Iran’s oil, condensate exports set to slide

The imposition of US secondary sanctions on Iranian exports will shortly hit Iran’s petroleum industry, according to Wood Mackenzie.

Nov 8th, 2018

Offshore staff

LONDON – The imposition of US secondary sanctions on Iranian exports will shortly hit Iran’s petroleum industry, according to Wood Mackenzie.

Homayoun Falakshahi, a senior research analyst in the consultant’s Middle East upstream team, said: “After the implementation of the nuclear deal in January 2016, Iranian production and exports recovered to pre-sanctions levels inside six months.

“Exports reached a peak of 2.8 MMb/d in April 2018, including 300,000 b/d of condensate. Buyers have come from numerous countries, with the bulk sold into Asia, the Mediterranean, and Northwest Europe.”

However, after the US withdrew from the nuclear deal this May, Iranian crude and condensate exports dipped to around 1.8 MMb/d. South Korea cut all imports from Iran in August, with France, Italy, Spain, and Greece doing the same.

“Beyond Nov. 5, we expect crude exports to fall to 1 MMb/d,” Falakshahi added, “though it could vary month to month; and condensate to 100,000 b/d. Crude sales will be concentrated around a core of supportive state buyers, China, India, and Turkey.”

Falakshahi claimed Iran would struggle to maximize exports when virtually all trade in oil is cleared in US dollars.

“Iran is hoping the EU’s barter proposal – goods as indirect payment for oil – opens doors, though we doubt any big oil traders will leap at the opportunity.

“Access to shipping insurance is also a problem, though Iran has its own fleet of 60 tankers and has offered cargoes CIF [cost, insurance, and freight] to buyers. Specialized tanker trackers suggest Iranian tankers are operating ghost with disabled ID systems to avoid detection.”

As for condensate, the country’s full production potential is around 750,000 b/d - large in global terms - with around half exported. The condensate is produced in association with gas needed for the domestic market (as is the case with the offshore South Pars field) and therefore cannot be shut-in like oil, Falakshahi pointed out.

“During the 2012-2015 sanctions, Iran increased condensate sales to cushion the impact of lost oil exports. It’s not clear they’ll have the same flexibility under the new sanctions. South Korea, the biggest buyer, and UAE have now stopped condensate imports.”

Ann-Louise Hittle, vp macro oils at Wood Mackenzie, said: “There are implications for the oil market. The biggest risk is this winter. Losing another 1 MMb/d or more from Iran comes on top of a similar loss in supply from Venezuela over the last couple of years…

“We think there’s just enough growth in supply from elsewhere to muddle through the next few months, meet winter demand, and avert a price spike. Brent should hold around $78/bbl, but it’s a very fine line.”

Once the cold period is past, Hittle added, “we forecast that Brent will ease, averaging $74/bbl in 2019. We expect supply to grow 1.6 MMb/d in 2019, with US tight oil driving this. That’s well ahead of 1.2 MMb/d of demand growth and should lead to a healthy inventory build during the year.”

11/08/2018

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