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China will invest US$3 billion in the upgrade of Iran’s oil refining facilities, Iranian media reported, with the bulk of the investment going into the Abadan refinery.
According to Deputy Oil Minister Abbas Kazemi, China has already “opened the financing” for the refinery’s upgrade. Iran’s oil and gas infrastructure has suffered the results of years of neglect because of insufficient maintenance funds during the sanction years as well as access to new technology and equipment.
Last week China’s statistical bureau reported that the country’s crude oil imports had increased to 64.4 percent of domestic demand and this is expected to continue, with imports rising by a total 17 percent in the period 2015-2020, with domestic output falling by 7 percent in the period, according to the National Development and Reform Commission.
With demand set to rise by 8 percent in the five-year period, the financial commitment in Iran could be seen as part of efforts to secure not just crude oil, but also fuels for the future. Because of its oil fundamentals dynamics, the country has turned into a battleground for major oil and fuel exporters such as Saudi Arabia, Russia, and now Iran.
Iran is eager to get its oil and gas industry back on track and has been very active in attracting foreign investment. First it developed a new oil contract, the Iranian Petroleum Contract, which gives foreign operators of its oil fields more lucrative terms, such as booking reserves that were earlier denied them.
Related: OPEC’s Production Cut: Who Will Cheat First?
Earlier this month, Tehran released a list of 29 foreign companies to participate in upcoming oil and gas tenders. There are four Chinese companies on the list, along with five Japanese ones, as well as oil companies from Europe. Only one U.S. Company is included on the list: Schlumberger.
Tehran’s leanings east and north could be seen as a safeguard against new sanctions that may come from the West shoud Trump get his way, which is by no means a certainty, especially in light of a recent appeal from top U.S. scientists to the President-elect to keep the deal as it is, arguing that it serves as a deterrent to any further attempts by Tehran to develop nuclear weapons.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.