Iranian oil in perfect storm of storage shortage, low demand, sanctions

A general view of Abadan oil refinery in southwest Iran. (Reuters/File)
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Updated 07 July 2020

Iranian oil in perfect storm of storage shortage, low demand, sanctions

  • Coronavirus, US economic action sees inventories reach bursting point

LONDON: Iranian oil production has reached its lowest point in almost four decades, according to industry experts, with the country’s storage facilities fast approaching full capacity.

The news comes amid a dip in Iran’s oil exports due to a crash in global demand, and in a period when its refineries have been hampered as a result of the coronavirus outbreak.

With over 11,000 confirmed fatalities, Iran has suffered the worst coronavirus outbreak in the Middle East, affecting all areas of industry. 

This has created a perfect storm for the country’s vital oil sector, with what little selling ability it has further disrupted by sanctions imposed by the US in 2018 following Washington’s withdrawal from the Iran nuclear deal.

Iran’s total liquid production dropped from 3.1 million barrels per day (bpd) in March this year to 3 million bpd in June, according to FGE Energy, which predicts that the figure will drop by an additional 100,000 bpd in July.

Crude production was as low as 1.9 million bpd in June, the lowest since the beginning of the Iran-Iraq war in 1981.

Exports also fell, with estimates varying depending on source — 100,000 bpd in May according to market intelligence firm Kpler, and around 210,000 bpd according to FGE — well under 10 percent of the 2.5 million bpd Iran exported in April 2018.

Iran’s onshore crude stocks, meanwhile, hit 63 million barrels in June, having been just 15 million barrels in January, according to FGE.

Kpler said Iran averaged 66 million barrels in storage throughout June, meaning that around 85 percent of the country’s total onshore storage capacity was full.

“However, it will technically not be possible to fill tanks to 100 percent, given technical constraints at storage tanks and potential infrastructure bottlenecks,” Homayoun Falakshahi, a senior analyst at Kpler, told Reuters.

Offshore the story is much the same, with options running out fast. Iran has 54 crude oil tankers, according to valuations specialist VesselsValue, and is thought to be using around 30 ships, mainly supertankers with a maximum capacity of 2 million barrels of oil each, to store over 50 million barrels of crude and condensate.

“The exact number of Iranian vessels on floating storage is a bit of a black box as they have all turned off their AIS (tracking transponder) signals,” said a spokesman for shipping group NORDEN.

“Storage is expected to continue as we do not see these vessels being able to trade anytime soon.”

The Iranian-American Harvard analyst Dr. Majid Rafizadeh told Arab News: “Thanks to the re-imposition of sanctions against Tehran by the Trump administration, the regime seems to have suffered a significant loss of revenue.
“Iran’s oil revenues and exports have been steadily declining since President Trump pulled out of the Joint Comprehensive Plan of Action and adopted a policy of ‘maximum pressure.’

“Consequently, the flow of funds to the Iranian regime has been cut off, thwarting the Iranian leaders’ efforts to fund and sponsor Bashar Assad’s regime in Syria and various terror groups.”


China’s niche LNG buyers plan billion-dollar investments, double imports amid reforms

Updated 1 min 21 sec ago

China’s niche LNG buyers plan billion-dollar investments, double imports amid reforms

SINGAPORE: A group of niche Chinese gas firms is set to make waves in the global market with plans to invest tens of billions of dollars and double imports in the next decade as Beijing opens up its vast energy pipeline network to more competition.

The companies, mostly city gas distributors backed by local authorities, are ramping up purchases of liquefied natural gas (LNG) as newly formed national pipeline operator PipeChina begins leasing third parties access to its distribution lines, terminals and storage facilities from this month.

The acceleration in demand in what is already the world’s fastest-growing market for the super-chilled fuel is a boon for producers such Royal Dutch Shell, Total and traders like Glencore faced with oversupply and depressed prices.

Just last month, UK’s Centrica signed a 15-year binding deal to supply Shanghai city gas firm Shenergy Group 0.5 million tons per year of LNG starting in 2024.

“They’re very, very interested in imports — we’re talking to a lot of them already,” said Kristine Leo, China country manager for Australia’s Woodside Energy, which signed a preliminary supply deal with private gas distributor ENN Group last year.

China could buy a record 65-67 million tons of LNG this year and is expected to leapfrog Japan to become the world’s top buyer in 2022. Imports could surge 80 percent from 2019 to 2030, according to Lu Xiao, senior analyst at consultancy IHS Markit.

State-owned Guangdong Energy Group, Zhejiang Energy Group, Zhenhua Oil and private firms like ENN were quick to take advantage of the market reforms and low spot prices for LNG, said Chen Zhu, managing director of Beijing-based consultancy SIA Energy.

Their imports will reach some 11 million tons this year, up 40 percent versus 2019, more than 17 percent of China’s total purchases, said Chen.

For years such companies have worked to expand a domestic consumer base among so-called “last mile” gas users like tens of millions of households, shopping malls and factories, but they had to rely on state majors for supplies.

With greater access to distribution networks, they are now incentivized to build their own import terminals that could account for 40 percent of the country’s LNG receiving capacity by 2030, versus 15 percent now, Chen said.

Frank Li, assistant to president of China Gas Holdings, a private piped gas distributor, said his company has been in talks with PipeChina for infr structure access as it prepares to import LNG next year.

In Southern China’s industrial hub Guangdong, companies like Guangzhou Gas, Shenzhen Gas and Guangdong Energy hold small stakes in LNG facilities operated by China National Offshore Oil Company. They imported their first cargoes from these terminals last year.

Guangzhou Gas is set to import 13 LNG shipments this year, up from five last year, after “tough negotiations” with CNOOC won it access to terminals, said Vice President Liu Jingbo.

“The reform is bringing us diversified supplies, helping us cut cost,” Liu said.

Some companies also plan to beef up trading expertise by opening offices overseas, such as in Singapore, executives said.

“Naturally, companies will be thinking of growing into a meaningful player globally,” said a trading executive with Guangdong Energy, adding that his firm looks to Tokyo Gas , Japan’s top gas distributor and trader, as a model.

The rise of niche players will erode some market share held by state giants CNOOC, PetroChina and Sinopec, prompting them to scale back gas infrastructure investment and focus on global trading, while extending into retail gas distribution at home, officials said.