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Increasing Iranian Natural Gas Production

Iran is in the news a lot because it appears to have nuclear bomb ambitions. The West led by the USA has levied punishing sanctions on the country. Now Iran has a new president although the religious oligarchy is still in charge overall. But the new president is pursuing what the press calls a charm offensive and hinting at a deal to satisfy Western and Israeli concerns about its nuclear program. The end result of a deal with Iran would be a lifting of sanctions. Iran would rejoin the tops ranks of oil producers and sellers. Increasing Iranian natural gas production would likely be part of the picture. In fact Iran has just signed a natural gas deal with the country of Oman on the Arabian Peninsula and on the Indian Ocean. Iran has the second-largest proven natural gas reserves in the world. And its gas fields are largely undeveloped. Despite its largely undeveloped gas resources its South Pars gas field is one of the biggest in the world and puts Iran in the number three or four spot in the world for natural gas production. As Iran and the West come to term on Iranian nuclear development sanctions will likely lift and increasing Iranian natural gas production will be part of the picture. How will increasing Iranian natural gas production affect the US gas and oil industry? Investing in oil and gas has been a good bet recently due to the development of fracking technology. Investment in fracking technology has paid off handsomely. However, natural gas fields in Iran do not require this technology and can produce natural gas for less. Will excess production and a lower cost hurt US producers?

Scarcity, Drama and Oil Price

The price of oil and natural gas are slightly higher than what the market might otherwise determine because of the embargo on oil and gas from Iran. And it is up because of the continuing threat of hostilities in the Persian Gulf due to the Iran weapons program and sanction from the West. The world is still recovering from the worst recession in three quarters of a century so demand is down. As economies recover demand will rise. In the meantime increasing Iranian natural gas production could drive prices down and make it unprofitable to bring gas from higher priced sources to market.

Here are 2011 production figures for the top ten producers.

 

 

Nation Natural Gas Production

in Billions of Meters Squared

Russia 669.6
United States 651.3
European Union 167.6
Canada 160.1
Iran 146.1
Qatar 116.7
Norway 103.1
China 102.7
Saudi Arabia 99.2
Nigeria 92.0
Algeria 84.6

As the table shows Russia and the USA are far and away the biggest producers. However, the prices of oil and gas are commonly determined on the spot market as much of what is bought and sold in under contract for months or years prior to recovery and sale. As such bringing another ten, twenty, or thirty billion square meters of gas to the market could substantially drive prices down. In short do your fundamental analysis before buying or selling oil and gas stocks. And watch the news to see if the Iranian nuclear problem gets resolved.

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