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Foreign firms scramble to fix Iran's refineries once sanctions end

Mon, 17th Aug 2015 14:29

(Adds graphic link)

* Iran seeks to upgrade derelict refining, petchem sector

* Oil services executives visit Iran on tour of sites

* Projects worth at least $100 billion, sources say

* Graphic: http://link.reuters.com/pem45w

By Libby George and Ron Bousso

LONDON, Aug 17 (Reuters) - International oil servicescompanies are scrambling to win contracts worth tens ofbillions to repair and modernize Iran's oil refineries oncesanctions are removed, with officials even laying on bus toursfor visiting foreign executives.

Officials from Iran's oil refining company NIORDC, itsNational Petrochemical Company and the privately owned PersianOil and Gas are holding talks with services firms to clinchprojects to repair Iran's derelict refining and petrochemicalsector.

Iran badly needs to complete modernisation plans that groundto a halt after sanctions hit the country five years ago overits nuclear programme.

The projects are worth at least $100 billion, according tosources close to firms that have held talks in Iran.

The talks accelerated after a nuclear agreement betweenTehran and world powers in July paved the way to liftingsanctions.

Sources close to the talks said Iran is moving forward withits pre-sanctions goal to refine more of its own oil and upgradeits petrochemical plants, with a view to boosting earnings.

Iranian officials have already held meetings with a stringof international companies to outline their plans, and evenorganised group bus tours for service companies to visitrefineries, according to industry sources.

Business prospects in the sector were also discussed duringa string of trade visits from Italy, Germany, Japan and othercountries in recent weeks.

"There is also great potential in the modernisation ofexisting plants for extraction and processing of raw materialsand the infrastructure sector," Wolfgang Büchele, ChiefExecutive Officer of German gas and engineering company Linde, told Der Spiegel magazine after visiting Tehran aspart of a German delegation led by Minister of Economic AffairsSigmar Gabriel last month.

Oil services companies that had been active in buildingrefineries in Iran prior to the sanctions, including Australia'sWorleyParsons, France's Technip and Axens,South Korea's Daelim and China's Sinopec Engineering were allinterested in resuming business in the country, the sourcessaid. The companies declined to discuss whether they are meetingin Iran.

Several large refinery upgrades were stopped in their trackswhen sanctions hit, leaving parts and equipment stranded,according to a person who operated in several projects.

Iranian Petroleum Minister Bijan Zangeneh said last monththat the Islamic Republic planned to invest $80 billion over thenext 10 years to upgrade and expand its petrochemical sector.

Repairing the country's 10 oil refineries would likelygenerate $100 million in projects for international companies inthe short-term, according to industry officials and analysts.

"It is simple if you're allowed to do it, and it's urgent atcertain refineries," one oil industry executive said. "It's aquick win."

"WRONG CAPACITY"

Years of restricted access to technology have left Iran'srefineries limping into the 21st century, forcing them to produce low quality and polluting fuels and creating safetyhazards.

For a country with big aims, huge oil reserves and nearly 80million fuel-hungry consumers, addressing the refining problemis a priority for Iran's leadership, according to analysts.

"The whole industry is in a mess," said Mehdi Varzi,president of Varzi Energy consultancy. "Iran has 1.5 millionbarrels per day (bpd) of refining capacity, but it is the wrongcapacity. Iran wants western technology and American technologyspecially."

Iranians consume close to 70 million litres per day ofgasoline, but the country's refineries were designed to produceonly around 40 million litres. As a result, in 2010, whenthen-president Mahmoud Ahmadinejad declared the countryself-sufficient in gasoline in response to ramped up sanctions,Iran's refineries were forced run above full capacity, andwithout regular maintenance.

The nation's petrochemical plants, which usually produceplastics, were also drafted into service to produce gasoline.But it came at a cost. Drivers have been using gasoline thatcontains additives that are hazardous to health and banned in most Western countries.

"They are currently spewing out pollution," Varzi said.

Shazand refinery, one of the nation's more advanced units,suffered an explosion in 2011, a fire in 2014 and various otherproblems. The massive Abadan refinery has faced similardifficulties. Bandar Abbas, another 335,000 barrels per dayrefinery, needs repairs and quick upgrades, sources said.

In fact, virtually all of the country's refineries needmajor works of some sort - and quickly.

Sara Vakhshouri, president of SVB Energy International, saidscores of western oil industry officials are clamouring for thisbusiness. There would be huge competition but the rightcompanies should be able to succeed.

"If you can bring the technology needed, it shouldn't betough," Vakhshouri said. (Reporting by Libby George and Ron Bousso; Editing by GilesElgood)

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