Sinopec to Finalize $3-Billion Iran Refinery Contract

EghtesadOnline: National Iranian Oil Company and China Petroleum and Chemical Corporation (Sinopec) will finalize a contract to expand the Abadan Oil Refinery in southern Khuzestan Province in two phases, managing director of National Iranian Oil Refining and Distribution Company said on Wednesday.

News ID: ۷۷۳۳۴۳

20 January 2017

“The final agreement is expected to be signed in Tehran in the presence of Wang Yupu, the chairman of Sinopec Group," Abbas Kazemi was quoted as saying by Shana.

"The first phase of the project, worth $1.2 billion, will be financed by China's Sinosure, which has already opened a credit line to that effect," Kazemi said, noting that the funding is part of a $3-billion deal to develop Iran's major refinery, which now is a century old, in two phases over four years.

China Export and Credit Insurance Corporation, or Sinosure, is major state-owned export credit insurance company. Its financing since its establishment in 2001 has totaled $290 billion for exports and investments, according to Financial Tribune.

According to Kazemi, improving the quality of oil byproducts by upgrading the production process in addition to reducing mazut output and raising production capacity of gasoline and diesel compliant with Euro-5 standards are included in the contract.

The venture is expected to be completed in four years, with mazut output to be reduced to less than 20% from the present 40%.

Commenting on the refinery's current production level, the official said processing output currently stands at 400,000 barrels per day, of which 250,000 are refined at three units which are more than 70 years old. The refinery was heavily damaged during the 1980-88 Iran-Iraq war.

Regarding the dilapidated processing units high maintenance costs in Abadan and other major refineries, including in Tehran, Tabriz and Isfahan, the government of President Hassan Rouhani has earmarked $14 billion to recondition and improve the units.

Iran is also in negotiations with foreign companies to overhaul its aging refining industry, as plans call for boosting crude processing capacity from 1.8 million barrels per day to more than 3 million barrels.

Elaborating on the need for fuel quality enhancement projects in the ageing refineries, he said, “Negotiations are underway with Japan and South Korea to implement projects in Lavan and Bandar Abbas refining companies.”

On the role and significance of quality oil byproducts in foreign trade, Kazemi said, “Iran’s traditional customers, including Afghanistan and Iraq, want quality diesel. Fuel quality enhancement units have gone on stream in Arak and Tehran refineries to meet their needs.”

Regarding the economic viability of oil refineries, Kazemi says investing in refinery projects is viable if "their minimum output is 150,000 barrels per day, but those with 5,000 barrels are not recommended simply because their returns are long-term." This logic, he said, explains why Kermanshah Oil Refining Company will be closed in the near future because its output does not exceed 15,000 bpd.

According to reports, Iran ranks 11th in the world in terms of oil processing capacity. It is the ninth producer of gasoline and 13th diesel producer. However, it tops the list of countries pumping the unwanted and environmental-unfriendly mazut.