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Asian refiners weigh impact of Iran insurance deal on crude oil imports

11.25.2013  | 

Refiners in South Korea, Japan and Taiwan won’t immediately boost Iranian crude imports after the European Union lifted a ban on insuring tankers. Indian processors plan to keep within contracted volumes, while Turkey may buy more.

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By DEBJIT CHAKRABORTY and YUJI OKADA

Bloomberg

Refiners in South Korea, Japan and Taiwan won’t immediately boost Iranian crude imports after the European Union lifted a ban on insuring tankers. Indian processors plan to keep within contracted volumes, while Turkey may buy more.

It’s too early to say whether SK Innovation Co., South Korea’s largest refiner, will increase purchases, said Lee Mi Ji, a spokeswoman in Seoul. Japan’s Showa Shell Sekiyu K.K. doesn’t plan to change its supply deals for the time being, according to the company. Indian Oil Corp., Hindustan Petroleum Corp. and Mangalore Refinery & Petrochemicals Ltd. said they don’t intend to buy more than previously planned and Taiwan’s Formosa Petrochemical Corp. will maintain its current level of imports, said Lin Keh-Yen, a company spokesman.

“Insurance was an issue, but the key point is that there is no lifting of current restrictions on Iranian crude, they just remain the same,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein. “We don’t anticipate any change in crude exports.”

The end of the European Union ban on insuring ships carrying Iranian crude is part of a first-step agreement that will give the country as much as $7 billion in relief from economic sanctions over six months in exchange for curbs on its nuclear program. 

Oil exports will be held to about 1 million bpd, or 60% below 2012 levels, under Western sanctions that remain in force, according to the White House.

Reduced purchases

Buyers of Iranian crude that have already reduced purchases won’t be required to make further cuts over the next six months under the new accord. The EU will continue to prohibit crude imports from the country while banking and financial measures will remain in place. Sanctions have deprived the nation of more than $80 billion in revenue, US President Barack Obama’s administration said.

Turkey may increase imports from Iran to as much as 140,000 bpd from about 105,000 bbl now, Energy Minister Taner Yildiz said today in an interview with CNBC-e television. Yildiz said last month that the country couldn’t trim crude purchases from Iran further without economic damage.

Iranian crude imports by China, Japan and South Korea averaged about 783,000 bpd in 2012, down 29% from the previous year, according to customs data from the three countries. The three nations imported about 761,000 bpd during the first nine months of this year, up 1% from the same period in 2012.

India’s purchases are forecast to total 11 million metric tons in the 12 months ending March 31, a 15% drop from the previous year, Petroleum Secretary Vivek Rae said Nov. 8. That’s the equivalent of about 220,000 bpd.

Tanker fleet

“We can go ahead and import the contracted volume for this year,” said Rajkumar Ghosh, the director of refineries at Indian Oil, the country’s largest processor. The company has a deal to buy 1.2 million tons of Iranian crude in the year ending March 31, of which 500,000 to 600,000 tons have been imported since April, he said. Middle East suppliers sell the bulk of their crude in long-term contracts.

The insurance restrictions affected about 95% of the global tanker fleet because the ships are covered under rules governed by European law. Carrying Iranian oil would invalidate ships’ insurance against risks including spills and collisions, according to the International Group of P&I Clubs. The Japanese government started providing sovereign cover for its tanker operators while India was due to consider a 20 billion rupee ($320 million) fund to help cover imports.

“This is a precursor to overall easing of Iran sanctions,” P.P. Upadhya, the managing director of Mangalore Refinery, said by phone yesterday. “We are importing about 500,000 tons every month since August, so we should reach our 4 million-ton plan by March.”

IEA estimates

The accord will let Iran raise exports by nearly 300,000 bpd from last month’s level, said Olivier Jakob, managing director of consultant Petromatrix GmbH.

Imports fell to 715,000 bpd in October, compared with 1.26 million in the previous month, the International Energy Agency said in a Nov. 14 market report. Shipments from the country still averaged 1.1 million bpd in the first nine months of this year, according to the IEA.

The combined effects of oil, shipping and financial restrictions caused buyers of Iranian crude to take less than sanctions allowed, Jakob said by phone from Zug, Switzerland. By loosening sanctions on insurance, the agreement will enable importers to buy their full allotments, he said.

Showa Shell is “closely monitoring” the situation around sanctions, Satoshi Yoshida, a Tokyo-based spokesman for the refiner, said by phone today. The company imports crude from Iran based on annual term-contracts. An official for JX Nippon Oil & Energy Co., Japan’s biggest refiner, couldn’t comment immediately when called today.

‘Unimpeded’ progress

China wants “unimpeded” progress in energy cooperation with Iran, Qin Gang, a foreign ministry spokesman, said in Beijing today. Cooperation between the two nations in crude and energy had been “to some extent affected” by the nuclear dispute, Qin said.

Three calls to the Beijing office of China International United Petroleum & Chemical Co., known as Unipec, weren’t answered. The nuclear deal won’t have a significant impact on CPC Corp.’s oil imports, Jessica Tang, a spokeswoman for the Taiwanese state refiner, said by phone from Taipei.

“We are waiting to see how things will unfold from now on but it’s too early to say whether we will expand our imports,” SK’s Lee said by phone today. “If things work out well, we are willing to take a positive perspective on this lifting of the sanctions.”

Insurance pool

Hindustan Petroleum plans to import 800,000 tons of Iranian crude by March if it can begin shipments next month, B.K. Namdeo, director of refineries at India’s third-largest state- run refiner, said yesterday. The country’s processors are unlikely to exceed their targets in the current financial year, he said.

“We will be able to start importing Iran crude even without the government’s insurance pool,” Namdeo said.

In June 2012, there were 23 importers of Iranian crude; today, only six remain - China, India, South Korea, Japan, Turkey and Taiwan, according to US officials.



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