China’s Sinopec to Develop Abadan Refinery

China’s Sinopec to Develop Abadan RefineryChina’s Sinopec to Develop Abadan Refinery

National Iranian Oil Company and China Petroleum and Chemical Corporation (Sinopec) have reached a final agreement to develop the Abadan Oil Refinery, managing director of National Iranian Oil Refining and Distribution Company said on Saturday.

“Plans are underway to start operations on the first phase of the project, worth $1.2 billion, by November,” Abbas Kazemi was quoted as saying by Mehr News Agency.

The agreement calls for improving the quality of oil byproducts by upgrading the production process, Kazemi noted, adding that reducing mazut output and raising the capacity of gasoline and diesel compliant with Euro-4 standards are on the agenda.

Asked about funding issues, he said the Chinese will open a credit line to finance the development of Abadan refinery in the southern Khuzestan Province.

Underlining that the venture will be completed in four years, Kazemi said, “Reducing the refinery’s mazut output to less than 10% is a priority.”

“Excessively high production of mazut in Iranian refineries has substantially reduced their profit margins. So long as refineries do not move to convert mazut to higher value-added products, they will have to make do with the low profits.”

Oil officials contend that production of mazut in refineries has turned out to be their Achilles’ heel. Iran ranks 11th in the world in terms of oil processing capacity. It is the 9th producer of gasoline and 13th diesel producer, yet when it comes to producing low-value mazut, it tops the list.

Stressing that Iran’s current crude processing capacity stands at about 1.85 million barrels a day, the official noted that with the implementation of new development plans daily refining capacity will exceed 3 million barrels.

 Economic Viability  

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 as its output does not exceed 15,000 bpd.

Commenting on the economic viability of oil refineries, the official said refineries are considered economical if their mazut production is less than 10% and the quality of oil products compatible with Euro-4 standards.

Elaborating on the need for fuel quality enhancement projects in older refineries, he said, “Negotiations are underway with Japan, China and South Korea to implement such projects in Abadan, 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 such needs.”

The huge Abadan refinery, once the biggest in the world, was severely damaged during the initial stages of the 1980-88 Iraq- Iran war. According to Habibollah Abolhosseini, the refinery director, its crude processing capacity is now 364,000 barrels per day but can be augmented to 450,000 bpd.