Notwithstanding the drastic decline in oil prices, construction of refineries will not grind to a halt in Iran, managing director of the National Iranian Oil Refining and Distribution Company said on Sunday.
“Current oil prices are not real and low prices will not continue for long,” Abbas Kazemi also told Mehr News Agency.
Elaborating on Iran’s plans to embark on building new oil and gas condensate refineries despite the sharp decline in crude prices, he said, “Prices will rise sooner or later, as multinational energy companies have slashed capital spending to protect their balance sheets as their revenues plummet and cash flow dries up.”
The oil market is not going to attract the investment it needs unless prices witness a tangible rise. Based on projections, by 2020, the world oil market will need to produce 7 million barrels a day. Kazemi noted that historically, a positive correlation could often be seen between the prices of crude oil and coal.
Coal can act as a substitute for crude oil in many instances such as electricity generation as well as feedstock for chemical and manufacturing companies. Nonetheless, replacing coal with oil is not eco-friendly. According to research by French investment bank Societe Generale, the relationship between the thermal coal and crude oil markets becomes stronger during periods when pricing is driven to extreme highs or lows. Kazemi believes that refinery projects still top NIORDC’s agenda, as it helps convert crude to value-added products whose profit margin is higher.
Commenting on building viable refineries, the official noted that refineries are considered economical if their mazut production is less than 10% and the quality of oil products should be compatible with Euro-4 standards.
According to Kazemi, investing in refinery projects is economically viable if their minimum output is 150,000 barrels per day, but the ones whose daily capacity amounts to 5,000 are not recommended since their return is based on long-term profitability ratio. In addition to allocating funds to domestic refineries such as Siraf Refining Park, aka the Octopus of Persian Gulf, plans have been made to construct refineries in South Africa and Sierra Leone.
Serious negotiations are underway with Brazil, Malaysia, India and South Africa to buy their stocks.
Oil officials opine that the new strategy is aimed at securing Iran’s crude supply in international markets for a long time. In other words, construction of refineries in foreign states will not only help produce oil byproducts such as gasoline, but also export them to target destinations regardless of distance.
Crude is by far the most important energy source used across the globe. It is used for heating, electricity generation and transport, with approximately 95% of all global transport being dependent on it as fuel. For 2016, the IEA Oil Market Report forecasts worldwide average demand of nearly 96 million barrels of oil and liquid fuels per day—that works out to more than 35 billion barrels a year. Production breached 97 million barrels per day in late 2015.
