Novak received Iran’s agreement to “freeze” the oil production level to 4 million barrels per day

Novak received Iran’s agreement to “freeze” the oil production level to 4 million barrels per day

TEHRAN, March 14. Energy Minister Alexander Novak held talks in Iran and managed to get an answer to the main question whether the Republic on the “freezing” of oil production: Iran is ready to accede to this idea, but not before will lead oil production in the country desanctions level of 4 million barrels per day. The Minister believes that this is a reasonable approach, and even oral agreements of the countries of the stabilization of production are already having a positive impact on the market.

Doors are open

Novak said that Iran is in a special situation, because the sanctions imposed are substantially reduced production volumes in the country. “Of course, the same approach would be not quite fair in relation to Iran. Minister of Iran supports the coordination of actions between the countries-exporters, including the possible freeze. Iran’s position is to restore your volumes that are allocated under the OPEC quota prior to the imposition of sanctions, and then ready to join the frozen production to other countries. I think that this approach is quite reasonable, and the doors are open for Iran, given that Iran supported its overall approach for the common freezing,” he said.

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Novak said that at the present time, public consent to the stabilization of oil production was expressed by exporting countries, producing approximately 73-75% of the oil. “I think Iran can join us with time, and Iran it also does not exclude, generally supporting the appropriateness of such coordination. I believe that the agreement can work,” added the Russian Minister. He said that it was not discussed when Iran will reach the production of 4 million barrels per day.

In mid-February of the current year in the Qatari capital Doha, Ministers of oil of Saudi Arabia, Qatar, Venezuela, included in OPEC and Russian energy Minister Alexander Novak held talks on improving the price situation on the oil market. The parties expressed their willingness to save, on average, in 2016 oil production at the level of January of the current year, if other countries-oil producers will join this initiative. On 17 February in Tehran passed negotiations of Ministers of oil of Iran, Venezuela, Iraq and Qatar, which, in turn, discussed the possibility of “freezing” the level of oil production.

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Post-sanctions Iran seeks to rebuild its market share and expects that OPEC and other major manufacturers will offer a special program of increasing production and exports. Recently the Minister of oil of Iran Bijan Namdar Zanganeh said that Iran will discuss with the largest oil producers freeze their prey only when its level in the country will reach 4 million barrels a day. According to him, as long as the country has not reached this level of production, other countries-oil producers should leave Iran alone.

Iranian officials have repeatedly stated that they do not intend to be subjected to sanctions after having left from under them. By April of the current year in the Islamic Republic plans to increase oil production from 2.8 million barrels to 3.6 million barrels per day versus last year. By the end of March 2016 Iran is expected that the exporting country of oil will reach 2 million barrels per day.

Arrangements must be secured

Novak said that the meeting of the countries-manufacturers of oil can be held in April, date to be agreed in the coming days, considers several options for venues.

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“The venue is discussed, and such consultations are OPEC countries, mainly Qatar, which holds the presidency of OPEC. Doha is considered as an option for meetings,” he said. Earlier it was reported that a meeting can be held 20-25 March in Moscow, also discusses other venue.

The Minister noted that the countries-manufacturers of oil can sign an agreement on stabilization of oil production, because the lack of a decision would lead to greater volatility in the market. “In my opinion, the market is more balanced today by price, including through a clear understanding of production in accordance with agreements between the two countries. If not to secure a decision, there will be uncertainty in the market, and this will lead to greater volatility. Now, alternatively, considered that it might be signed a certain document, and perhaps a General statement countries. From my point of view, should be signed agreement or Memorandum or a public joint statement,” said Novak. The Minister added that at present there is no clear mechanism of monitoring compliance with the agreements except the actual statistics of production of the countries, which publicly exposed.

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The Minister stressed that the dynamics of oil prices in February confirms that countries stick to their verbal agreements on the stabilization of oil production. “February is over and we see the dynamics of the February to January, and it confirms that those countries who have gathered in Doha to support their oral agreement,” he said. The Minister noted that, although the price rose from $27 to $40, in 2016 we can expect the price of oil between $40 to $50 per barrel. “From the fall no one is safe. Speculators may heat up the market. Taking into account the depreciation of investments it is important to understand that the price of oil, which actively returned the investments in such complex projects as shale oil. Proceeding from today’s position of shale oil, it’s roughly around $50 on average. We’re talking about a certain average, because there is the production volume high,” he said.

The Russians are coming

Novak stressed that the main purpose of his visit to Iran was to convince the Republic to “freezing” of oil production. “We discussed issues of cooperation in the field of oil and gas equipment supplies, swap supplies of oil and gas and a whole range of issues, and the interest that our and Iranian companies”, – said the Minister.

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According to him, Iran needs to submit to the terms of the new contracts, Russian companies could decide on participation in the development of oil and gas in the country. Presentation of new terms for Russian companies may take place in the near future. “Our companies are ready to consider the participation in projects on exploration of oil and gas. Including improving the efficiency of existing fields that are under sanctions decreased production. The problem is, to finally participate in these projects, the Iranian side must present the terms of new contracts”, – said Novak.

He said that virtually all the major Russian majors are ready to consider the possibility of participation in projects for the exploration and production of oil and gas in Iran. “Gazprom Neft” has already submitted proposals for specific projects of development of oil fields in Iran.

Earlier the head of LUKOIL Vagit Alekperov stated that the company is somewhat disappointed with the conditions of the service contract with Iran, but expects that it will be made in refining the elements of concession. The Russian company “Rosneft”, “LUKOIL” and “Zarubezhneft” claim the right to develop the oil field Sangole on the block part of the Anaran oilfields in South West Iran. “Gazprom oil” has previously stated that it is interested in new projects in Iran.

