The Most Important Oil Project Of The Year Is Set To Go Live

Iran’s Jask oil terminal is now fully set to start loading vast quantities of crude to any major buyer in the world via the Gulf of Oman, with the first shipment of 100,000 metric tons of oil set to dock, load, and sail again within days. The significance of this new terminal can barely be overstated, as it will allow Iran to transport oil and petrochemicals from its major oil fields via Guriyeh in the Shoaybiyeh-ye Gharbi Rural District of Khuzestan Province 1,100 kilometers to Jask Port in Hormozgan province. In short, this 42-inch Guriyeh-Jask pipeline and Jask Oil Terminal build-out will allow Iran to circumvent U.S.-led sanctions against it whilst at the same time allowing Tehran the option of disrupting all other oil supplies that travel through the Strait of Hormuz (around 35 percent of the world’s total).  Up until the completion of the huge Jask facility, with sanctions on Iran still in place following the U.S.’s unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) in May 2018, Tehran has been relying on its tried-and-tested sanctions-busting measures to continue to export increasing volumes of crude oil, especially to China, as exclusively revealed by OilPrice.com. These measures include the re-labeling of Iranian oil into Iraqi oil on the border and at the shared oil reservoirs of the two allies, the use of international brokers to hide Iranian oil movements under the guise of other clients, ship-to-ship transfers of Iranian oil in the territorial waters of Malaysia, Indonesia, and China, and the amalgamation of Iranian oil in Iraq’s oil pipeline export routes. 

With the Guriyeh-Jask pipeline and Jask Oil Terminal now in place, though, the volumes of oil that Iran will be able to move freely out to China via the Gulf of Oman, and to other target clients in Asia and elsewhere, will increase dramatically. “Even before U.S. sanctions were re-introduced, the Kharg terminal accounted for around 90 percent of all of Iranian oil export loadings, with the remaining loads going through terminals on Lavan and Sirri, which made obvious and easy targets for the U.S. and its proxies to cripple Iran’s oil sector and therefore its economy,” a senior oil and gas industry source who works closely with Iran’s Petroleum Ministry told OilPrice.com. “In addition, the extreme narrowness of the Strait of Hormuz means that oil tankers have to travel very slowly through it, so pushing up the transit costs and delaying revenue streams,” he said. “Conversely, Iran wants to be able to use the threat – or reality – of closing the Strait of Hormuz for political reasons without also completely destroying its own oil exports revenue stream,” he added. 

In the first instance, the oil to be pumped from Guriyeh will be drawn from the cluster of resource-rich oil fields in the West Karoun area, including the supergiant fields of North Azadegan, South Azadegan, North Yaran, South Yaran, and Yadavaran. These fields in particular are the current focus of Iran’s program to increase the mean average rate of recovery from its key oil sites from around 4 percent at present to at least 12 percent within the next two years. According to the Iran source, every incremental barrel increase is being sought as, for every one percent that the rate of recovery from West Karoun is increased the recoverable reserves increase by 670 million barrels. Even with an average Brent crude oil price of US$70 per barrel, this would equate to just under US$50 billion in additional revenues for Iran per each one percent increase.

Such an increase in Iran’s rate of recovery is entirely reasonable to project, given that the lifting cost per barrel of crude oil in Iran is at the same world-low level as in Saudi Arabia (US$1-2) – implying the same ease of extraction – and Saudi Arabia’s mean average rate of recovery across its fields is at minimum 50 percent. Saudi, moreover, is looking to increase this to 75 percent within the next couple of years. Back when the JCPOA had just been officially implemented on 16 January 2016, a number of international oil companies presented realistic plans to Iran’s Petroleum Ministry detailing how they could increase the average rate of recovery at the West Karoun fields with relative ease: in the first instance to at least 12.5 percent within one year, to 20 percent within two years, and to 50 percent within five years.

Once the oil arrives in Jask, it is stored in any of the 20 storage tanks each capable of storing 500,000 barrels of oil in the first phase (totaling 10 million barrels) for later loading onto very large crude carriers (VLCCs) headed from the Gulf of Oman and into the Arabian Sea and then to the Indian Ocean. The second phase will see an expansion to an overall storage capacity of 30 million barrels. These VLCCs will be accommodated in shipping facilities that have cost around US$200 million in the first phase, although the plans are to expand capacity to allow for further regular shipping of various oil-adjunct and petrochemical products in particular demand in Asia. 

In addition, a single point mooring (SPM) loading system with a capacity of 7,000 square meters per hour of loading capacity recently arrived in Assaluyeh, southern Iran, which would also allow for an increase in gas condensate loading capacity at the country’s supergiant non-associated natural gas field South Pars. This SPM will allow for the handling of liquid cargo, such as petroleum products, for tanker ships. “There will be a few more of these installed in the south, in the Gulf of Oman, in the coming months, as they are very useful in areas where a dedicated facility for loading or unloading liquid cargo is not available,” the Iran source told OilPrice.com. These SPMs will operate in a similar manner to those of Iran’s neighbor, Iraq, in that they will be located many kilometers away from the onshore facilities, connected to them by a series of sub-sea pipelines, and able to handle the biggest of VLCCs. 

Having huge oil storage capacity available just a short direct sea journey away from India means that pressure from India and Pakistan is likely to result in the final go-ahead for the construction of the Iran-Pakistan-China pipeline. “This would necessitate the stationing of Iranian security personnel – that is, IRGC [Islamic Revolutionary Guards Corps] – on Pakistani soil, which is of considerable strategic interest for the IRGC,” said the Iran source. “It also means that Iran can send oil supplies – and anything else it wants in the tankers – to the Houthi faction in Yemen to keep a constant threat to the Saudi southern flank, and also to militia groupings in Somalia and Kenya,” he added. Given the broad and deep ties between Iran and China, these routes and plans perfectly coalesce with Beijing’s own multi-generational power grab project, ‘One Belt, One Road’. 

This program, as has been highlighted on numerous occasions – including most recently in the cases on Sri Lanka and Djibouti – uses an initial extension of financing by China to a country in desperate need of funding to allow Beijing to gain a foothold and then when the debtor country cannot afford the repayments on its debt, allows China to grab key assets of the country instead. In Sri Lanka, Beijing began its push by extending unlimited loans to beleaguered former President, Mahinda Rajapaksa, for his Hambantota Port Development Project. This project – as the Chinese well knew - stood little chance of succeeding as a port and when it failed to generate any significant business and Rajapaksa was voted out of office, the new government was unable to meet the loan repayment demands. At that point, the new Sri Lankan government had little choice but to hand over the port to China (plus 15,000 other acres of surrounding land) for a period of at least 99 years in restitution. Hambantota may have been useless as a standard port from the money-making perspective, but for China it is of enormous strategic significance, overlooking South Asia’s major sea lanes, and allowing it in the future to establish a dual-use (commercial and military) facility for naval assets.