It will take several months for the Middle East to recover its oil and gas production

LONDON, 15 JUNE - An agreement framework between the U.S.A. and Iran to end the war and reopen Strait of Hormuz has sent oil prices plummeting as traders anticipated the return of flow.

Industry officials claim that a return to the pre-war levels of production and refinement is likely to take several weeks, months or years.

This article explores the major energy implications of this tentative agreement.

What does the deal change?immediately? U.S. president Donald Trump announced that the Strait of Hormuz - a major shipping lane for global oil supplies - which 'Iran had effectively closed down for months - would reopen on Friday. He also said he ordered an end to a U.S. port blockade against Iran.

Kazem Gharibabadi said that a wider agreement would be negotiated over a 60 day ceasefire, which included sanctions relief for Iran.

How quickly can oil production resume?

The Strait has effectively closed Middle East oil producers, including Iraq, Kuwait and Saudi Arabia, who have shut down millions barrels of crude oil production per day. According to the International Energy Agency, more than 14 millions barrels of crude oil per day are shut down or 14% of global demand.

An official with knowledge of the situation said that some production, such as in Iraq, can be resumed in less than one week after a decision is made to restart. Some fields will require much more time.

Our analysis shows that, if operators opt for a controlled and measured ramp-up plan, the affected fields could return to 70% of their prior production in three months. And 90% within six. Analysts at Wood Mackenzie say that the last million barrels per day or so may take a lot longer.

Why are oil refineries called a bottleneck?

According to IIR, the industry monitor, Iran's war has shut down 3.52 million barrels of refinery capacity per day as of May 7. This is about 3.5% of global capacity, and some plants have been damaged.

Analysts say that repairing sites damaged by the storm will take more time than restoring plants that were shut down as a precaution. Bader Nooruddin said that Gulf refineries can reach 90%-95% capacity in 40-60 days.

According to Rystad, the Middle East will spend an average of $46 billion on repairs. The largest portion is spent on repairing refineries and petrochemicals due to their complexity, and because they are more damaged.

What about gas, including LNG?

As early as the beginning of the conflict, major LNG facilities like those in Qatar curtailed or halted operations after attacks.

After a restart is decided, it takes around two weeks for gas to become super-chilled and reach its full capacity.

The cooldown step is critical in the liquefaction procedure. It turns gas into liquid by cooling it to minus 162° Celsius (minus 262° Fahrenheit). The process is deliberately slow to prevent thermal shock. It is not possible to restart all the LNG trains or lines of processing that convert?gases into liquids simultaneously. They must be done in sequence.

Qatar Energy kept three trains running during the war in order to meet demand for Kuwait and Bahrain. It will take many years to return to full capacity. QatarEnergy CEO stated that Iranian attacks have wiped out up to 17% of Qatar's LNG production capacity.

OIL INVENTORY Rebuild to be Prolonged

Due to the disruption in supply, world?oil stock levels are decreasing and the return to normal will take a long time, perhaps years. According to the US Energy Information Administration, the stockpiles of the world's biggest economies are on their way to their lowest level since 2003.

Paul Gooden is the head of Natural Resources at investment manager Ninety One. He said, "It'll take several months for the flow to return to normal. We estimate that the global oil inventory has shrunk more than one billion barrels from the beginning of the conflict." At today's prices, one billion barrels is worth more than $83 billion.

"Oil markets are likely to suffer from a 'hangover effect' for several more years, as governments try to build up inventories and insulate themselves against further geopolitical events." Reporting by Alex Lawler and Robert Harvey, Editing by Barbara Lewis

(source: Reuters)