Iran seeks ‘security of demand’ for oil, Spain eyes refinery jobs
Cuckoo James
22-Jan-2016
LONDON (ICIS)–A
day after the US and EU announced the lifting of certain key
economic sanctions against Iran, Spain’s foreign minister
revealed Spain and Iran are in talks over the possibility of
constructing an Iranian-owned oil refinery at the southern
port city of Algeciras.
The ambitious project – which is far from being
finalised – is also expected to involve Spanish
firms and could create jobs in a region
plagued by high unemployment rates.
Jose Manuel Garcia-Margallo, the Spanish foreign minister, on
Monday told reporters in Brussels ahead of a meeting of EU
foreign affairs ministers that he hoped the refinery would be
the first of many deals between the two nations.
“Our political relationship with Iran is very good because we
moved faster than other countries and are now very well
placed for future business,” said Margallo, who began
considering potential investments during a visit to Iran
in 2014.
The proposed project is at once a political move and a market
strategy to grab sales, oil market analysts say.
One of the largest refineries
Previously, Iran had spoken of its interest in buying or
investing in overseas oil refineries once sanctions are
lifted, and spoke specifically of constructing an oil
refinery in Spain as a long-term strategy to secure a buyer
for its oil.
On 9 January, Iran’s deputy oil minister and managing
director of National Iranian Oil Refining and Distribution
Company (NIORDC), Abbas Kazemi, was quoted by the media as
saying the planned refinery would have a capacity to process
200,000 barrels per day (bbl/d) of crude oil which would be
solely sourced from Iran.
Source: IEA The proposed 200,000 bbl/d refinery
would be one of the largest in Spain
Interestingly, the refinery will also sit close to Spain’s
biggest refinery – the San Roque refinery – owned by Spanish
firm Cepsa.
Spain’s total refining capacity stood at 1.5m bbl/d in 2012,
as per the International Energy Agency (IEA).
Security of demand
If the project is finalised, it would mean “security of
demand for Iranian crude oil”, says Ehsan Ul-Haq, senior
consultant at KBC Process Technology.
“It takes 3-5 years to build a refinery. Therefore, it is
unlikely to boost Iranian exports to Europe now. Russia and
Iraq are the key medium sour crude suppliers in the
Mediterranean, while Saudi Arabia has the rest of the market
share,” Ul-Haq said.
Iran is following a similar strategy to Saudi Arabia which
has a share in several Asian refineries and in the Motiva refinery in
the US, Ul-Haq said.
Abhishek Deshpande, oil markets analyst at Natixis Economic
Research, said European demand for refined products is not
guaranteed despite the “small improvement” seen in
2015.
“Although the increase in demand led by price elasticity and
improved economic growth prospect for EU after years of
slowdown from the financial crisis, demand should soften by
end of 2016 in the EU,” Deshpande said.
Build or buy
“It might be difficult to buy a refinery at a time when
margins remain relatively healthy,” Ul-Haq said. This could
be one of the reasons why Iran is planning to go ahead
with building a refinery in a continent which has seen the
closure of several refineries in the recent past.
Deshpande estimates a cost of over $2b to build a 500,000
bbl/d refinery, but says a new refinery has many
advantages.
“It can sometimes be more cost efficient to build a new
refinery that can produce more, say gasoil, as existing
refineries are less complex,” Deshpande said.
Iran’s oil
Source: IEA Iran is back with its crude oil
The IEA in its January Oil Market Report estimated
around 300,000 bbl/d of additional Iranian crude could be
flowing to world markets by the end of the first quarter
2016.
“Even this must be treated with great care. Depending on the
volumes that do emerge, Iran may be OPEC’s only source of
significant production growth in 2016,” the IEA said.
If Iran manages to hike its crude oil exports to 500,000
bbl/d, the grades of crude exported would be Iranian Heavy
(60%), Iranian Light (30%) and the new, heavy West of Karun
crude – due to make its debut in Q2 2016 – the remainder, the
IEA said.
Historical trade partners
Europe is a significant trade partner for Iran in the oil and
refined products sector, said Carl Larry, director of oil and
gas business development at Frost & Sullivan.
Europe has excess gasoline and a need for crude oil imports,
and Iran has the excess oil and need for gasoline imports,
which Larry says makes the two regions a perfect trading fit
for each other.
FGE Energy Consultants estimates that in 2014 Iran imported
almost 61,000 bbl/d of petroleum products, of which 94% was
gasoline.
“Before the EU imposed an export ban, European refineries
used to take a significant share of Iranian exports, peaking
at around 0.7 mb/d. Many refineries can run Iranian crude,
particularly Med refineries in Spain and Italy. Now sanctions
are lifted we are likely to see Iranian barrels returning to
the Med,” Richard Mallinson, geopolitical analyst
at Energy Aspects said.
Focus article by Cuckoo James
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