Thursday, Jul 22, 2010

(Updates with details.)

 
   By Reza Amanat 
   Of DOW JONES NEWSWIRES 
 

LONDON (Dow Jones)--Iran is forecast to become self-sufficient in gasoline production in the next five years, which may frustrate efforts by U.S. and European allies to limit the country's access to gasoline markets, which may in turn open the lucrative market to newcomers from Asia and Latin America, a research note shows Thursday

Iran produces between 280,000 and 285,000 barrels of gasoline a day and until recently had acquired the remaining 30%, or about 115,000-120,000 barrels a day, through term contracts or spot purchases from big oil companies, including many from Europe, according to a report by Energy Market Consultants part of FACTS Global Energy Group.

However, recent unilateral moves by the U.S. and some members of the European Union to deter investment in Iran's energy industry, in an effort to put pressure on Iran over its nuclear program, have forced several oil majors and some trading companies to halt their trade with the country.

The EMC study assumes a base-case scenario where the Islamic Republic is able to complete its current schedule of upgrades at Arak, Abadan and Isfahan refineries as well as the construction of one of three condensate splitters at the Bandar Abbas refinery by 2015.

At completion, the upgrades mean Iran will be able to meet its domestic gasoline need, estimated at about 400,000 barrels a day, but also achieve a small surplus in production of between 60,000 and 70,000 barrels a day, the EMC report said.

Additional measures in the U.S. follow new United Nations sanctions last month that banned countries from selling Iran certain military equipment or accepting Iranian investment in their nuclear industries. The EU is also in the process of drafting Iran sanctions that go beyond the U.N. effort.

If the base-case scenario is realized, efforts to maintain pressure on Iran in the medium and long term by restricting its access to global gasoline markets could be blunted.

The report also assesses a lower- and higher-case scenario for Iranian efforts to upgrade their refineries.

In the lower-case assessment the report envisages only the completion of upgrades in Arak and Abadan by 2015, resulting in a reduction in Iran's imports of about 30% but leaving a continued gasoline import requirement of about 80,000-90,000 barrels a day.

In the higher-case scenario, where the refinery upgrades in Arak, Abadan and Isfahan are completed, and all three condensate splitters in the Bandar Abbas plant are constructed, Iran will achieve a gasoline export capacity of 200,000 barrels a day.

"In the longer term, it is possible to project Iran reaching self-sufficiency in its gasoline requirements, perhaps even turning into a net exporter, but much will depend upon the funding for its domestic refinery projects and the speed of completion of these projects," EMC said.

The refinery upgrades are being implemented along with policies aimed at reducing domestic consumption, including gasoline rationing, a lifting of fuel subsidies and the expansion of natural-gas-powered vehicles, or NGVs.

From among these demand-orientated policies, the latter is likely to be the most effective at reducing consumption according to the study, although Iran faces several challenges in the construction of new compressed natural gas, or CNG, stations, EMC said.

Tehran aims to increase the number of CNG stations in the country to 2,400 by 2012, and NGVs to over 5 million by 2015-16. There were 837 CNGs operating in the country in July 2009 and the plan was to add 400 more by March 2010.

"In the longer term, we expect a 25,000-30,000 barrel a day replacement in gasoline consumption per year due to CNG dual fuel vehicles."

However, the report said that in the near-term, the withdrawal of international trading companies selling to Iran via the United Arab Emirates means Tehran would have to source its gasoline imports from an extremely limited number of suppliers, forcing up the cost of selling refined products, in terms of insurance and credit, which would have to be borne by Iran.

The list of firms shying away from selling gasoline mainly comprises European oil companies such as Royal Dutch Shell PLC (RDSA), BP PLC (BP) and Swiss trader Glencore International AG, but also includes Indian refiner Reliance Industries Ltd. (500325.BY).

Among the companies stepping into fill the void are Chinese and Turkish energy firms, and possibly Russian and Venezuelan ones with whom Iran has signed several memorandums of understanding for co-operation in the energy sector, while cross border purchases from Iraq and Azerbaijan are also likely to increase, the report said.

Volumes of Iranian gasoline imports, which shrank in June and are expected to fall further in July and during the month of Ramadan which starts in the second week of August, will eventually pick up again and rise to around 90,000-100,000 barrels a day in the following months, according to EMC.

Iran imported 120,000 barrels a day of gasoline in May as part of a stock-building program to meet summer gasoline demand, the report said. But imports fell back to 96,000 barrels a day in June.

"In summary, we do not envisage a drastic scenario where Iran's gasoline imports disappear completely and the country is cut off from meeting its gasoline needs. However, we do project a major shake-up in the immediate near-term where gasoline imports may remain volatile," EMC concluded.

-By Reza Amanat, Dow Jones Newswires; 4420-7842-9487; reza.amanat@dowjones.com

(END) Dow Jones Newswires

22-07-10 1649GMT