/ 11 June 2007

Iran talks with China on strategic oil reserves

Iran is in discussions to store strategic oil in China and to build refineries around Asia, Oil Minister Kazem Vaziri-Hamaneh said on Monday, as it seeks secure outlets for its crude in the face of Western economic sanctions.

He said there is no shortage of crude in the market and the Organisation of the Petroleum Exporting Countries (Opec) has no plans to increase supplies, in the latest producers’ rebuff to consumer nation calls for more oil.

Vaziri-Hamaneh said the world’s fourth-largest oil exporter is in discussions to store strategic crude in the world’s second-largest oil consumer China, which has been been building up reserves in the past year.

”We have some plans … we have discussed with them to have a role in storing strategic reserves in China,” he told reporters on the sidelines of the Asia Oil and Gas Conference in the Malaysian capital.

China has completed filling its first 33-million-barrel Zhenhai facility and had been scheduled to make the first crude fill into its second strategic storage facility at Aoshan by end-May, part of its aim of a 100-million-barrel pad by end-2008.

The crude came from countries such as as Angola, Iran and Sudan, shipping sources had said.

China’s crude imports from Iran are up 11% in the first four months of the year against the same period in 2006.

A shift in Iran’s sales to China could serve many interests. China’s state-owned refiners would avoid raiding edgy spot markets by securing more long-term contracts, and Iran would tighten economic ties with a key UN Security Council member.

Worries over Iran’s nuclear dispute with the West have been a driving factor for rising oil prices this year.

But Vaziri-Hamaneh said Iran is not concerned over the financing of mega oil projects in the country, despite economic sanctions over Tehran’s nuclear plan.

He said the country’s crude output is expected to rise to 5,3-million barrels per day (bpd) by 2014, up from 4,3-million bpd currently.

Iran has sweetened the terms of oil and gas contracts as it seeks to lure international companies to invest in the country despite political risks, but energy executives say they want more incentives.

The United States has frowned on deals that international companies have signed with Iran as they look to tap the second-largest oil and gas reserves in the world.

No shortage

The minister said the reason for current high oil prices is not because of crude supply problems.

”Now there is no shortage of crude oil in the market,” he said when asked if Opec should release more supplies to temper high oil prices, adding that commercial oil stocks in the United States are at a high level.

London Brent crude prices held above $68 a barrel on Monday, after a slide on Friday as fears over slower economic growth halted a rally to near nine-month highs over $71 last week.

Asked if oil prices would hit $80 a barrel, Vaziri-Hamaneh said: ”We cannot predict what will happen to prices now.”

Vaziri-Hamaneh also vowed closer cooperation with Asia, announcing that Iran was in talks to partner with China, Indonesia, Singapore, Syria and Malaysia to build refineries with a combined production capacity of 1,1-million bpd.

”We are supposed to be the partner in those refineries, and also try and provide the crude oil to those refineries,” he said.

He did provide further details on these projects, though an official at the National Iranian Oil Company (NIOC) said earlier on Monday that Iran aims to supply crude to a new refinery planned in northern Malaysia.

Vaziri-Hamaneh said Iran has finalised a deal with India’s Essar Group to build a new refinery in Iran, but did not provide details. NIOC has been in talks with Essar to build an estimated $2-billion, 300 000 bpd refinery. – Reuters