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Asian Refiners Seek Iran Oil Alternatives on Disruption Threat

Refiners in Asia, the destination for 65 percent of Iran’s oil exports, are seeking alternative sources of crude in the event of a supply disruption from the world’s fourth-largest producer.

Taiwan’s Formosa Petrochemical Corp. (6505) bought extra crude and naphtha cargoes, Tsao Mihn, the company president, said in a phone interview today. JX Nippon Oil & Energy Corp. (5020), Japan’s biggest processor, is in talks with Saudi Arabia to replace shipments in case Iranian supplies are halted, President Yasushi Kimura told reporters yesterday in Tokyo.

The U.S. and European Union are seeking help from Asian allies to reduce oil revenues for Iran, which is suspected of trying to develop nuclear weapons. Brent crude is poised for a 5.4 percent gain this week after the country threatened to block the Strait of Hormuz, a transit route for a fifth of the world’s crude, in retaliation for further sanctions.

“Iranian oil is a very big deal to Asia,” said Victor Shum, a senior principal at energy consultants Purvin & Gertz Inc. in Singapore. “They have to show efforts that they are really making attempts to seek alternative supplies” to show the U.S. and Europe they are backing the sanctions, he said.

Iran exported an average of 2.53 million barrels a day in the first nine months of 2011, according to the Dec. 13 Monthly Oil Market report from the International Energy Agency. Asia took 65 percent of those supplies, the report said.

China purchased (CCCIIQIR) 550,000 barrels a day, or 22 percent of Iran’s exports, during the period, the IEA reported. That’s followed by India’s 310,000 daily barrels, or 12 percent of shipments. Japan bought (JPCIIRAN) 327,000 barrels a day, or 13 percent, over the first nine months of last year and South Korea accounted for 9 percent, according to the IEA.

Bank Sanctions

Taiwan received 4.3 percent of its oil supplies from Iran in the first 10 months of last year, according to the website of the Asian country’s energy bureau.

Banks doing business with the Central Bank of Iran would be blocked from the U.S. financial system under a law passed on Dec. 31. The sanctions would curtail the ability of U.S. allies South Korea and Japan to pay for oil imports. EU foreign ministers plan to sharpen their sanctions on Iran’s energy and banking industries at a Jan. 30 meeting.

The Obama administration is “likely to give waivers” to those countries using the Iranian central bank to “avoid conflict with their allies,” according to a report from Facts Global Energy, a consultant based in Singapore.

Refiners in Japan and South Korea may be highlighting their search for alternative suppliers to show they are taking the sanctions seriously in order to help convince the U.S. to grant the waivers, said Purvin & Gertz’s Shum.

The companies need “to demonstrate to the West how difficult it is,” said Shum. “This is in a way part of showing the efforts.”

Reduce Imports

Some processors, including Japan’s Idemitsu Kosan Co. (5019) and Taiwan’s CPC Corp. (CPC), have cut the amount they buy from Iran.

CPC, Taiwan’s largest refiner, has reduced its imports to about 4.7 percent of total purchases last year from 11 percent in 2010, Lin Maw-Wen, the state-run refiner’s president, said by phone today.

Iranian crude accounts for only about 2 percent of Tokyo- based Idemitsu’s supply, so it wouldn’t have to take countermeasures in the event of an embargo, spokesman Kei Uchikawa said in a phone interview today.

Cosmo Oil Co. (5007), which is partly owned by Abu Dhabi, had taken no steps to replace its Iranian crude imports, which account for 12.1 percent of its supply, because it was waiting for guidance from the government, Katsuhisa Maeda, a spokesman for the Tokyo-based refiner, said by phone.

Geithner Visit

Japanese officials are studying how the country would respond to a curb on Iranian crude imports and are discussing the matter with their U.S. counterparts, Trade and Industry Minister Yukio Edano told reporters today.

Treasury Secretary Timothy Geithner plans to hold talks on the embargo next week in Tokyo during a visit that also includes a stop in Beijing. Japan intends to express its concerns about an embargo during the discussions, Cabinet Secretary Osamu Fujimura said today.

South Korea said that it would look for alternative suppliers because of the sanctions, according to a joint statement from government ministries yesterday.

SK Innovation Co., South Korea’s biggest refiner, was monitoring the situation, Chung Tae Hoon, a spokesman for the Seoul-based company, said in a phone interview. He didn’t give details about steps the company is taking.

A spokesman at Hyundai Oilbank Co., South Korea’s fourth- largest refiner, declined to comment, saying the topic is too sensitive.

Brent Rally

Brent crude futures, trading at 113.22 a barrel today in London, may rally to $125 should Europe ban imports, according to Societe Generale SA. Such a move would require about 600,000 barrels a day of replacement supply from Saudi Arabia, said Mike Wittner, the bank’s head of oil market research for the Americas, in a phone interview on Jan. 4.

Saudi Arabia, the world’s largest oil exporter, will ship crude from its ports on the Red Sea if the Strait of Hormuz is blocked, Riyadh newspaper reported Dec. 31, citing an unidentified official.

To contact the reporters on this story: Jacob Adelman in Tokyo at jadelman1@bloomberg.net; Yu-Huay Sun in Taipei at ysun7@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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