DUBAI, U.A.E. – Sepahan Oil predicts a bright future for Irans base oil industry, thanks to the countrys young and growing population, high demand for cars, planned economic development, and success in finding new trading partners in the Middle East, North Africa and South Asia.

Sepahan Oil Co.s Mojtaba Arabi Anaraki, a dewaxing expert, gave an overview of Irans base oil and finished lubricant markets at the ICIS Middle Eastern Base Oils & Lubricants Conference here last month.

Iran counts four main base oil producers, said Anaraki. All are API Group I producers:

• Sepahan Oil, with capacity to produce 420,000 metric tons per year at one plant in Esfahan;

• Iranol, capacity 270,000 t/y at two plants, in Tehran and Abadan;

• Behran, capacity 190,000 t/y at its Tehran plant; and

• Pars, capacity 140,000 t/y at its Tehran plant.

In addition, Anaraki noted, rerefiners produce an additional 200,000 t/y, bringing the nations total base oil capacity to 1.22 million t/y.

Iran exports from 470,000 to 540,000 t/y of base oil, with Sepahan accounting for 58 percent of total exports, Iranol for 27 percent, and rerefiners for the remaining 15 percent.

Base oil profitability in Iran has declined in recent years, Anaraki said. Profits have been pulled down by several factors. These include the replacement of Group I base oils by Group II and Group III, lowering the price for Group I.

New sources of base oil in the Middle East, including Shells gas-to-liquids base oils from Qatar and Bapcos Group III from Bahrain, have pressured margins for Irans Group I producers.

Iran has eliminated many domestic subsidies, Anaraki continued, resulting in increased costs for utilities, feedstock, transportation and other goods and services. It costs more to manufacture, but product prices are controlled by the government, so base oil companies cannot increase prices.

Finally, he noted, international sanctions have reduced profits by creating problems in arranging financial transactions, shipping and insurance, and reducing access to new technologies.

But there are solutions, Anaraki said. First on the list is improving base oil quality. A second route to greater profits is improving slack wax quality and output. And a third is to continue finding new trading partners in the Middle East, Africa and Asia.

Turning to finished lubricants, Anaraki said Irans market is estimated to be 800,000 t/y, the largest in the Middle East. Finished lubricant market share is dominated by Behran, with 32 percent of the market; Iranol has 16 percent; Sepahan has 15 percent; Pars has 14 percent; and all others share the remaining 23 percent.

Breaking the finished lube market down by product type, the automotive lubricants market totals 600,000 t/y, of which 380,000 t/y is heavy duty engine oils and 200,000 t/y is passenger car motor oils. Irans industrial oil market totals 200,000 t/y. The grease market is about 18,000 t/y. Finished lubricant exports total only about 5,000 t/y.

There is significant room for growth in Irans engine oil quality. Anaraki noted that API CF and lower grades make up 96 percent of the heavy duty engine oil market, and API SE and lower grades account for 67 percent of the passenger car motor oil market. SG accounts for 26 percent, and SJ and higher grades are just 7 percent.

Sepahan sees important growth drivers in Iran. Irans population numbers more than 75 million, said Anaraki, and its a youthful population, with more than 25 percent below the age of 25. The countrys automotive sector is the nations second largest industry sector, after oil and gas. Car production in Iran has increased 445 percent from 1998 to 2008.

Irans young and fast growing population, urbanization, and the increased engagement of women in society, Anaraki concluded, are all driving strong demand for more cars, and more and better lubricants.