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Asia Soaks Up Iran’s Post-Sanctions Oil

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Written by: DAN STRUMPF and JENNY W. HSU at The Wall Street Journal

Click HERE to Read Article From Publisher


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Asian nations are stepping up their purchases of Iranian oil, underscoring Tehran’s deepening energy ties with the region amid a slow rapprochement with European crude buyers.

China, India, Japan and South Korea are among big Asian oil consumers that have sharply boosted their imports of Iranian crude this year.

China and India are looking to further lock down Iranian supply, with a large planned investment in Iran’s oil and gas infrastructure. Iran is seeking $130 billion worth of investment to bring its energy sector up to date after years of sanctions.

The developments highlight Iran’s growing reliance on Asia, a region that remained an importer of Iranian crude during the years of the U.S.-led sanctions. As Asia’s demand for oil expands, the region is now playing a leading role in boosting Iran’s oil production and market share in some key locales.

“China has the best position because, in the past five years, they have been with Iran,” said Mehdi Fakheri, Iran’s consul general in Hong Kong and Macau, referring to China’s decision not to cut off all oil imports from Iran during the sanction years. “They have the whole Iranian market in their hand.”

Sales to Asia—home to a number of emerging economies with fast-growing oil needs—have soaked up 70% of Iran’s oil exports since the end of Western sanctions tied to the country’s nuclear program in January. Iran was producing about 3.6 million barrels a day in August, and wants to return to its pre-sanction level of more than 4 million barrels a day.

In India, crude imports from Iran in August nearly tripled from a year earlier to 576,000 barrels a day, according to the National Iranian Oil Co. Exports to China—Asia’s biggest buyer of Iranian oil—in the same month grew 48% from a year earlier to 749,000 barrels a day, and are up 7% this year. Other Asian oil guzzlers have also brought in significant amounts of new Iranian oil, with Japan’s imports this year rising 45% compared with a year ago, and South Korea’s imports more than doubling.

Iran has, in part, made strides in Asian markets by offering its crude at a discount compared with rivals, such as Saudi Arabia. This year, Iranian crude sold in Asia has been, on average, about 25 cents per barrel cheaper than the Saudi competition, said Eugene Lindell, oil analyst at JBC Energy. But Tehran has been hesitant to cut its crude prices too deeply relative to its competitors, fearful of selling off the country’s finite reserves the its most prized resource on the cheap.

Another factor behind Iran’s success in Asia is that the region is home to some of the world’s fastest-growing crude markets. China’s overall oil imports are up 14% this year, almost double the U.S. import growth pace. Meanwhile, refiners in the region are calibrated to easily process oil from Iran.

“Due to geographical proximity, Asian refiners have traditionally been a large buyer of Middle Eastern oil. This means their units are configured to refined oil from that region, including Iranian oil,” said Richard Gorry, a JBC managing director who often goes to Iran to speak with oil officials.

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Europe, too, has this year started ramping up imports of Iran’s crude, with “well over 500,000 barrels a day” of oil now being sent to the area, an oil official in Tehran said Friday. The Europe region imported no Iranian oil last year, while the U.S. hasn’t bought Iranian oil in decades.

However, countries in the European region have been moving more tentatively because of separate sanctions that remain in place, preventing dollar transactions with the Islamic Republic.
“Those hurdles around banking and shipping have made buyers slow to move,” said Richard Mallinson, geopolitical analyst with the research firm Energy Aspects.

As a result, China has remained a key destination for Iranian oil this year. Just days after the restrictions were lifted in January, Chinese President Xi Jinping traveled to Iran—the first of several Asian leaders to visit this year—promising an increase in trade.

To be sure, some crude exporters are having even more success than Iran in expanding their sales in China. Russian exports to China are up 30% this year, for example, in part because of a preference for Russian crude by China’s independent refiners—a key engine of China’s oil-demand growth this year.

Iran’s primary customers in China are the state-owned oil giants, which account for the bulk of imports, according to traders and analysts. On any given day, a large delegation from Iran is visiting Chinese state-owned energy companies to pitch and discuss investment deals, a Beijing-based energy executive said.

“After the 2008 crisis, Asia oil demand has been the main driver of the increasing global oil demand, and this trend seems to continue in the coming years,” said Mohsen Ghamsari, the director in charge of marketing oil at the National Iranian Oil Co., at an energy conference in September.

Underscoring Beijing’s demand for Iranian oil, two of China’s largest state-run oil companies, China National Petroleum Corp. and China Petroleum & Chemical Corp., are in the late stages of deals to help develop two major oil fields in western Iran, according to NIOC. The total amount of the investment isn’t clear. China National Petroleum didn’t respond to requests for comment. However, officials at China Petrochemical, known as Sinopec, say they have doubts about Iran’s new contractual terms on their deal, and it will take time to complete any new agreement.

Meanwhile, India’s state-run Oil and Natural Gas Corp. and Iran have signed a preliminary agreement—expected to be finalized as soon as this month—to co-develop Iran’s Farzad-B gas field. The $10 billion project will likely see a partnership between Iran’s NIOC and a consortium of Indian companies, led by an overseas arm of ONGC.

The potential payoff for getting back in early with investment dollars to Iran is clear. About 10% of the world’s known crude-oil reserves are in Iran, according to the data division of the U.S. Department of Energy.

Elsewhere in Asia, Indonesia’s state-owned oil and natural gas company Pertamina signed a preliminary pact in August with NIOC to look at codeveloping two oil fields in western Iran that are expected to produce a combined 5 billion barrels.


Written by: DAN STRUMPF and JENNY W. HSU at The Wall Street Journal

Click HERE to Read Article From Publisher

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