Gasoline Traded at IRENEX
The investment made by Iran’s Petroleum Ministry during the past seven years in upgrading refineries has lifted Iran’s gasoline production to 110 ml/d, putting an end to Iran’s dependence on gasoline imports.
The quantitative and qualitative increase in Iranian oil products has attracted foreign buyers to bid for the gasoline sold on the floor of the Iran Energy Exchange (IRENEX). Therefore, some of products sold on IRENEX floor have been destined to regional states. Iran’s private sector hopes to be able to export more gasoline in future trading.
The gasoline trading on the international ring of IRENEX has won a prosperous market and launched a trend for the successful export of gasoline to regional markets.
Selling gasoline at about 43 cents per liter in August led to the official export of gasoline for the first time in Iran. Due to the low price of gasoline in Iran, this product was being smuggled to neighboring countries. There have been conflicting figures about the smuggling of gasoline from Iran. The Petroleum Ministry believes that in case gasoline is sold at its realistic price, smuggling will be also blocked.
Gasoline and other sources of fuel in Iran have always been traded at subsidized prices. That is while in most neighboring states, they are sold at international and even higher prices.
The difference in the price of fuel in Iran and other countries has made smuggling a lucrative job in Iran. The available statistical data on smuggling in the past couple of years bears proof to such fact. This invalid trading is taking shape at a time heavy fluctuations in foreign exchange rate bears proof to this fact. The profitability of fuel smuggling is undoubtedly a consequence of the depreciation of the dollar in the market, and fuel price stability in the country.
Each liter of octane-91 regular gasoline is sold at 8 cents a liter in free market, while octane-95 premium gasoline is traded 10 cents per liter. While octane-95 premium gasoline sells at 43 cents Persian Gulf FOB, neighboring countries are selling gasoline at prices higher than FOB rates due to taxation and transportation costs.
According to updated prices, Iraq, Afghanistan, Turkmenistan, Kazakhstan, Azerbaijan, Pakistan, Turkey and Oman sell gasoline at about 70 cents per liter.
Supply and Demand Management
Over recent months, fuel smuggling in Iran has been assessed at 10 to 30%, but experts say smuggling methods have become more limited owing to new supply and demand management. Fuel smuggling is considered as lucrative, but it is high-risk.
The discovery of a significant number of pipelines used for fuel smuggling in southern Iran or the seizure of oil tankers carrying smuggled fuel near the Strait of Hormuz in recent months, show widespread willingness for this business.
Now with the trading of gasoline in IRENEX, the desirable capacities of such business have been legalized and transparent. The desirability of purchase would push more customers to get gasoline on IRENEX, the export of this product will increase. However, many believe that modification of gasoline prices by the government and parliament would be a more important step in countering gasoline smuggling.
A review of IRENEX trade shows that the first batch of octane-91 gasoline, weighing 9,000 tonnes, was offered at the asking price of $581 per ton or 34 cents per liter. Finally, 3,000 tonnes was sold.
After this successful trading, two other batches with octane 95 and weighing 3,000 tonnes and 5,000 tonnes were sold at $630 per tonne or 47 cents per liter.
The head of Energy Committee of Iran Chamber of Commerce has said that of 15 neighboring countries, nine are buyers of Iran’s gasoline amid tough sanctions on the country. Once sanctions have been lifted, all these 15 countries would become buyer of Iran’s gasoline.
Gasoline Output Doubled in 5 Years
Owing to big investment in Iran’s oil refining industry, the mass production of Euro-4 and Euro-5 gasoline and the lucrative sales of gasoline to international customers has encouraged investors of other sectors to brace for activity in this industry. Another advantage of this approach is the transparency of prices. That is why international media said the trading of 3,000 tonnes of gasoline on IRENEX and exports to Afghanistan had made Iran a gasoline exporter. The fact is that Iran’s neighboring countries have long been buying gasoline through unofficial channels.
Iran’s President Hassan Rouhani, addressing the inaugural of the third phase of the Bandar Abbas Gas Condensate Refinery, had said: “With self-sufficiency in gasoline production, hard currency exit was prevented while domestic needs were supplied and gasoline was exported to neighboring countries.”
Iran’s petroleum minister Bijan Zangeneh, addressing the inaugural, said the country was producing 76 ml/d of Euro-4 and Euro-5 gasoline. He had said that Iran’s doubling of gasoline production over five years following the commissioning of phases 1 to 3 of the Bandar Abbas condensate refinery constituted a historic jump.
Zangeneh said Iranian oil refineries could process 1.7 mb/d of oil, while the commissioning of the third phase of the Bandar Abbas condensate refinery had brought this capacity to 2.1 ml/d.
The minister said: “In 2012, the country’s gasoline production capacity stood at 52 ml/d, while in February 2019 the figure reached 101 ml/d, and it is set to surpass 105 ml/d by next March.”
“Unlike the previous decade when Iran’s gasoline imports would be sanctioned, we are no longer importing gasoline. We are even exporter of gasoline and the Americans could not express a single word,” added Zangeneh.
Oil Refining Capacity Hits 2.4mb/d
Ali-Reza Sadeq-Abadi, CEO of National Iranian Oil Refining and Distribution Company (NIORDC), recently said that Iran’s crude oil and gas condensate refining capacity had reached 2.15 ml/d. He added that the figure was increasing and would reach 2.4 ml/d by March 2020.
He said that according to plans, Iran was processing 850,000 b/d of crude oil and gas condensate and converting it to high value added oil products. The important point is that supply of this amount of crude and gas condensate on global markets could have been blocked by the US’s unilateral sanctions.
Such upgrade in Iran’s refining industry has led to bigger welcome for gasoline sales on IRENEX. Therefore, Iran is being recognized as a gasoline exporter.
Gasoline Sanctions Thwarted
The end users of gasoline are retailers. It indicates that US sanctions could not significantly affect the market. The difference between such trading and crude oil sales by one or two refineries is that the refineries are directly affected by sanctions, but retailers are spared any harm from sanctions.
Moreover, when gasoline has been produced, the origin of crude oil may not be easily traced. But at refineries, it would be easily guessed where the feedstock has come from. Thus, buyers of gasoline and other fuels are faced with much fewer risks than buyers of Iran’s oil, and that constitutes a big advantage for the trading of fuel in IRENEX.
Some economists believe that by selling gasoline at IRENEX it would be possible to fully use the export capacity of this fuel. With gasoline at 43 cents per liter, Iran would earn about $6.5 million per day or $2.37 billion per year. Evidence shows that Iran’s neighbors like Turkey, Pakistan and Afghanistan would prefer to purchase gasoline and refined petroleum products from Iran on a barter basis.
Sustainable Production to Counter Sanctions
Iran’s gasoline could be exported to eight countries in the region because they lack hydrocarbon resources in which Iran is rich.
Currently, as required by the Economic Council, gasoline trading at IRENEX would be possible only for legal persons presenting valid documents.
Iran’s gasoline production currently standing at 108 ml/d would make the country an exporter. As long as this trend continues, the existing sanctions could be easily defeate