x Abu Dhabi, UAEWednesday 17 January 2018

Bitumen opens new export road for Iranians

Infrastructure needs in Asia and Middle East boost the country's growth.

The boom in infrastructure development in Asia and the Middle East has opened a little-noticed outlet for Iran to strengthen trade ties with its neighbours, while increasing export opportunities for the region's smaller oil producers. The commodity involved is bitumen, a term for oil that is so dense and sticky that it sinks in water. It has often been a target of environmental protests over oil.

It can also be produced in petroleum refineries, where it may be called "refinery bottoms" or "asphalt". The chief use of unmodified bitumen, accounting for 90 per cent of global demand, is as road tar. "The development of any economy anywhere in the world needs sophisticated infrastructure that includes roads, airport runways and parking lots, so you can see the value of bitumen," Hussain Sultan, the chairman of Dubai-based Neptune Energy Trading, told the Middle East Bitumen 2010 conference - the first such regional meeting on ultra-heavy oil.

Other speakers left delegates in no doubt that the most lowly of petroleum products, and usually the cheapest, was of growing regional importance because of the continued expansion of economies east of the Suez. The Gulf states that would benefit include Iran and Bahrain, the region's two net bitumen exporters. Oman could soon join them, as the sultanate is building the GCC's first bitumen refinery.

Ironically, because of the expansion of mainstream petroleum refining in Asia and the Middle East, the regional supply and demand balance for bitumen is about to tip from a slight oversupply to a shortage, predicts Praveen Kumar, a senior consultant at the Singapore-based consultancy FACTS Global Energy. That is because the new refineries include so-called cracking units that break up the long carbon chains found in bitumen and other heavy oils to make lighter products such as diesel.

It is such heavy-oil "upgrading" activities, rather than the direct use of bitumen on roads, that attracts the ire of climate-change activists because of the high carbon content of the heavy crude feedstock. Environmentalists also object to the energy intensity of heavy-oil extraction. But heavy crude and the products refined from it have their uses. Last year, as major oil exporters such as Saudi Arabia throttled back their production of heavy crude because of OPEC cuts, bitumen was in such short supply that its price for a time overtook that of fuel oil, "causing us to scratch our heads", said Bryan Chen, the executive director of Bahrain's Al Mashael Group.

The privately owned petroleum group leads Oman's Sohar bitumen refining joint venture. Construction of the 30,000 barrel per day (bpd), or 1 million tonnes a year, "niche refinery", which would produce mainly bitumen from Saudi heavy crude, would begin next year with output scheduled to start in 2013. The bitumen markets of the UAE and Oman alone accounted for 450,000 tonnes a year of consumption and were expected to expand by 10 per cent annually over the next few years, Mr Chen said. The Sohar refinery would also export bitumen to the rest of the GCC and to India and Bangladesh.

But Iran would still be the Gulf region's biggest bitumen exporter after 2013, with the most extensive bitumen storage and handling facilities at its southern port of Bandar Abbas. Abbas Rezaei, the managing director of Iran's Pasargad Oil, put the country's bitumen production capacity at 5.5 million tonnes in the last Iranian year, which ended on March 20. The combined 4.4 million tonnes of bitumen output during the period from eight Iranian refineries was the third largest in the world, behind Chinese and South Korean production.

Of Iran's total bitumen exports of 1.16 million tonnes last year, 36 per cent, or 418,000 tonnes went to Arab states including the UAE, Kuwait, Qatar, Iraq and Oman. Most of the rest was shipped to Asia-Pacific markets. Iran's domestic bitumen consumption could fall in coming years because of government plans to phase out petroleum subsidies. That would free up an extra 700,000 tonnes a year for export, Mr Rezaei said.

Exports from Bahrain, the region's first petroleum refiner, peaked at more than 500,000 tonnes a year in 2007 and 2008, said Mohammed al Howaihi, the co-ordinator of petroleum product sales for the government-owned Bahrain Petroleum Company (BAPCO). Demand for a new road from Saudi Arabia to Bahrain and to pave reclaimed islands off the coast of Qatar boosted prices for BAPCO's bitumen to as much as US$550 (Dh2,019) a tonne in 2008, when crude prices also peaked.

Now Bahrain hopes to expand its bitumen exports to India and China. The bottleneck is not in refining but in port facilities for packing the oil into drums or other containers. "We are looking for new investors as we are receiving orders from new customers," Mr al Howaihi said. tcarlisle@thenational.ae