for € 10 billion of foreign investment in sustainable energy up to the end of 2018. With an average of 300 sunny days per year and a great potential for wind farms, Iran can even produce more than current total electricity consumption (ca. 51 GW per year) sustainably. In order to attract foreign investors, they offer 20-years permanent contracts with very attractive rates (ca. 15¢ per kW produced). At the moment, there are a lot of MoU’s signed with foreign companies, but only one project has started. This is mainly due to money transaction problems.
Biggest pitfall: Money transaction
Although most of sanctions has been lifted and it is no longer illegal to do business with Iran, money transfer to and from Iran is still a problem. After gigantic fines that European banks like Dutch ING have received due to working with Iran, Dutch banks are very reluctant about Iran. However, it is possible to use a proxy account to arrange money transactions with Iran, for example, by banks in Dubai as a stopover or through financial institutions that only focus on money transactions to Iran.
Conclusion: great opportunities but also great risks
In contrast to many other countries in the region, Iran is a safe country. There is a significant margin for investing in energy sector in the country. There are certainly opportunities for large and small companies and investors. On the other hand, there are also risks. The internal political future is still not entirely sure. And the fact of Trump being president of USA, brings a lot of concerns about the international relations with Iran. Despite all the worries, many large companies such as Shell, Total SA and Airbus recently signed deals with Iran that certainly will boost the rehabilitation process of Iran. It is therefore now the time to go for it, with great risk and chance of high profits, or to wait for the late mover advantages.