Iran’s rationing system working to control gasoline consumption

Nov. 24, 2008
The launch in 2007 of an elaborate gasoline rationing system by Iranian President Mahmoud Ahmadinejad’s cabinet to help stem that country’s gasoline consumption was initially met with both skepticism and discontent.

The launch in 2007 of an elaborate gasoline rationing system by Iranian President Mahmoud Ahmadinejad’s cabinet to help stem that country’s gasoline consumption was initially met with both skepticism and discontent. However, the system, which was subsequently extended into 2008, has helped the country reduce its gasoline consumption dramatically, according to a report released in August by FACTS Global Energy (FGE), Honolulu.

Although Iran has faced difficulties in its struggle to supplement its vehicle fuel base with alternatives such as compressed natural gas (CNG), FGE said, “It is expected that after the completion of current projects for the upgrading and expansion of existing refineries, Iran will be able to become a net [gasoline] exporter in 2012-13.”

Gasoline imports

Although one of the world’s largest oil producers, Iran imports roughly 40% of its gasoline due to limited refining capacity as well as rapidly rising domestic demand. The Iranian government also has heavily subsidized the fuel, selling it domestically at about one fifth of real cost. Since late March, according to FGE’s August report, Iran’s gasoline consumption stood at 396,000-409,000 b/d, while gasoline imports averaged 94,000-107,000 b/d during the same period.

FGE reported that even with the rationing system in effect, Iranian officials have stated that providing gasoline price subsidies is not sustainable in the long run. However, FGE noted that the issue of raising gasoline prices “remains politically sensitive and unpopular.”

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Before the start of the rationing system, FGE said, Iran’s gasoline imports were estimated at 223,000 b/d.

“Despite the turbulence throughout Iran in its first few days of implementation, rationing did have a major impact on gasoline consumption and imports,” FGE said, adding, “Imports dropped from an average of 204,000 b/d in May 2007 to an average of 94,000 b/d for the rest of that year,” FGE said.

New rationing system

FGE said the Iranian government’s current approach to the gasoline crisis seems targeted at phasing out the quota system and eventually abolishing the rationing system.

“Selling gasoline in the free market is how Iran is introducing higher prices within the country. Currently, Iran is selling premium gasoline in the free market at [prices] about five times higher than the previous regulated prices,” FGE said. Gasoline sales in the free market have been reported to be at an average of 4,400-6,300 b/d.

The Iranian government intends to cut subsidies for gasoline in a “step-by-step approach by 2011 and eventually eliminate it,” FGE said.

Although the original rationing system was extended from 2007 into 2008, the government later amended the quotas. Beginning June 21, FGE said, the Iranian government revised the quotas “to further control consumption and reduce the subsidies paid out for gasoline imports.” Table 1 highlights the rationing system in 2007-08.

FGE said the new rationing system, which is expected to be extended until March 2009, specifies the following:

  • All premium gasoline is now outside the quota and not qualified for subsidized fuel.
  • All regular gasoline of foreign cars larger than 1,300 cc do not qualify for subsidized fuel.
  • All regular gasoline of domestic cars larger than 2,000 cc do not qualify for subsidized fuel.

In March, Iran was fetching 43¢/l. for regular gasoline in the free market, FGE said. Volumes of gasoline purchased under the quota would be sold at 11¢/l, FGE said.

CNG as an alternative

Iran is eyeing the use of CNG as an alternative fuel to help curb gasoline consumption. FGE reported that as of November 2007, Iran had about 415,063 CNG-fueled and duel-fueled cars.

“The Iranian government had an ambitious plan to increase the number of CNG cars to 1 million by March 2008 but was unable to achieve this goal,” FGE said.

Iran didn’t have much success with plans to increase the number of CNG refueling stations to 550 by October 2007 and to 1,000 by March of this year, FGE reported. These stood at 377 stations as of December 2007. The target date has been extended to the end of first-quarter 2009; however FGE thinks this target date also is unlikely.

Iran, FGE said, faces several challenging issues regarding CNG, including:

  • Limited capabilities to provide the necessary equipment for CNG stations.
  • Challenges in land acquisition for CNG stations, especially in large cities such as Tehran.
  • Lack of financial resources needed to construct CNG stations.

Refinery expansions

FGE forecasts that Iran should have surpluses in gasoline in 2012-13, despite “some hiccups” in plans to expand and upgrade current refineries and construct new facilities. However the following plans, FGE said, must be completed:

Abadan. A catalytic cracking unit is under construction by a consortium of ABB Lummus and Iranian contractors Petrochemical Industries Design & Engineering Co. (PIDEC) and Erection & Construction Co. (ECC). The project is expected to be completed in 2009-10 and would increase gasoline production at the Abadan refinery to 70,000 b/d.

Arak. In one of the largest refinery projects designed to yield more gasoline, the Arak refinery is being expanded and upgraded by a consortium of Universal Oil Products, Axens, Technip, Sinopec Engineering Inc. (SEI), and Iranian contractors Research Institute of Petroleum Industry, Sazeh, and Oil Design & Construction Co. Faced with 8-9 months of delays, the project is expected to be completed in 2011 and could increase the refinery’s gasoline production to 100,000 b/d from 34,000 b/d.

Isfahan. The upgrading and expansion of the Isfahan refinery is expected to increase gasoline production to 75,400 b/d. The project, led by a consortium of Hyundai Engineering Co., Aker Kvaerner Powergas Pvt. Ltd., and Iranian contractors Namvaran and Dor Riz, has a completion date of 2012.

Bandar Abbas. Upgrading of the existing Bandar Abbas refinery has been progressing slowly under a consortium of ABB Lummus, PIDEC, and ECC. However, the project is expected to be completed in 2010. By upgrading existing facilities and constructing new units, gasoline production at Bandar Abbas will increase to 80,000 b/d.

Tabriz. The Tabriz refinery is being upgraded and expanded by a consortium of SEI, Energy Industries Engineering & Design, and Tanavob. The project, planned to increase gasoline production by 4,500 b/d, is expected to be completed in 2012.

Tehran. A consortium of Axens, Chegalesh, Petrolinvest, and Iran’s Radira are working to upgrade and expand the Tehran refinery. The project is expected to be completed in 2010, adding 11,200 b/d to total gasoline production.

Bandar Abbas condensate splitters (Persian Gulf Star condensate splitters). Design of the Bandar Abbas condensate splitters is based on a 63% gasoline and 25% gas oil yield. This project would be the most important project for increasing gasoline production in Iran.

FGE said, however, this project is faced with several challenges, such as the withdrawal of Snamprogetti SPA as engineering, procurement, and construction contractor (perhaps due to US pressure) and the lack of financial resources.

“So far nothing has been done for this project, and it is unlikely to be completed before 2013 or later,” FGE said.

“It should be noted that even without the splitters, Iran will be a gasoline exporter,” FGE said, adding that total upgrades to Iran’s refineries will add at least 94,000-119,000 b/d of gasoline to the market, which would be more than the demand growth, projected to be 70,000-100,000 b/d during 2008-13.