OpinionIran in the World PressIran falling short of oil refining ambitions

Iran falling short of oil refining ambitions

-

Reuters: Sanctions and insufficient funding are thwarting Iran’s ambitious plans to nearly double domestic oil refinery capacity to end its dependency on expensive imported fuels. By Simon Webb – Analysis

DUBAI (Reuters) – Sanctions and insufficient funding are thwarting Iran’s ambitious plans to nearly double domestic oil refinery capacity to end its dependency on expensive imported fuels.

Iran has the world’s second largest oil reserves but lacks the refinery capacity to meet its own transport fuel demand. OPEC’s second largest crude producer imports around 40 percent of its gasoline needs, which it then heavily subsidises.

The United States has said fuel imports give it potential leverage in the dispute over Tehran’s nuclear programme. Washington accuses Iran of seeking to build atomic bombs, a charge Tehran denies.

“Iran’s political rhetoric is toward refining self-sufficiency to end this Achilles heel of gasoline imports,” said Saad Rahim, analyst at Washington-based consultancy PFC Energy.

“But the obstacles are pretty significant. With the sanctions — which companies would be willing to go in and build these refineries?”

U.S. sanctions forbid its companies and discourage those in other countries from investing in Iran’s oil and gas sector, impeding Iran’s efforts to source the technology it needs.

“Sanctions have led to limited technology transfer, higher operating costs, and a much slower pace of development,” said Stuart Lewis, Middle East director at energy consultancy IHS.

Iran last year embarked on a multi-billion dollar, five-year programme to revamp and expand the refining system to 3 million barrels per day (bpd) from around 1.6 million bpd now. But analysts say state funding for the programme is inadequate.

“It is doubtful that this impressive goal will be achieved within this very tight deadline,” Cambridge Energy Research Associates (CERA) told Reuters, drawing on a report on Middle East refining capacity due to be published later this month.

The National Iranian Oil Company’s (NIOC) investment budget this year — for both upstream and downstream — was not enough to cover the cost of one large refinery, CERA said.

“Fundamentally, there is not enough money,” said Alan Gelder, vice president for Europe, Middle East and Africa downstream operations at oil consultancy Wood Mackenzie.

Rising costs, as the oil and gas industry strains to bring new capacity on line to meet rising global demand, have hit refining projects throughout the world.

Wood Mackenzie estimates Iran’s actual refinery capacity additions would more likely come to around 700,000 to 800,000 bpd by 2014 and would cost at least $10 billion, Gelder said.

The U.S. has piled pressure on European banks and energy firms to avoid doing business with Iran, and this was impeding Iran’s efforts to find funds for the new plants, analysts said.

“The informal financial pressure linked to the nuclear issue is likely to hamper the financing of Iranian new refineries, as banks are turning down any project financing in Iran and insurance exports bodies have lowered their Iran exposure,” CERA said.

Companies from energy-hungry Asia, less worried about U.S. pressure and looking to guarantee future oil supplies for fast growing economies, are participating in Iran’s expansion plans.

India’s Essar is in talks with NIOC to build a new $2 billion, 300,000 barrels per day plant, while China’s Sinopec last year signed a deal to upgrade Iran’s 170,000 bpd Arak refinery and has also upgraded plants in Tehran and Tabriz.

ORDERS, RATIONS

Iran has yet to place orders for some of the new refinery equipment that must be requested 2-3 years in advance, making any rapid increase in capacity even less likely, analysts said.

The country’s domestic fuel consumption is rising at around 10 percent per year, encouraged by the subsidies that make its gasoline among the cheapest in the world.

Iran aims to launch a gasoline rationing scheme as it looks to slow demand growth.

Fuel subsidies dampen the financial incentives to build new refinery capacity, analysts said. New plants may cut dependency on expensive imports, but they would also divert potentially lucrative crude exports to domestic refineries and the subsidised market.

With NIOC’s budget so limited, the state oil company would rather channel investment to the upstream sector, analysts said.

“From the financial perspective there is less incentive to do this, it is more politically driven,” said PFC’s Rahim. “If you’re NIOC and you have a billion dollars to spend, you’d rather put it towards upstream oil output.”

Still, Iran could easily increase spending on the refining sector, Rahim said. High oil prices have allowed it to boost foreign currency reserves that could be used to fund new projects.

The following details some of Iran’s plans to increase refinery capacity:

Refinery Capacity Increase (bpd) Start date

Arak +100,000 expansion N/A

Bandar Abbas +248,000 expansion 2008/2010

Tabriz +110,000 expansion 2011

Bandar Abbas +360,000 new condensate splitter N/A

Bandar Abbas +300,000 new refinery N/A

Abadan +180,000 new refinery N/A

Latest news

Bleak Fate of Iran’s Street Vendors

Widespread poverty and unemployment in Iran, and the catastrophic economic situation in society, have made life so difficult for...

Calls for Iranian President Raisi To Be Shunned by the UN

The Iranian president, Ebrahim Raisi took his first trip abroad to Tajikistan to attend the Shanghai Cooperation Organization (SCO)...

Iran’s Strategy: Moving on the Edge of the Abyss

Iran’s supreme leader Ali Khamenei and his government's officials in the 'young Hezbollahi government' on the eve of the...

Iran Likely To Face Further Oppression Following Cancellation of UNESCO 2030 Guidelines.

The secretary of the Supreme Council of Cultural Revolution (SCCR), Saeed Reza Ameli announced on Monday, September 13, that...

Suicide Has Become Ordinary in Iran’s Society

Suicide is a function of a series of economic, social, political, and cultural issues in society. In Iran, everyone...

Iranian Government Impunity Overshadowed by Failed Nuclear Deal Negotiations

Regarding Iran’s nuclear deal, formerly known as the Joint Comprehensive Plan of Action (JCPOA), the Iranian policymakers have stated...

Must read

Iran to resume nuclear work at suspended plant today – official

Iran Focus: Tehran, Iran, Aug. 03 – Iran announced...

13 year old schoolgirl facing death by stoning flogged 55 times

Iran Focus: Tehran, Oct. 30 - Zhila Izadyar, the...

You might also likeRELATED
Recommended to you