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The Iranian authorities hope that the international oil companies are actively investing in the oil industry of the country after the lifting of international sanctions imposed because of Iran’s nuclear program. In November, Iran hosted an international conference on the allocation of new contracts for oil at 52 deposits for representatives of world oil and gas companies, including Russian “Rosneft”, “LUKOIL”, “Gazprom oil” and “Tatneft”. At the conference representatives of the Iranian authorities said that investment in the production of oil and gas equipment and partnerships with local companies will become key terms in distribution contracts.

While Novak said that Russia and Iran can still implement the deal “oil in exchange for goods”, despite the lifting of sanctions. “The situation has changed after the lifting of sanctions, and Iran entered the market, however, the Memorandum, which was signed by validity period of five years, continues to operate. If there will be delivery on those markets, which have been Iran, in accordance with these arrangements, a portion of this revenue can be used for delivery of Russian products. Therefore, we will try to continue to implement this Memorandum. The Iranians also, I think, are interested from the point of view of the development of the trade turnover”, – he said.

In October of 2015, Iranian oil Minister Bijan Namdar Zanganeh after talks with Russian energy Minister in Tehran said that Iran is ready to swap contracts with Russia on oil and gas. We are talking about obtaining oil, gas and petroleum products from Russia in the North of Iran and send Iranian equivalent volume of oil, gas and petroleum products from Iran to Russian counterparts through the ports and terminals in the South of Iran.

A bit of bargaining

During the meeting with Chairman of the Russian-Iranian intergovernmental Commission from the Iranian side and the Minister of information and communications technology of Iran Mahmoud Vaezi Novak said that Iran hinders the implementation of contracts with Russia for the construction of a thermal power plant in Bandar Abbas and the electrification of the railway in the area Garmsar – Inch breaker, imposing new conditions on prices. “Projects need to be finalized, and not to put forward new conditions, as it inhibits their implementation. And the pricing corresponds to the world level”, – said the Russian Minister, responding to the comment Vaezi. During the negotiations, Vaezi expressed the view that the earlier proposed contracts the price should be aligned with global prices after the lifting of international sanctions.

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Russia expects to start funding two pilot projects in Iran by funds from the state loan of $2.2 billion in 2016. Both agreements were signed during the visit of Russian President Vladimir Putin to Iran. The plan projects will be funded from the state export loan of the Russian Federation totaling up to $5 billion In February in Moscow, Iran and Russia initialed the documents for opening a credit line of $2.2 billion under these two projects.

Novak said that public credit is in a state of “legal execution”.

Company Technopromexport, a subsidiary of state Corporation rostec, has signed a contract with the Ministry of energy of Iran on construction of two power plants with a total capacity of more than 2 thousand MW and costing more than $3 billion.

Russian Railways and “organization of Iran Railways” signed an agreement on electrification of the railway section Garmsar – Inch breaker with a length of 495 km project Value is €1.2 billion According to preliminary estimations, its implementation will take about three years.

Novak said that these two contracts are in high degree of readiness and in a few days can sign.

Not just oil

Also Russia is considering the introduction of free trade regime with Iran. As stated by Novak, February 2 joint research group sent the first edition of the report for consideration by the Iranian side. “I should note that the level of our economic relations in the present time corresponds to the political level. We note the intensification of our ties with Iran,” said Novak. Among the promising areas of Russian exports to Iran, he called the products of such industries, as metallurgy and chemical industry.

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In addition, Iran can supply Russia fruit and vegetable products worth at least $1 billion a year. Novak also urged the Iranian side to develop mutual trade delivery of agricultural products on the Caspian sea. Speaking about the reduction of tariff load on Iranian agricultural imports to Russia, Novak said that the Russian side had worked out solutions to lower customs duties on imports of Iranian pistachios, dates, raisins and some other goods. The question is on agreeing relevant organizations in Russia. Referring to problems in bilateral trade in agricultural products, the Minister focused attention on the issue of exports to Iran of Russian wheat. “We were somewhat alarmed by a ban on the import of wheat to Iran, which is introduced with March 21. The fact that grain deliveries from Russia a considerable share in our trade turnover”, – said the co-chair of the intergovernmental Commission. According to the IRNA news Agency, in 2014 Russia has supplied Iran with 1.3 million metric tons of wheat. And according to the Russian agriculture Ministry, in 2015, Tehran has purchased only 6.6 million tons of wheat, 1.3 million tons fell on supplies from Russia (about 20% of the total import volume approx. ed.)

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Since the lifting of sanctions against Iran in January 2016 the parties declared mutual plans to expand trade, including agricultural products. As reported the Ministry of agriculture of the Russian Federation, Russia is interested in export to Iran of animal products (beef, poultry), grains, sunflower oil, white sugar. Russia, in turn, intends to purchase in this country, pistachios, dates, grapes. Russian retailer said it was ready to increase its presence on the shelves of food products from Iran, and in some cases they can replace banned because of Russia’s sanctions Turkish food.

According to the agriculture Ministry, in 2015 the share of exports to Iran of Russia’s exports amounted to 3.1%, while in absolute terms exports of agricultural products to the Republic totaled $484.4 million (according to data from the Federal customs service of Russia). Key commodity positions in the structure of agricultural exports from Russia to Iran in 2015 in terms of value were cereals, including wheat and barley (91%) and sunflower oil (5.1 per cent).

In turn, imports from Iran in Russia’s total imports of agricultural raw materials and food amounted in 2015 to 0.7%, or $194,3 million (according to data from the Federal customs service of Russia). Russia mainly imported from Iran vegetables, fruits, dried fruits and nuts.