Business
Iran in talks with India's Essar on oil refinery http://www.ndtvprofit.com/homepage/news.asp?id=282403
January 5, 2007
By Luke Pachymuthu and Nidhi Verma
SINGAPORE/NEW DELHI (Reuters) - Iran's state oil refining company is in talks with India's Essar Group to build a new refinery in southern Iran, officials said on Friday, part of Tehran's $18 billion-drive to meet soaring domestic fuel demand.
The estimated $2 billion-plus investment in a new 300,000 barrel per day (bpd) plant to process Iran's heavy crude would give the OPEC member's stagnant refining sector a boost and give Essar a foothold in the oil-rich but politically sensitive country, where it is already in talks over a steel plant.
"We are studying a refinery in Bandar Abbas with Essar of India," Akhbari Shad, Director of International Affairs for the National Iranian Oil Refining and Distribution Company (NIORDC), told Reuters. Bandar Abbas is a port town in the south.
Shad declined to give more details or say when a deal might be struck. Negotiations over Iranian oil investments often take years; some major deals have also collapsed at the 11th hour.
An official with Essar Group told Reuters: "We want to strengthen our relations with Iran. We are talking to Iran for setting up a refinery, based on crude oil to be given by them."
"We are (also) in talks to buy a stake in some exploration and production blocks so that we can get gas for our planned steel plant," said the official, who declined to be named. He said production would be geared primarily to the local market.
Essar, a diversified, family-owned holdings company with interests from telecoms to construction, plans to set up three steel plants in the Middle East, including a joint venture to build a 1.5 million tonnes a year steel plant in Iran.
Its oil refining subsidiary Essar Oil Ltd. launched India's second private-sector refinery late last year and will ramp it up to 210,000 bpd by mid-year.
REFINERY GROWTH
Iran is the world's fourth-largest crude oil producer but is also its second-largest importer of gasoline, due to a lack of refining capacity and rapidly growing demand, fuelled by a young population and the world's second-cheapest pump prices.
The rising cost of importing an estimated 170,000 bpd of gasoline has taken a toll on Tehran's budget, despite petro-dollar revenues, and stoked fears that the country could be vulnerable to import sanctions.
Officials have also complained about difficulties financing projects in its oil sector -- where many big fields have peaked or are in decline -- due to the reluctance of foreign lenders amid Tehran's ongoing dispute over atomic work.
Although the Azadegan oilfield development deal with Japan's top explorer fell apart last year, Iran is drawing substantial interest from state oil firms in China and India, both keen to help tap the world's second-largest reserves of oil and gas.
Tehran has also been enlisting foreign help -- particularly from China -- to upgrade and resurrect its refining sector, with a goal of boosting capacity by at least 1 million bpd by 2010. Currently its capacity stands at around 1.347 million bpd.
Last month, the National Iranian Oil Company (NIOC) and a consortium of Iranian firms and Germany's ABB Lummus signed a 400-million euro ($512-million) contract to expand the 350,000-bpd Bandar Abbas refinery, located in southern Iran.
Two new refineries are also planned in addition to the possible Essar venture.
One is a new 360,000-bpd condensate refinery due to break ground in Bandar Abbas later this year, which is being built together with a private Indonesian company. It will join another 350,000 bpd refinery that was built there in 1997.
"This (condensate refinery) is more a less an equal-sharing project, we are currently in the phase of selecting an engineering contractor for the project," Shad said, adding that the plant should be complete in three to four years.
Iran has also embarked on measures to reduce domestic demand, but abandoned plans to ration gasoline fearing a public backlash against what Iranians believe is a national right.
Mohammad Reza Nematzadeh, the head of NIORDC and deputy oil minister, told an oil journal last September that the total cost of building all three refineries would be $16-$18 billion.
The expansion will help raise gasoline production from the refinery to 13 million litres per day from 4.8 million litres.
Iran is also planning a $1.2 billion expansion project to double the capacity of its 110,000-bpd Tabriz refinery in the second-half of next year.