Covering Iranian economy,
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Single Report

Iran's Oil and Gas Refining Industry - January 2017

Jan 15, 2017

Executive Summary

The industry that handles the refining and distribution of oil products involves various processes, including production, imports, exports, storage, transfer and distribution of billions of liters of products in non-stop operations as part of a network as vast as the entire area of the country – its import-export points included. This industry supplies more than 40 percent of the energy consumed around the country.

The refining of 1.7 million barrels of crude oil in nine refineries across the country produces, among others, some 260 million liters of oil products such as liquefied gas, gasoline, diesel, kerosene, and fuel oil.

In a bid to enhance the safety of energy supply, in addition to development and optimization of existing refineries, recent years have seen the construction of gas condensate facilities such as the Persian Gulf Star and Shiraz Refineries. Facilities in Abadan and Bandar Abbas to refine extra heavy crude are also designed to contribute to that goal.

Liberalization of the economy is another important step toward achieving positive results from privatization with the aim of enhancing efficacy. As long as the raw materials companies purchase and the products they sell are subjected to pricing by the state and market factors play no role in determining these prices (the absence of a competitive atmosphere and failure to liberalize foreign trade) that goal would remain elusive and the refining companies wouldn’t be able to identify opportunities and problems. So on top of the failure to develop their rather old equipment, one of the biggest obstacles the refining companies are facing is the absence of a distinct, unified mechanism to price products and feedstock.

The present study tries to take a look at Iran’s oil reserves and at the position of oil refineries in Iran, their development plans, pricing, risks, etc.
What we have learned shows that the aging equipment at Iranian refineries, coupled with economic sanctions, has rendered them unable to optimize their product baskets. As a result, their profit margins are by far lower than their international peers. In light of the fact that the volume of fuel oil Iranian refineries produce is rather too high, most of them are making losses rather than profits.

When it comes to the oil refining capacity in the world, Iran stands in 11th place; as far as production of gasoline, and diesel is concerned, Iran is respectively in 9th and 13th places in the world. But when it comes to fuel oil, Iran is the world’s biggest producer of this product. So if no changes are introduced to the product baskets of refining companies and if oil prices continue to remain low, the industry could be on course to bankruptcy given the existing approach and the vague pricing tactic employed by the National Iranian Oil Products Distribution Company (NIOPDC).

Under development policies worked out to promote the quality and quantity of oil refining in Iran in the post-sanctions era, measures should be taken to decrease the volume of fuel oil the refineries have in their product baskets to below 10 percent.

To that end, talks have been held with Japan, China, and South Korea to implement projects to improve the quality and reform the quantity of oil products in some old refineries such as Abadan, Esfahan, Bandar Abbas, and Lavan.

Table of Contents
2    Notes    5
3    Executive Summary    6
4    Background    7
5    Overview of Iran’s Oil and Gas Industry    8
5.1    Total Primary Energy Consumption    12
5.2    Management of Oil and Natural Gas Sectors    12
5.3    Crude Oil and Condensate Production    13
5.3.1    Crude Streams and Oil Fields    15
5.3.2    Non-Crude Liquids Production    15
5.3.3    Upstream Projects    16
5.3.4    Crude Oil and Condensate Exports    16
5.4    Natural Gas Production    18
5.4.1    South Pars Gas Field    19
5.5    Natural Gas Exports    20
6    Iran’s Refinery Industry    22
6.1.1    Nelson Complexity Index    26
6.2    Domestic Consumption and Fuel Subsidy Reform Plan    27
6.2.1    Gasoline Supply and Demand    28
6.2.2    Comparison of Gasoline Production Capacity    31
6.2.3    Gasoline Pricing Formula    31
6.3    National Iranian Oil Refining & Distribution Company (NIORDC)    32
6.4    Oil Refining Companies    32
Abadan Oil Refining Company    33
Bandar Abbas Oil Refining Company    34
Esfahan Oil Refining Company    34
Imam Khomeini Shazand Oil Refining Company    35
Kermanshah Oil Refining Company    36
Lavan Oil Refining Company    37
Shiraz Oil Refining Company    38
Tabriz Oil Refining Company    39
Tehran Oil Refining Company    40
6.5    Other Entities Involved in Oil Refining    40
National Iranian Oil Products Distribution Company (NIOPDC)    40
Iranian Oil Pipelines and Telecommunications Company (IOPTC)    42
National Iranian Oil Engineering and Construction Company (NIOEC)    42
Oil Refining Industries Development Company (ORIDC)    44
6.6    New Refinery Implementation Projects    44
Persian Gulf Star Condensate Refinery    44
Goureh-Jask Crude Oil Pipeline Project    45
Jask Oil Storage Terminal Project    45
Pars Farayand Refinery of Shiraz    46
Anahita Refinery    46
Bahman Geno Refinery (Hormuz)    47
6.7    Projects to Enhance Capacity and Product Quality at Refineries    48
Lavan Refinery    48
Bandar Abbas Refinery    48
Isfahan Refinery    48
Tehran Refinery    49
6.8    Share of Refineries in Producing Different Products    49
6.9    Comparison of Refineries    52
6.10    Comparison of Crude Oil Refining Capacity in the World    53
6.11    Government Policies    53
6.11.1    Branding    54
6.11.2    Development and Optimization of Refining Companies    54
6.11.3    Liberation of the Price of Special Products    56
6.11.4    Oil Regulatory Plan    56
6.12    Review of the Industry Sector’s Risks    57
6.13    SWOT [strengths, weaknesses, opportunities, and threats] analysis    57
Strengths    57
Weaknesses    58
Opportunities    58
Threats    58
6.14    On the Refining Industry in the Stock Exchange    59
Lack of Supply and Demand Mechanism in Sales    59
Fluctuations of Foreign Exchange Rate    59
Production Waste    59
Aging Refineries    59
Pricing Oil Based on Quality    60
Pricing of Products    60
Global Oil Prices    60
Vague Financial Statements    61
7    References    61

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