Report updates Iran’s refinery project status

Jan. 19, 2009
Iran has announced many refining and upgrading projects to increase the supply of transportation fuels. Many of these projects, however, will not proceed due to lack of funding.

Iran has announced many refining and upgrading projects to increase the supply of transportation fuels. Many of these projects, however, will not proceed due to lack of funding.

A recent report, “Iran’s Gasoline Imports and US Politics: An Update on Iran’s Refining Buildup,” discusses Iran’s refining projects and evaluates the likelihood of completion for each one.

The report from FACTS Global Energy, Singapore, notes that expansion and upgrading projects currently under way are likely to be completed. New refinery projects, to supply both exports and domestic demand, are having difficulty obtaining funding.

Gasoline demand, politics

According to the report, Iran’s need for gasoline imports is temporary and domestic production will be sufficient to supply Iranian demand beyond 2012-13. US sanctions on gasoline exports to Iran will therefore have no effect on the country.

Sanctions will instead motivate Iran to seriously curtail demand by forcing large volumes of gasoline to nonregulated prices, according to the report. These sanctions can save Iran several billions of dollars immediately, and could be a blessing in disguise for the Ahmadinejad government.

Iran is embarking on a large refining expansion and upgrading program. By 2012-13, Iran will not need any gasoline imports and may be an exporter after that. Iran’s gasoline demand is unlikely to grow much because the government intends to push more gasoline into nonregulated price market to force lower domestic consumption, according to the report.

Iran also plans to build new refineries, which the report says are doubtful. There are current projects that will resolve Iran’s gasoline deficit.

Iran’s gasoline imports

According to the report, Iran’s gasoline imports averaged 180,000 b/d in 2007 with a peak of 233,000 b/d. Although Iran had planned to introduce gasoline rationing through smart cards, it feared political backlash and expected consumer resistance.

The threat of US sanctions gave Iranians the justification they needed to impose rationing with limited public resistance in summer 2007. Imports fell about 50% immediately and saved Iran about $2-3 billion/year.

The report stated that demand is currently rising slowly and imports for 2008 will average 112,000 b/d, a decline of nearly 40% from 2007. The most important effect of all of these changes was the elimination of gasoline smuggling out of Iran and the emergence of a free market price.

Due to an emerging global refining surplus and, particularly, an unprecedented gasoline surplus, product imports make sense for Iran. Domestic criticisms and international concern over imports, however, have compelled Iran to build new refineries including upgrading projects and grassroots refineries. This will significantly increase gasoline supply.

Refining projects—real?

Regarding Iran’s refining projects, many ask whether Iran can find enough capital, whether the projects will actually materialize, and whether they find the contractors to build the refineries, according to the report. These questions translate the global cost escalation and refining delays to the Iranian situation.

Real projects?

Real projects, of which FACTS has first-hand knowledge, are upgraders and expansions. These are all real, ongoing, and despite delays, there is a reasonable completion date, according to the study.

Iran’s refineries have focused on diesel production and neglected gasoline production. As of yearend 2008, Iran only has a small 20,000-b/d FCC unit in Abadan, no coking, and 145,000 b/d of hydrocracking. Iran is moving heavily into FCC and resid catalytic cracking (RCC) to maximize gasoline production, according to the study.

Iran is building three of the largest FCC-RCC units in the world—94,000 b/d in Arak, 91,000 b/d in Isfahan, and 79,000 b/d in Abadan. These three projects alone will produce enough gasoline to eliminate all imports in the short term, the report said.

The Abadan upgrade will be finished in 2010, Arak in 2011-12, and Isfahan in 2012-2013. There will be virtually no additional diesel output from these projects.

There will also be crude distillation expansions in Lavan, Arak, Tabriz, and Isfahan refineries. The report said that there were definite distillation expansions of 300,000 b/d, and catalytic cracking expansions of 279,000 b/d, from a current level of 20,000 b/d, that would maximize gasoline yield.

The report said that distillate treating unit capacity will increase tenfold from 56,000 b/d. This will allow Iran to produce distillate products at Euro Spec 4 and 5 levels, comparable to US and European distillates, by the middle of the next decade.

An almost-real project

Persian Gulf Star Project consists of three 120,000-b/d condensate splitters at the Bandar Abbas refinery. These three units will process 360,000 b/d of South Pars condensate, but will produce no naphtha, the report said. Their role is to maximize gasoline production.

The three units will cost $5-6 billion and will produce 64% gasoline and 36% diesel. The project has been delayed due to financing problems and the departure of contractor Snamprogetti.

The project is currently under way with Sinopec Design Institute and other Chinese affiliates performing the construction; equipment has already been ordered, according to the report. The condensate price is linked to its product yield to ensure the project’s profitability. The project will probably be completed in 2012, and 2013 at the latest.

This project will produce about 230,000 b/d of gasoline and 130,000 b/d of diesel. About 70% of the gasoline will be exported, according to the report. Before Iran’s rationing program, all products were slated for the domestic market; but with lower gasoline demand growth, most will be exported.

Future projects

The report said that Iran has several new refining projects planned. None have financing and there is uncertainty that any or all will go forward.

These include three export refineries:

  • Hormuz refinery in Southern Iran is a 300,000 b/d, heavy crude oil refinery with a delayed coker, hydrocracker, and FCC. Its cost is about $5-7 billion. Its feed will be 100,000 b/d of Iran Heavy, supplemented by other heavy crudes: Soroush, Nowruz, Azadegan, Yadavaran, etc.
    Front-end engineering and design has already begun and multiple contracts awarded to domestic contractors, in particular, Sazeh Consultants. Start date is 2012-13.
  • Fars refinery is a 120,000-b/d condensate splitter feeding South Pars condensate and adjacent to the Shiraz refinery. Petrofield, representing SKS of Malaysia has a 40% interest, NIORDC owns 40%, and NIOC Pension Fund owns 20%. Start date is 2013.
  • Caspian refinery is a 150,000-b/d refinery based on Caspian crudes and will export products to Caspian countries. No further details are available.

Iran is also planning three refineries for domestic production:

  • Shahriar refinery will be adjacent to, and integrated with, the Tabriz refinery. It will have a capacity of 150,000 b/d and will be FCC-based.
  • Anahita refinery will have a capacity of 150,000 b/d and will replace the Kermanshah refinery.
  • Khuzestan refinery will have a capacity of 300,000 b/d and will replace the Abadan refinery.

FACTS feels that all of these refineries are long shots. There is no imperative for the export projects and there is no need for additional domestic products. It makes more sense to upgrade or expand existing refineries when the need arises, the report said.

KBC and its affiliate PEL have completed marketing studies for several of these refineries, giving the green light to NIORDC. Given the emerging refining surplus, FACTS thinks it is surprising that Iran has been told that there is a market for these refined products.

Currently the Hormuz and Fars refineries have some momentum, but all the other projects are “waiting in the wings.” There is no budget, no financing, and no detail plans drawn. The report doubts that any of these will happen by 2015, if at all.