Boston, MA -- (SBWIRE) -- 03/19/2013 -- BMI View: International sanctions remain in place, resulting in a sustained fall in oil export volumes and revenues. Due to significant obstacles for financing, due to both falling export revenues and sanctionsrelated challenges, investment the energy sector will remain strained. Indeed, gas export schemes and refinery expansion projects will make little progress as international oil company (IOC) partners heed the investment embargo, As such, the overall outlook will remain negative unless there is a breakthrough in Iran's negotiations with the international community over its nuclear programme. Meanwhile, Iran is claiming a succession of major oil and gas discoveries that, if proven, demonstrate considerable upside potential to its existing resource base.

We highlight the following trends and developments in Iran's oil and gas sector:

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- BMI sees Iranian oil production declining significantly in 2012-13 as a result of international sanctions focused on preventing the Islamic Republic from selling its oil exports abroad. Indeed, we forecast more than a 20% fall in oil production from 2011 to 2012. Production will remain depressed over the course of 2013, only to pick up modestly over our forecast period. Production in 2017 is expected to be 3.78mn barrels per day (b/d), which is still over 10% below the 4.23mn b/d produced in 2011.
- US economic sanctions against Iran have slashed the volume of crude exported and oil revenues, the US Treasury said in mid-September 2012 as it vowed to keep up the pressure on Tehran to prevent the Iranian government from enriching uranium to make nuclear weapons. US efforts have paid off with Iranian crude exports falling to about 1mn b/d, the US Treasury said. We are forecasting that total net oil export will fall close to 3% in 2013, on top of the 37% fall in exports we estimate for 2012.
- Similarly, the outlook for sustained growth in gas exports has changed dramatically due to the impact of sanctions on foreign investment levels. For the foreseeable future, we see no progress in the development of liquefied natural gas (LNG) schemes, nor the gas field projects designed to supply the fuel. Gas production will continue to rise steadily, albeit modestly over the forecast period, at an average rate of 2% through to 2021.
- While fuel subsidy reforms have undermined the domestic oil consumption trend, we still expect the Iranian market to expand steadily, driving net crude oil exports down from 2.30mn b/d in 2011 to a low of 1.47mn b/d in 2013. A dramatically weakening rial on the back of sustained sanctions is putting significant pressure on the consumption of some refined products, however. For example, local Iranian airlines have increased fares significantly on the back of kerosene prices, which have risen over 80% in recent months.

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