November 8, 2021 [Shana] – Iran’s newly-appointed minister of petroleum, Javad Owji, has said his agenda included development of the existing refineries and construction of new ones, although the country has become self-sufficient in gasoil and gasoline production. That is aimed at persistence of reducing crude sales.
Due to current restrictions on Iran’s crude oil exports, the country is planning to increase its crude oil and condensate refining capacity to 3.4 mb/d from the current 2.15 mb/d.
Shift to Petro-Refineries
Today, the world is moving towards integration of refining and petrochemical processes in petro-refinery complexes, which are more economically viable than refineries. Crude oil processing at a petro-refinery involves the crude oil through the refining processes into fuel derivatives such as gasoline, diesel, jet fuel and fuel oil; however, products such as LPG and naphtha may also be used to develop the petrochemical sector of these units while dozens of petrochemical products may be manufactured. Now, with the opening of the Persian Gulf Star Refinery, Iran has become self-sufficient in all oil products, including gasoline. Development of the giant offshore South Pars field and subsequently replacement of liquid fuel with gas as feedstock for power plants has led to availability of surplus diesel for export.
Iran has also exported its surplus kerosene and LPG after supplying gas to villages. Therefore, the petro-refineries planned to be built in Iran would not have to export their products at subsidized prices and/or the prices set by the Petroleum Ministry. These refineries can export their products at free-market rates and will not produce losses like old refineries. Many developing countries as well as petro-states have planned development of the petro-refinery industry, and have allocated required credit and facilities for the development of this sector.
Is Petro-Refinery Development Possible?
Since the petroleum industry in all its subsectors, especially the petrochemical sector has been moving forward over recent years, despite the economic problems and tough US sanctions, efforts have been made to address the issue of petro-refineries as much as possible with a view to selling products and creating value-added. It was in this direction that the plan to “build petro-refineries using public investment and the method of feedstock supply” was finally approved by the Iranian parliament. In fact, the view of the government and the Petroleum Ministry is to support construction of oil/gas refineries and petro-refineries using public capital and based on the fact that investors could provide a maximum of 30% of initial liquidity, and the rest of the capital would be provided through the issuance of bonds, capital markets and bank facilities. And over this period of time, efforts have been made to lay the groundwork for this goal.
Regarding the positive impact of this method on the international monetary and financial issues of the country, it should be mentioned that this method would lead to further expansion of trade relations with the countries of the region, which could be materialized through utilizing methods such as bartering, i.e. receiving goods for oil. Moreover, it is an effective approach to counter the embargo on the sale of crude, and we must convert oil into domestic refineries and export petroleum refining products rather than exporting raw material. In crude oil exports, large and high volume shipments are exported, and this makes it easier to monitor, track and sanction these shipments. The number of Iranian crude oil customers is also limited due to sanctions.
Iran’s oil could be fed to 40 to 42 refineries in the world. These 40 refineries are located in seven or eight countries. These eight countries are mainly located in the geographical region of East Asia and Southern Europe. The classification becomes even more detailed. Iranian crude oil is actually transported to four regions that are energy hubs, where it is unloaded to reach these eight countries. Therefore, distancing itself from this crude sale is a major necessity in the Iranian petroleum industry.
Regarding the method of financing petro-refinery projects in the current situation of the country, it should be noted that there is IRR 16,000,000 billion of liquidity available for investment in the economy and could be a very good source of funding for such projects. For instance, the Persian Gulf Star Refinery was able to attract IRR 3,000 billion from the people’s capital by issuing “salam bonds” while using its financial resources.
In addition to the Petroleum Ministry’s plans to develop petroleum refineries in Iran, the existing capacities of the Iranian refining and distribution industry would be used to enhance Iran’s refining capacity. Owji has said contracts have been signed with eight potential investors in this field for refining about 1.5 mb/d to 1.6 mb/d (crude oil and gas condensate), and due to the quantitative and qualitative upgrading of existing refineries, enough capacity will be built there. He said: “We may enhance the country’s refining capacity by 1.5 times in the next three or four years.”
“The maximum capacity of refineries’ crude oil and gas condensate is now close to 2.2 mb/d, which we hope will reach 3.4 to 3.5 mb/d,” he added.
Good Capacity for Oil Exports
National Oil Refining and Distribution Company (NIORDC)’s plan to develop petro-refineries and reduce crude oil sales does not mean that Iran will not export its oil in the coming years, but we would like to further focus on exporting oil products.
Asked whether the country would no longer need to export crude oil with the increase in the refining capacity, Owji said: “The Islamic Republic of Iran has proper capacity in oil reservoirs and we holds over 150 billion barrels of oil that could be extracted. If we consider maximum efficient recovery from these reservoirs we will have good production capacity. With upstream plans, oil production capacity will definitely increase over four to five years both in joint and independent fields. Enhancing the production capacity enables us to upgrade the refining capacity and guarantee the energy security while going ahead with oil exports.”
Noting that enhanced refining capacity would depend on enhanced recovery from oil fields, Owji said: “Fortunately, with God-given reserves of 154 billion barrels of recoverable crude oil and 33 tcm of recoverable gas, when the production capacity in the upstream sector increases, the refining capacity in the downstream sector would increase, too. In the meantime, we’ll need to control our oil export capacity.”
Asked if there were any plans for building a new refinery similar to the Persian Gulf Star refinery, the minister said: “A refining capacity as big as the Persian Gulf Star’s has been envisaged and the idea behind it is to neutralize sanctions. But as we look into enhancing crude oil and natural gas production and boosting refining, we also focus on efficient use.”
Oil Refineries Need Investment, Knowhow
Despite the implementation of development projects over recent years in Iranian refineries, the decrepit structure and old technology in Iranian oil refineries today cause great damage to the private sector in Iran. Iranian refineries currently receive crude oil from the government at a 5 percent discount, but they still do not make much profit from refining barrels of oil. Therefore, rebuilding and modernizing these refineries need investment and modern technology. If the refineries are not renovated and/or modernized, Iran would be lagging behind other countries and may find it difficult to make up shortfalls.
The private sector is not very interested in modernization and improvement. Therefore, the government helps the private sector in the form of loans and foreign investment guarantees to improve the country’s existing oil refineries. Following signing a nuclear deal with six world powers in 2015, foreign investors, especially companies from South Korea and Japan, showed interest in upgrading Iran’s old oil refineries. Currently, one of the main problems of oil refineries in Iran is low technology and outdated equipment, as well as fuel oil production. Therefore, reducing the production of fuel oil and increasing the production capacity of value-added products in the country’s oil refineries is on the agenda as the most prioritized executive program.
Over recent years, this issue has been considered with a research approach towards identifying and accessing new technologies, as well as the approach of building new refineries using new technologies.
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