Sinopec persists with Iran refinery upgrade

China's state-controlled Sinopec is pressing ahead with a $1.06bn upgrade project at Iran's 400,000 b/d Abadan refinery, despite the imminent return of US sanctions on Iran's energy sector.

Sinopec is contracted to build a new 210,000 b/d crude distillation unit (CDU) to replace three distillation units with a combined 250,000 b/d that were built more than 70 years ago. Its commitment will come as some relief for Tehran ahead of the 4 November re-imposition of US sanctions on its energy sector.

Companies have been rethinking plans to invest in Iran since the US withdrew from the nuclear deal and reimposed sanctions. Some contracts have been cancelled with state-owned NIOC and its subsidiaries.

Total, the most high-profile foreign company to finalize a deal with Iran following the lifting of US and EU sanctions in January 2016, has pulled out from a $4.88bn project to develop phase 11 of the giant offshore South Pars gas field.

South Korean construction company Daelim Industrial cancelled a $2.13bn contract to upgrade and expand the 375,000 b/d Isfahan refinery. South Korea's SK Engineering and Construction has halted all work on a $1.88bn contract to upgrade the 110,000 b/d Tabriz refinery.

But Sinopec looks to be pressing on at Abadan.

"The second-phase development of the Abadan refinery began roughly 14 months ago, and thankfully is progressing on schedule," Abadan Refining Company managing director Ali-Akbar Mirghaderi said. "The duration of this project is 48 months, and we expect it to be completed on time." The first-phase upgrade was also carried out by Sinopec.

Abadan is the largest and oldest of Iran's nine refineries. It sustained heavy damage in 1980 during the Iran-Iraq war.

The upgrade is being carried out with state-owned engineering company NIOEC. It will result in Abadan's capacity falling to 360,000 b/d but will inprove the quality of all products to at least a Euro-5 standard. Production of higher-value products like gasoline and gasoil will increase in the place of lower-value products like fuel oil.

Sinopec was awarded the contract by Iran's state-owned refiner NIORDC in mid-2017 as part of a wider $2.7bn agreement between Iran and China struck in early 2017. Financing for the project is coming from China's state-owned export credit insurance agency Sinosure.

NIORDC has a a $34bn programme to modernise five of Iran's six largest refineries and build an additional 1.41mn b/d of refining capacity. That would raise Iran's crude refining capacity by around 25pc to 2.28mn b/d by March 2022.