• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 9 days Does Toyota Know Something That We Don’t?
  • 3 days America should go after China but it should be done in a wise way.
  • 9 days World could get rid of Putin and Russia but nobody is bold enough
  • 11 days China is using Chinese Names of Cities on their Border with Russia.
  • 12 days Russian Officials Voice Concerns About Chinese-Funded Rail Line
  • 11 days CHINA Economy Disaster - Employee Shortages, Retirement Age, Birth Rate & Ageing Population
  • 12 days CHINA Economy IMPLODING - Fastest Price Fall in 14 Years & Stock Market Crashes to 5 Year Low
  • 1 hour Even Shell Agrees with Climate Change!
  • 1 day Oil Stocks, Market Direction, Bitcoin, Minerals, Gold, Silver - Technical Trading <--- Chris Vermeulen & Gareth Soloway weigh in
  • 2 days How Far Have We Really Gotten With Alternative Energy
  • 12 days Putin and Xi Bet on the Global South
  • 12 days "(Another) Putin Critic 'Falls' Out Of Window, Dies"
Iraq Moves to Take Control of Kurdistan's Finances

Iraq Moves to Take Control of Kurdistan's Finances

The Iraqi federal government is…

Warren Buffett Regrets Owning Electric Utilities

Warren Buffett Regrets Owning Electric Utilities

Buffett recognizes that the US…

Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

More Info

Premium Content

Iran’s Tactical Move To Skirt Sanctions

Facing vigorously enforced U.S. sanctions directed principally on oil, Iran is focussing on the less targeted strategic areas in its hydrocarbons business, notably continuing to develop its gas sector and building out its petchems and related capacity. One such area is the generation of sufficient gasoline at least to meet its own needs, as its reliance on other countries during the previous sanctions era was seen as a national humiliation. Despite the worsening sanctions environment, Iran is now not only self-sufficient for gasoline but is rolling out plans to allow it to export the product.

All of this is centred on the flagship Persian Gulf Star Refinery (PGSR) project, which receives condensate feedstock from the nearby supergiant South Pars natural gas field. The original plan involved a three-phase development, each designed to produce 12 million litres per day (ml/d) of Euro 5 gasoline plus 4.5 ml/d of Euro 4 standard diesel, 1 ml/d of kerosene and 300,000 litres per day of liquefied petroleum gas (LPG). Phase 1 saw the PGSR’s refining capacity hit 120,000 barrels per day (bpd), Phase 2 240,000 bpd, and Phase 3 full capacity of 360,000 bpd.

To achieve these targets, the Iranian project’s developers were given a €260 million additional loan from the National Development Fund of Iran, as part of the estimated total cost for the three stages of approximately US$3.5 billion. Phase 1 was officially inaugurated only as recently as April 2017, with the first shipment of gasoline delivered for distribution just one month later in June, and Phase 2 began producing Euro 5 standard gasoline very shortly after its own official launch in February 2018, running at full capacity by June. Crucially, the third phase was official inaugurated earlier this year, although it had been basically operational for some months.

A key part of the reason why Iran was able to bring the project online in such a quick turnaround time relative to similar projects in the region was that the implementation of the Joint Comprehensive Plan of Action (JCPOA) on 16 January 2016 allowed it to access the required technology and know-how from various international engineering and technology firms. “Even before the deal was officially implemented, Iran made it clear that in order to participate in its upstream and downstream sector development, foreign firms would have to act as full partners to Iran, which included elements of financing, engineering work, dedicated experts where needed, and the transfer of technology,” Mehrdad Emadi, senior economist for risk analysis and energy derivatives markets consultancy, Betamatrix, in London, told OilPrice.com. Related: Tesla Claims Secret Project Has Fallen Into Chinese Rival’s Hands

This message was explicitly highlighted at that time by the then-Deputy Petroleum Minister for International Affairs and Commerce, Amir-Hossein Zamani-Nia, who said: “Direct investment is highly favoured by Iran’s petroleum ministry but before that, Iran...is in need of technologies and project management.” As a result, a slew of European firms sought to stake their claim in Iran including German engineering giant, Siemens, which signed an agreement with Iran’s MAPNA Group that allowed the latter to acquire the technological know-how to manufacture the German firm’s F class gas turbines in Iran. This technology has been instrumental in the Bandar Abbas power plant that runs alongside the PGSR.

