The export of petroleum products, including liquefied natural gas, diesel and gasoline, that was temporarily halted in the past several weeks is expected to get back to normal soon, the oil minister said.
“The National Iranian Oil Company, which suspended the sale of oil derivative to neighboring states, including Iraq, Afghanistan and Pakistan, will resume exports by mid-November,” Javad Owji was also quoted as saying by the Oil Ministry's news portal Shana.
“Fuel inventories had depleted sharply and to fill them, there was no choice but to stop exports for a short time. Now that storage depots are full, NIOC can restart the sale of surplus products,” he added.
The minister stressed that meeting domestic needs should have priority over exports.
Liquefied petroleum gas, kerosene, jet fuel, mazut and LNG are exported to Iraq, Pakistan, Afghanistan and Armenia via land borders.
Pointing to the value of exports, Owji said, "Close to $25 billion worth of petrochemicals, petroleum products, natural gas and power are sold to the four neighbors annually. Of this total, petrochemicals account for $12 billion, petroleum byproducts 33% [$8 billion] and the balance comes from electricity and natural gas exports.”
Energy and power export prices are calculated on the basis of international crude oil prices.
According to the oil minister, raising the quality and output of oil refineries and building new refineries are on the agenda for increasing Iran's oil processing capacity by 1.5 times in five years.
“Development programs are underway to bring the country’s refining capacity, including crude oil and gas condensates, to 3.5 million barrels per day from the current 2.1 mb/d,” he said.
“Investors have been identified for generating and developing refining capacity, and they have signed agreements with the Oil Ministry in this regard,” he added, without elaborating.
Lack of investment over the last eight years has declined NIOC’s oil processing capacity by 231,000 barrels per day.
“If this trend continues, Iran will have to import oil derivatives in the future,” he said.
Bypassing US Sanctions
Energy experts, including Iman Nasseri, a senior consultant and manager of the Middle East Oil Research Department in London-based Facts Global Energy Group – a global energy consultancy firm, believe that increasing crude oil refining capacity can be a viable option to help evade US sanctions, at least in the short run.
"Under the present conditions, the export of oil derivatives, namely mazut and LPG, is less challenging than crude because they cannot be tracked," Nasseri told the Persian-language economic daily Donya-e-Eqtesad, a sister publication of Financial Tribune.
"Exporting petroleum products is easier because the cargoes are smaller and, more importantly, are not necessarily purchased by refiners," he said, adding that there is a large global market for mazut and LPG as these are used in a variety of industries and buyers cannot be identified.
Iranian crude has its own specific features that can be easily recognized, but the same does not apply to other products.
According to the expert, the more oil processing capacity rises, the more oil derivatives will be sold and the easier sanctions can be circumvented.
However, he stressed that this can only be a short-term exercise simply because keeping refining capacity at higher levels for extended periods has its own drawbacks.
"First and foremost, the capacity of refineries should not rise more than 20%, otherwise the quality of output declines."
Instead of being overhauled once in four years, maintenance work must be carried out every two years, which again means an additional financial burden.
Nasseri noted that the outlook for Iran’s sanctions-hit oil industry is not bright unless the current situation changes.
"NIOC may succeed in selling oil in the short term with the help of different strategies … but the industry needs substantial investment and robust development to thrive,” he said.
Collaborating with the Europeans, who are still trying to keep the 2015 Iran nuclear deal alive, can help underpin the industry’s hopes for a better future. Minus that, the situation can further aggravate and the oil industry may not be able to stand on its feet for long.
Iran shares large hydrocarbon reservoirs with its Arab neighbors like Saudi Arabia and Qatar, and not having access to technology would mean a major loss for the country in the years to come, as neighbors empty the joint reservoirs voraciously with help from American and European firms.
