Excess Mazut Achilles’ Heel of Refineries

Excess Mazut Achilles’ Heel of RefineriesExcess Mazut Achilles’ Heel of Refineries

Excessively high production capacity of mazut in Iranian refineries has substantially reduced their profit margin, managing director of the National Iranian Oil Refining and Distribution Company said on Sunday.

"As long as refineries' shareholders do not make strategic plans to convert mazut to higher value-added products such as gasoline or diesel, they will have to continue their business with the lowest profitability ratios," Abbas Kazemi also told Mehr News Agency.

Dismissing claims that the dramatic plunge in oil prices have taken Iran's refineries on the verge of bankruptcy, Kazemi said, "Low oil prices usually translate into development of refineries, as they will have a chance for accessing cheap feedstock. Nonetheless, the challenge we face is implementing development projects to convert excess low-valued mazut into high value-added products required by the market, which undoubtedly requires billions of dollars in investment."

Asked about the financial burden of reducing mazut production capacity by 10% in refining complexes, the official noted that investment funds would vary depending on the refineries' capacity.

For instance, the implementation of such projects in Isfahan or Bandar Abbas refineries will cost $2 billion. Oil officials believe that due to the drastic decline in oil prices and mass production of mazut in refineries as their Achilles' heel, most refining units across the country will go bankrupt unless they are supported financially by the government.

According to reports, crude refining capacity in Iran, including gas condensates, stands at 1.8 million barrels a day. Notwithstanding the large capacity, the loss borne by refineries outweighs their profit as they are deprived of state-of-the-art technology to convert mazut into gasoline.

Iran is ranked 11th, ninth and 13th in terms of oil refining, gasoline and diesel production capacity, yet when it comes to producing low-valued mazut, it ranks first in the world.

   Refinery Projects Viable

According to Kazemi, investing in refinery projects is 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, which explains why Kermanshah Oil Refining Company will be closed down in the near future as its output does not exceed 15,000 bpd.

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 that of Euro-4 standards.

Pointing to the construction of Anahita Refinery, located in the west, the official noted that the refinery will have a capacity of 150,000 barrels per day.

With the completion of the project, 26 downstream factories will also be established to produce bitumen, glue and washing materials. Oil will be procured 10% lower than the Persian Gulf freight-on-board price and it will be delivered to the refinery through a 500-km pipeline from Khuzestan in the country's southwest.

   Enhancing Quality Standard Crucial

Elaborating on the importance of undertaking fuel quality enhancement projects in old refineries, he said, “Serious negotiations are underway with Japan, China and South Korea to implement such projects in Abadan, Lavan and Bandar Abbas refining companies.”

Referring to the significance of oil byproducts' high quality standards in foreign trade, Kazemi said, "Iran's traditional customers, including Afghanistan and Iraq, seek quality diesel. Fortunately, fuel quality enhancement units have already gone on stream in Arak and Tehran refineries to meet such needs."

According to the official, Lavan refinery diesel production project will become operational in the near future. Moreover, plans have been made to undertake the same project in Isfahan and Tabriz refineries so that quality oil byproducts can be sold easily.

Crude oil is by far the most important energy source used worldwide. 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.