Exporters, buyers brace for normal flows of Iranian LPG, condensate
Iranian exporters aim to increase LPG exports to full capacity, if the Biden administration lifts sanctions that limited shipments from the country’s petrochemical plants and gas refineries, adding to healthy Middle East supply, which could drive up freight, industry sources familiar with the sector said.
Assuming the US completely removes sanctions in second-half 2021, Iran can export 3.73 million mt during the period and at least 33 vessels will be needed for transportation, six more than currently, they said.
Removal of sanctions should the US resume the Joint Comprehensive Plan of Action, or JCPOA, after former US President Donald Trump withdrew in May 2018, could also allow Iran to export condensates, an ultra-light crude that yields better product margins, and put pressure on Asia’s naphtha market.
South Pars condensate is expected to be competitively priced, allowing petrochemical makers to obtain cheaper feedstock naphtha from cracking this condensate.
“The market is worried the lifting of Iran sanctions would weigh on the naphtha market because condensate will be cheaper, so the Korean splitters will buy more condensate again instead of heavy full range naphtha,” a petrochemical producer said.
Iran had previously exported condensates to South Korean end-users, where splitters switch between using condensate and various naphtha grades, depending on economics. If Iranian supply were to return to the market, it would impact other types of naphtha, sources said.
“Once Iran and the US come to an agreement, they [Iran] can export oil products again, and it will definitely affect the naphtha market,” a Singapore-based source said.
“Last time, Iran used to export a lot of condensates for splitters like Hyundai, Hanwha, and others in Korea, and if this were to resume, then demand for heavy paraffinic naphtha will definitely go down,” the source added.
Restored Iranian LPG exports would add to abundant Middle East supply this year, with major producers regularly accepting lifters’ monthly term nominations without cuts or delays, while Kuwait and Qatar consistently sell spot cargoes. Whenever the US arbitrage window opens, ample supply in Asia would render LPG cheaper than naphtha, making propane and butane a favored cracker feedstock.
LPG EXPORTS PEAKED IN 2018
LPG from petrochemical plants are produced by Bandar Imam Petrochemical Co. in Khuzestan province, which produces 1 million mt/year of LPG, Petrochemical Commercial Co. in Assaluyeh, which produces 1.5 million mt/year and Kharg Petrochemical CO, which produces 200,000 mt/year. Gas refineries export a total of about 3 million mt/year and are mainly located in South Pars and Assaluyeh.
“The production is much higher, but due to the political situation, the number of vessels which can be used is limited,” another source said. “Hopefully with the new US government, the imposed limitation might be eased and Iran can increase the export volume.”
Iranian President Hassan Rouhani said in May the “main agreement” had been reached to reinstate the nuclear deal and the US has broadly committed to ease sanctions on Iran’s oil, petrochemical and shipping sectors.
The US expects to have a sixth round of indirect talks on reviving compliance with the 2015 Iran nuclear deal and probably more, the US State Department spokesman Ned Price said, while the EU envoy coordinating the talks earlier said he believed a deal would be reached at the next round. Other senior diplomats have said the most difficult decisions remain.
Amid the slow progress in negotiations, some market sources said full resumption of LPG exports would take time, though some shipments have been ongoing. “But it’s not soon and the volumes are not much. Still we have a long way to go,” a third source said.
Before export limitations took hold, Iran’s monthly LPG exports peaked around 568,000 mt in August 2018, propelling whole-year shipments to 5.2 million mt, shipping and trade data showed, the highest since the previous Western sanctions for its nuclear program were lifted in January 2016.
Peak export volume in one month can reach 13 Very Large Gas Carriers, sources said.
Between 2018 and 2020, Iran added 3.2 million mt of LPG production capacity mainly from the South Pars gas field and by this September, another 2.2 million mt of production capacity is expected to be added, sources said.
In 2018, term customers of Iranian LPG had included Indonesia and Taiwan, either directly, or through trading firms, sources said.
China’s Zhuhai Longhua has floating storage in places such as South Asia and distributes cargoes via ship-to-ship operations.
Zhuhai Longhua Petrochemical is a wholly-owned unit of Siam Gas and Petrochemicals, which acquired BP Zhuhai’s 200,000 cu m underground LPG storage in September 2010.
Iranian LPG in 2018 was also shipped by a trader to Kenya. Removal of sanctions could also be a boon for receivers in South Africa.
China imported 4.94 million mt of Iranian LPG in 2019, 3.85 million mt in 2020, and 1.965 million mt from January to May 2021, according to industry data. Sources said Iranian exports to China are done via STS operations and are not reflected in official customs data.
Currently, 27 VLGCs move Iranian LPG, and in 2019, each ship made an average of 5.4 voyages, before easing to 4.26 voyages/ship in 2020, while the ships changed their names frequently, trade sources said.
Sources said assuming the US continued sanctions in 2021 and that each ship makes five voyages, the 27 vessels can transport 5.94 million mt this year, and if each each ship runs four voyages they can move 4.75 million mt.