FSU Oil Exports Through Iran Set to Increase

Iran's long-held dream of becoming a major export route for oil from the Caspian Sea has taken another step forward with the completion of the first phase of a new pipeline from its Caspian Sea port of Neka to the Rey terminal outside Tehran. Upgrading of the country's northern refineries to process sour Central Asian crude is also underway.

Although crude oil swaps with Kazakhstan and Turkmenistan have not risen as originally hoped, Iran is negotiating its first swap deal with a Russian oil exporter— Lukoil—paving a new way for Russian oil companies to export their rising production to world markets.

Early agreement

Iran has long sought to present itself as a major export conduit for oil from the Caspian Sea region.

Although such trade has not grown as hoped, Iran is in the process of signing up a new customer for crude oil swaps: OAO Lukoil.

In May 1996, Iran and Kazakhstan signed a 10-year deal under which Iran was to import up to 5 million tones / year (tpy; 100, 000 b/d) of a blend of Kazakh crudes for processing in its northern refineries at Tehran and Tabriz and would export a similar volume of Iranian crude through the Persian Gulf on Kazakhstan's behalf. A swap fee of $ 14/tonne was agreed for the deal.

In the early years of the agreement, it was envisioned that the volume of oil involved would only be 1-2 million tpy, due to constraints in the capacities of the oil-handling facilities in both countries and the inability of Iranian refineries to handle larger volumes of the Kazakh blend.

The oil was to be a blend of Tengiz crude and output from other fields in southwestern Kazakhstan, principally the Kalamkas field. It was to be blended and shipped in barges from the Kazakh port of Aktau to the Iranian port of Neka.

Shipments were to begin in second quarter 1996 but were repeatedly delayed by disagreements over commercial and crude quality issues. The first shipment under the agreement finally occurred in January 1997.

During first quarter 1997, 70, 000 tonnes of Kazakh crude were sent to Iranian refineries until the deal was suspended due to problems with the sulfur content of the Kazakh export blend, made up of equal proportions of the two crude oil streams.

Since then, the arrangement has been plagued with difficulties, and shipments did not resume until January 2002, when Kazakhstan began swapping some 20, 000 b/d of output through Iran. By the end of the year, the volume had increased to about 50, 000 b/d, according to Iran's ambassador to Kazakhstan Morteza Safari-Natanzi.

The ambassador also claimed that Kazakhstan would export 24.5 million tones (almost 500, 000 b/d) of oil through Iran in 2004, although this seems extremely optimistic. Iran is unlikely to be able to handle that volume of Kazakh crude by 2004, while for its part Kazakhstan is unlikely to have such a volume available for export through Iran, particularly since much of the country's output is owned by US companies, which are prevented from ex­porting through Iran.

Questions:

1 Is Iran negotiating its first swap deal with a Russian oil exporter - Lukoil? Why?

2 Iran is in the process of signing up a new customer for

3 crude oil swaps: OAO Lukoil isn't it?

4 Why were the first shipments repeatedly delayed?

5 When had the volume of shipments increased?

6 What did the Iran's ambassador also claim?

18.1 What does the article focus on?