Efficiency assessment of Iran's petroleum refining industry in the presence of unprofitable output: a dynamic two-stage slacks-based measure

Abstract

Iran ranks as the fifth largest producer of crude oil in the world. Therefore, the country has the potential to play an important role in the global petroleum products market. Surprisingly, Iran cannot satisfy the domestic demand for transportation fuels, forcing the country to import gasoline and diesel fuel. To investigate this problem, this study applies a novel dynamic two-stage slacks-based measure framework to evaluate the efficiency of the petroleum refining industry in Iran. Using data from Iranian refineries for the period 2011–2015, in the first stage, the model decomposes the efficiency of refineries into operational and profitability subunits. In the second stage, the overall efficiency scores are computed. Unlike previous studies considering byproducts like emissions as undesirable outputs, the current model incorporates mazut as an unprofitable output. The empirical results reveal low efficiency among Iranian refineries and indicate a significant negative relationship between the overall efficiency scores and amount of mazut produced in refineries. Scrupulous analysis shows that an inappropriate production pattern and lack of advanced conversion units in refineries contribute greatly to the low performance of the Iranian refining sector. These findings can be used to improve current refining industry as a step toward energy sustainability in Iran.

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Identifiers

ORCID for Keyvan Hosseini: orcid.org/0000-0002-8299-1957

ORCID for Agnieszka Stefaniec: orcid.org/0000-0003-2366-7740

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