It was also made very clear by Iran to its international partner companies that they would have to work very closely with their Iranian partners in order that Iran could eventually replicate the equipment, processes, and materials required to carry on the work should that be necessary. So, having secured the technology and other materials required for the build-out both of its gasoline and petchems sectors, Iran subsequently set about this process of ‘indigenisation’, allowing for Iranian companies to reproduce any and all foreign input into its projects in the worst-case scenario of sanctions being re-introduced. In this vein, according to a recent statement from the commercial director of the National Iranian Oil Refining and Distribution Company (NIORDC), Ali Zyar, Iranian companies are currently supplying over 80% of the catalysts used in petroleum refining.

He added that domestic supply of the remaining 20% would start soon to make the country completely self-sufficient in the production of these catalysts. Samples of items – including mercaptan removal, sulphur recycling, isomerisation, naphtha reforming, and diesel and kerosene hydro-treating - have all been produced at laboratory level and their pilot projects have proved successful, he underlined. This has now allowed for the rollout in the next few weeks of an unofficial fourth phase of the PGSR involving the production of sweet naphtha for the first time, according to a comment last week from the managing director of the refinery, Mohammadali Dadvar.

As it stands, he said, around 400,000 bpd of condensate feedstock is now being supplied from the South Pars gas field rather than the 360,000 bpd original target for the three official phases. Consequently, he added, it is now possible for a fourth phase to produce sweet naptha - rather than the previously produced lower value sour naptha – which has commercial applications and can also be utilised in a broader range of petrochemicals products production. Related: The Only OPEC Member That Could Challenge Saudi Oil Dominance

Given the indigenisation of foreign technology and products in its other gasoline-producing facilities as well, Iran should be fully able to meet the projected rising domestic demand for gasoline. According to the chief executive officer of NIORDC, Alireza Sadighabadi, 10 refineries across the country are supplying around 110 ml/d of the fuel. The average production in previous Iranian calendar (running 21 March 2018 to 20 March 2019) year stood at around 80 ml/d.

On the other side of the supply/demand equation, domestic gasoline demand in the Iranian calendar year running from 21 March 2017 to 20 March 2018 was 74 ml/d, last year’s figure around 80 ml/d and it is projected to increase at a rate of around 8% each year for the next five years at least. This is due principally to the 1.2 million or so extra vehicles that will be produced each year over that period, according to NIORDC figures.

Prior to the recent re-imposition of U.S. sanctions, plans were well-advanced to export gasoline. “The target was that within 2.5 years from the completion of the PGSR, Iran would be meeting at least 10% of all of Southern Europe’s gasoline and diesel needs, as it would be the top producer of gasoline in the Middle East by a big margin by that point,” a senior oil and gas industry source who works closely with Iran’s Petroleum Ministry told OilPrice.com. “These plans, albeit reduced in the short-term in scale, are now back on the table, with obvious and easily accessible markets still available in Asia, despite [U.S.] sanctions, to add to the increasing exports of LPG going to the region,” he concluded.


By Simon Watkins for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment
  • Mamdouh Salameh on July 18 2019 said:
    US sanctions against Iran has failed so far to adversely affect Iranian crude oil exports.
    And Since US sanctions aren't recognized by the United Nations Security Council, Iran is entitled under international law not only to ignore them but to violate them in every way it can.

    With is in mind, Iran has been exporting its crude oil by barter trade, by ghost shipping and openly to countries that defied US sanctions such as China, India, the EU, Turkey and even Russia in addition to exporting its gasoline and diesel to neighbouring countries. Therefore, petrochemicals are no exception.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment

EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News