Japanese refiner Cosmo Oil has renewed its crude oil term contract with the National Iranian Oil Co, effective from April, but at lower volumes, sources close to the deal told Platts Friday.
A Cosmo Oil spokesman declined to confirm as to whether the company had renewed its term contract that expired at the end of March.
One source close to the matter, however, said he believed that Cosmo Oil had renewed its contract but declined to provide volumes covered.
Under the new contract, Cosmo Oil's crude import volumes will be lower than a year ago to comply with an agreement reached last month between Tokyo and Washington exempting Japanese banks from US financial sanctions in exchange for lower purchases of Iranian oil, one source said.
It was not immediately clear how much of a cut Cosmo Oil had made in its imports from Iran in the new contract. In 2011, Cosmo Oil imported an average 36,000 b/d of Iranian crude oil, according to the company's data.
Cosmo Oil, however, does not plan to lift any Iranian crude at least over April-May under the new contract, and it was not immediately clear whether the company will lift Iranian crude for June delivery, the sources said.
Cosmo Oil's new contract includes additional force majeure clauses to be included in Iranian crude oil contracts that could be invoked if sanctions prevent or limit execution of the contracts, they added.
The news of Cosmo Oil's contract renewal comes after Showa Shell, the biggest buyer of Iranian crude oil in Japan, renewed its term contract with NIOC from April at what is expected to be lower volumes of imports to comply with US sanctions against Tehran, Platts reported April 17.
Under the terms of the new contract, which is effective from April with volumes to be delivered in May, Showa Shell's loadings of Iranian oil are expected to fall below March volumes, sources familiar with the matter have said.
Because a VLCC takes 18-20 days to make a voyage from Iranian loading terminals to Japan, any crude loaded in April will not reach Japan until May.
They said Showa Shell's renewed contract came as time was running out for the company to make its loadings in April after months of delays in renewing its term contract.
It was not immediately clear how much of a cut Showa Shell had made in its imports from Iran.
However, the company had said previously it intended to comply with an agreement reached last month between Tokyo and Washington exempting Japanese banks from US financial sanctions in exchange for lower purchases of Iranian oil.
Showa Shell was importing 100,000 b/d of Iranian crude under its previous contract that expired at the end of March, sources said. Showa Shell is owned by Shell (35.04%), Saudi Aramco (14.96%) and public investors (50%).
The sources said the inclusion of additional force majeure clauses -- which will also be applied retroactively to contracts that started in January -- had removed a major obstacle in negotiating new contracts with Iran.
The additional clauses mean that Japanese buyers will be able to invoke force majeure if, for example, they cannot find vessels to lift Iranian crude because of the loss of insurance cover, as Platts reported on April 2.
Japanese buyers will have to give advance notice of 30 days to NIOC if they want to invoke force majeure.
A spokesman for JX Nippon Oil & Energy, the second largest buyer of Iranian oil in Japan, said Friday that the company had not yet decided whether to renew a contract -- one of two that JX has with NIOC -- for 10,000 b/d.
JX Nippon Oil & Energy, Japan's largest refiner, has two contracts with Iran -- one for 80,000 b/d which runs from January to December and one for 10,000 b/d which runs from April to March.
Idemitsu Kosan under a new term contract for Iranian oil supply -- which is yet to be signed -- expects to cut "at least a small volume" from the 6,000 b/d it was importing under the previous contract, company chairman Akihiko Tembo told reporters.
Idemitsu had not yet started discussions with the National Iranian Oil Company specifically on import volumes under the new term contract beyond April. It has, however, requested NIOC to start the talks, Tembo said.
CLEARING IMMEDIATE SHIPPING INSURANCE CONCERNS
The renewal of Showa Shell and Cosmo Oil's contract came as Japanese refiners cleared immediate shipping insurance concerns for cargo and hull damage, which have been capped at Yen 30 billion ($367 million) because of the complex EU rules regarding insurance cover by EU-based Protection and Indemnity Clubs.
Shipping sources also said Friday that the renewal of the contracts was significant given that there could be more utilization of tonnage in a market that is flushed with oversupply.
A few shipping market sources said Japanese shipowners could try to find a solution for arranging insurance post July 1.
"The Japanese Shipowners' Association has been talking to the government for sometime on the insurance issue. We hope something works out. But at the moment we are still not clear what will be the solution," a source with a Japan-linked shipowner said.
Iranian oil is very important for Japan since to source oil from elsewhere, its companies may have to pay higher freight, said a ship broker.
Japanese shippers face the prospect of having to make up for some 70-80% of reinsurance cover normally provided by EU insurers that will disappear when EU sanctions against Iran come into effect, Platts reported earlier.
The EU agreed in January to ban imports of Iranian crude beginning July 1. The sanctions not only forbid the import and transport of Iranian oil, but also ban insurance cover for vessels carrying Iranian cargoes. And because of pooling arrangements for reinsurance between Protection and Indemnity clubs around the world, the sanctions will have an impact on non-EU shipping.
The sanctions, modified on March 23, allow third party and environmental liability insurance for tankers carrying oil from Iran until June 30.
Other forms of insurance are also exempt if they relate to contracts signed before March 24, when the new version of the sanctions came into force. This means new contracts for insurance covering damage to a ship's hull or its cargo may not be allowed after March 24 under the EU's rules.
EU foreign ministers are scheduled to review the sanctions legislation on May 14.
The maximum insurance coverage was defining Japan's possible oil import volumes from Iran beyond April because Japanese shipowners and charters would not want to carry Iranian oil for fear of liability due to the loss of reinsurance cover, sources said April 10.
Under the insurance cap, Japanese buyers can cover 100,000-200,000 b/d of Iranian oil in new contracts starting in April.
Meanwhile, Japanese refiners are understood to be cutting their purchases of Iranian oil by between 15% and 20% for the year ahead as part of the agreement between Tokyo and Washington. This is likely to result in a fall in Japanese imports of Iranian oil from an estimated 300,000 b/d in April to around 240,000 b/d after April.
Source: Platts