Analyst sees end to Iranian gasoline crisis by 2012

By OGJ editors
HOUSTON, July 25 -- Iran's potentially destabilizing shortage of gasoline will ease by 2012, according to a veteran observer of the country's oil industry.

Fereidun Fesharaki, chairman and chief executive officer of FACTS Global Energy, says additions to refining capacity totaling 705,000 b/d during 2008-12 will eliminate Iran's strong reliance on imported gasoline. The capacity additions include three condensate splitters with 55% gasoline yield at Bandar Abbas.

With demand for gasoline, which is heavily subsidized, rising at 10-11%/year recently, the Iranian government in May increased prices of the product by 25% and in late June imposed rationing. The latter move caused riots in major cities (OGJ, July 9, 2007, p. 17).

In a report this month, Fesharaki says the government is under pressure to raise the price of gasoline sold beyond ration limits to international levels, about five times the current price, by September.

Following the government crackdown in May and June, he adds, smuggling of about 40,000 b/d of gasoline out of the country ceased. Iranian gasoline now is being smuggled to Iraq.

Last year, the Islamic republic imported about 192,000 b/d of gasoline. In the first week of May, Iranian gasoline demand averaged 496,000 b/d.

Fesharaki expects Iran eventually to export 100,000-250,000 b/d of gasoline while fuel oil exports drop to 50,000 b/d in 2012 from 250,000 b/d in 2006 once planned refinery projects are complete.

The analyst projects additions to crude distillation capacity by 2012 of 80,000 b/d at Arak, a total of 420,000 b/d at Bandar Abbas, 120,000 b/d at Isfahan, 50,000 b/d at Tabriz, 21,000 b/d at Lavan, and 14,000 at Shiraz. He forecasts additions of processing capacities related to gasoline, such as catalytic cracking, catalytic reforming, and pentane-hexane isomerization, at those and other refineries.

Upstream work
Fesharaki notes a series of delays and cost overruns in major oil field development projects related to the buyback contracts under which foreign partners must work and to inefficiencies in the Iranian regulatory system.

Despite modest changes to the buyback contracts, he says, terms remain unattractive by international standards.

Furthermore, because of US pressure and political instability, international banks won't back Iranian energy projects.

Last year, Iran produced 4.07 million b/d of crude and condensate from capacity estimated at 4.3 million b/d. Recent production gains have mostly been condensate from offshore South Pars field.

Production-decline rates are about 8%/year onshore and as high as 13%/year offshore.

Despite the steep production declines and problems with oil field development, Fesharaki expects crude and condensate production capacity to reach 4.7 million b/d by 2012, almost all from South Pars.

Although Iran's gas reserves estimate of 993 tcf is second only to Russia's, the analyst sees a ceiling of 20-30 million tonnes/year on Iranian gas exports via LNG and pipeline.

He cites domestic demand kept high by subsidy pricing, oil field needs for gas injection of about 10 bcfd, large gas-based petrochemical projects, the use of compressed natural gas to supplement gasoline supplies, and political opposition to gas exports (OGJ, May 9, 2004, p. 34).

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