Eventual collapse of Iran's oil industry: Repost

Did a basic overview and some analysis of the report and came to a few conclusions.

First, the regime has not been investing enough to keep their basic infrastructure going. Their income from oil is just enough to cover maintenance, but not future investments. So, by trying to bring up the old maritime platforms as producers, they are actively removing money from the maintenance budget.

Second, the entire petroleum infrastructure is going to pot. The very pinnacle and most complex piece of the infrastructure is the refinery: if you do nothing else, you keep the refineries going as the most value added is there. Any modern, well run refinery system does not *lose* oil. The entire supply and refining system in Iran is losing 3-4% of its oil above and beyond the depletion rate of its field capacity. The added subsidies to gasoline and natural gas are killing the refineries, which cannot sustain themselves on that economic footing without other monetary inputs. The natural gas problem is even worse, as it is the #1 easiest and cheapest method of 'rejuvenating' old oil fields. Plus Iran is hopping to let liquid natural gas futures and contracts. To do this there will be *no* cheap oil sustainment and more expensive methods will need to be employed. In point of fact they may not be able to let any contracts on natural gas based on domestic consumption alone.

Third, the entire petro-infrastructure has seen no new additions on it for at least 4 years and most likely 8 years. Japan has shut off ALL new investments in this area and the amounts that Iran is trying to bring online no where meet current consumption increases. Gross supply,then, at best will remain flat with diminishing older fields losing production, no new projects to be online before 2010 and actual maintenance losing oil in the sytem. And as the older maritime equipment needs an overhaul, bringing it up again only means a faster date to get that started. From that the expectation is that gross supply will *not* remain steady and will actually begin to decline.

Fourth, the first indicator or warning sign is that Iran can't meet contractual obligations. They have not met their OPEC export quota for 18 months.

When production crosses consumption downwards, Iran becomes a net oil IMPORTER. Their refinery system is already so bad off that they are talking about buying gasoline to import and selling it at cost... considering the subsidized gas is 34 cents/gallon and the world market is about 5 times that, the economic shock of even a slow transition will be huge as money starts to flow out of Iran to buy gasoline.

The refineries are the key: they are the most integral part of adding value to the crude oil and get a high return on investment. When those start to fail, that indicates a system-wide problem in lack of skills and maintenance. No modern Nation loses *any* oil in the pipeline system or refining system, unless it is venting of natural gas that cannot be used or captured. It isn't just the nice economic trouble numbers out at 2012-19 that are worrying, it is the fact that before that happens the entire system reaches a tipping point and Iran changes from oil export on contract to being forced out of OPEC and onto the spot market because it cannot meet export quotas and is seen as an unreliable Nation for meeting contractual obligations. Things get very ugly then. Especially if the refineries have to be shut down and gasoline imported. And there is no cheap rejuvenation of older oil fields with natural gas. And maintenance of the basic pipeline and pumping system declines steadily.

The refineries are near that point already. The oil fields are already experiencing the fact that more expensive rejuvenation needs to be used because natural gas cannot be taken from the domestic use side. And the infrastructure is already losing 3-4% of all oil pumped out of the ground.

These are not little post-it note warnings: these are huge billboards in neon brightly flashing *Danger Ahead*.

What happens when this house of cards falls in on itself is of speculation. Even if they stopped subsidies *today* and took the resultant economic downturn, new projects will not come online until 2010 if the system worked well. It does not work well. This is the strangest form of economic suicide that has ever been described: willful neglect of a cash cow that drives the National economy to undermine one's own Nation.

When the refineries die or are closed, the rest of Iran is not far behind.