UPDATE 1-S.Lanka's Ceypetco may close refinery on supply delay

Mon Oct 22, 2012 6:33am EDT

* Ceypetco struggling to bring in Iranian crude after U.S. sanctions

* Seeking alternative crude to replace Iranian oil

* Ships having difficulty getting insurance (Adds details)

SINGAPORE/COLOMBO, Oct 22 (Reuters) - Ceylon Petroleum Corp (Ceypetco) may be forced to shut Sri Lanka's sole 50,000 barrels-per-day oil refinery from Thursday for up to two weeks if efforts to secure alternative supplies to Iranian crude fail, the company's general manager said.

The Sri Lankan refinery is configured to run solely on Iranian crude. Authorities have been trying to adjust it to run on other crude varieties since the United States imposed sanctions on Iranian exports.

Susantha Silva told Reuters Ceypetco was scrambling to fill a shortfall after it was unable to bring in Iranian crude because of U.S. sanctions, but the refinery might not need to be shut if a crude order could be confirmed by Monday evening.

"At the moment, we are having problems with getting the required Irancrude," Silva said.

"We are still trying, even right now. If it is not, then we have no choice, but to shut down for two weeks ... maybe by the 25th, if we (do not get) the confirmation today."

Exports from Iran, which is grappling with tough Western sanctions targeting its energy and petrochemical sectors, have fallen sharply as consumers struggle both to pay for the oil and to secure insurance cover for tankers to ship the crude.

"We used Arabian light (crude) and we had problems but we have adjusted it now, (though) we are still unable to run at the full capacity," Silva said. "Arabian light will not give the proper yield so it is virtually not profitable also."

Sri Lanka, which is dependent on Iranian crude oil, has taken steps to cut purchases of Iranian crude to eight cargoes each year from 13 earlier, buying four cargoes from Oman and one from Saudi Aramco.

U.S. Secretary of State Hillary Clinton said in June the U.S. would exempt Sri Lanka, among other nations, from financial sanctions because they have significantly cut purchases of Iranian oil.

"The refinery needs Iranian crude but we have no choice now. We have in fact lined up crude from Arabian light and also Omanian blend in the month of November," Silva said.

"We have no choice but to try out any other crude. That's the situation at the moment but at the same time we are not allowing the country to dry out."

The tough sanctions have so far defeated three attempts by Sri Lanka to get an Iranian crude cargo, Silva added.

"I sent a ship and the ship was almost there and they could not get the insurance. (It) has come back and then anyway we were trying (to get a crude cargo) without payment because we can't open a (letter of credit)."

Ceypetco's Sapugaskanda refinery, on the outskirts of the capital, Colombo, was last shut early in September after damage to a floating pipeline at the Colombo port.

Iran's oil exports have remained steady in recent months, it OPEC governor has said. (Reporting by Ranga Sirilal in Sri Lanka and Jessica Jaganathan in Singapore; Editing by Clarence Fernandez)