Measuring Economies of Scale and Utilization Indices in Gas Refineries of Iran

The commercial viability and feasibility of projects in oil and gas industry depends mainly on the economic efficiency. This paper measures and evaluates economic efficiency of gas production in Iran’s gas refineries using the returns to scale indicators: economies of scale and economies of utilization. To do so, this study employs a dual cost model using an applied econometrics method and estimates a system of Translog cost function along with input cost share equations using Iterative Seemingly Unrelated Regression Equations (ISURE) method with a panel data of seven Iran’s gas refineries over the period 1382 to 1393. The estimation results of the both economic efficiency indicators show an economic inefficiency of gas production in all gas refineries during 1382-93. Economies of scale and economies of utilization indices are less than one for all gas refineries in all years over the study period. In order to improve the efficiency of gas production in Iran’s gas refineries some policy actions can be implemented such as use of appropriate production technologies, increasing economic life of refineries, promoting research and development, and so on.

Keywords:

Economic Efficiency , Gas Refinery , Economies of Scale , Economies of Utilization , Translog Cost Function , Iran