Iran May Lose 9.5% of Oil Contracts as Asian Buyers Cut Imports

Iran is poised to lose at least 192,000 barrels a day of crude-supply contracts, or about 9.5 percent of its global exports, as Asian buyers curb purchases amid western sanctions targeting the nation’s oil trade.

Mangalore Refinery & Petrochemicals Ltd. (MRPL) and Essar Oil Ltd., India’s biggest buyers of Iranian crude, and China International United Petroleum & Chemical Co. have reduced or plan to cut purchases from the Islamic Republic by as much as 15 percent. China and India are Iran’s largest customers.

In Japan, the only Asian country to get an exemption from U.S. sanctions after it demonstrated reductions in purchases, Cosmo Oil Co. plans to cut imports by 25 percent, while JX Nippon Oil & Energy Corp. suspended talks with the Persian Gulf nation over a 10,000 barrel-a-day contract.

The international measures are an attempt to compel the Middle East producer to curtail its nuclear program that the U.S. and the European Union say is a cover for making atomic weapons. Iran says it’s for civilian use.

The sanctions, aimed at reducing Iran’s oil revenue, have made it difficult for Asian buyers to make payments in foreign currencies, find banks willing to route transactions, and secure insurance cover for crude shipments.

Iran exported an average of 2 million barrels a day of oil in the first six months of 2011, according to figures from the Joint Organizations Data Initiative. Asian nations purchased about 62 percent of Iranian supplies during the period, according to data from the U.S. government.

The following is a summary of Iranian crude supplies to Asian refiners and traders in 2011 and the status of 2012 supply contracts, based on government statements, customs data, press reports, and interviews with company officials. The contracts are subject to revisions that may not be announced by the companies.

CHINA (Imports from Iran in 2011: 557,000 barrels a day)

China is the world’s largest buyer of Iranian crude and opposes trade restrictions on Iran. The Ministry of Foreign Affairs said sanctions on its oil exports aren’t “constructive,” Xinhua News Agency reported Jan. 26.

Iran’s oil shipments to China fell for a fourth month in March to the lowest in 22 months after delays in signing term supply contracts. Imports fell 6.2 percent to 1.08 million metric tons, or about 254,000 barrels a day, according data from the Beijing-based General Administration of Customs.

China International United Petroleum & Chemical, or Unipec, delayed signing a new term contract for this year because of payment issues. The company cut 2012 term contract purchases by 15 percent from the 265,000 to 280,000 barrels a day it bought in 2011.

INDIA (Imports from Iran in 2011: 350,000 barrels a day)

India will continue to buy Iranian oil, according to Oil Minister S. Jaipal Reddy, Finance Minister Pranab Mukherjee and Foreign Secretary Ranjan Mathai.

The second-biggest importer of Iran’s crude has set up a rupee account at a state-owned bank to settle as much as much as 45 percent of its oil bill with Iran, and is considering bartering some commodities for supplies, according to Indian officials.

U.S. President Barack Obama may impose sanctions on India if it doesn’t reduce purchases of Iranian oil, U.S. administration officials said March 14. While India hasn’t asked its refiners to stop purchasing Iranian crude, the government has told processors to seek alternative supplies and gradually reduce dependence on the Persian Gulf state, three Indian officials with direct knowledge of the situation said March 15.

Mangalore Refinery, which has renewed its contract to buy from Iran, plans to cut contract volumes for the 12 months ending March 2013 to 120,000 barrels a day, down from 143,000 barrels a day the previous year, a person with knowledge of the contract said in March.

Essar Oil Ltd. (ESOIL), which has a contract to buy about 100,000 barrels a day of Iranian oil, will purchase about 85 percent to 90 percent of the agreed volumes, two people with knowledge of the plan said May 2.

Hindustan Petroleum Corp. renewed its 60,000 barrel-a-day contract with Iran, according to a company official who declined to be identified because the information is confidential.

Indian Oil Corp. was planning to renew its 30,000 barrel-a- day contract, P.K. Goyal, director of finance, said Feb. 13. The company has been hiring ships to transport crude from Iran.

Bharat Petroleum Corp. has a contract to buy 20,000 barrels a day. It may end the imports and buy crude from other sources if it becomes difficult to obtain shipping insurance after July, a company official said.

JAPAN (Imports from Iran in 2011: 313,000 barrels a day)

Japan’s Ministry of Economy, Trade and Industry asked refiners on March 21 to make reductions as business allows, according to a ministry official who declined to be identified because of internal policy. METI didn’t and won’t ask for specific volumes to be cut, the official said.

The country’s imports from Iran surged to the highest level in a year in March. Shipments climbed 42 percent to 1.8 million kiloliters, or about 355,000 barrels a day, compared with 1.2 million kiloliters in February, according to data from the Ministry of Finance on April 26. Imports were 6.3 percent below purchases in March 2011.

JX Energy, which has a January-to-December contract for 83,000 barrels a day, suspended talks to renew an additional 10,000 barrel-a-day supply deal that was scheduled to start in April, a company official who declined to be identified because of internal policy said on April 9.

Cosmo Oil Co. (5007) will cut Iranian crude imports by 25 percent this year, a company official said Feb. 8. The Japanese refiner, partly owned by the government of Abu Dhabi, signed an annual term contract, effective January, to import 30,000 barrels a day, Katsuhisa Maeda, a Tokyo-based spokesman, said. That’s down from 40,000 barrels a day last year.

Showa Shell Sekiyu was finishing talks on reducing its contract for about 100,000 barrels a day for the fiscal year started April 1, Satoshi Yoshida, a company spokesman, said April 6 in Tokyo.

Idemitsu Kosan Co., Japan’s third-biggest oil refiner by capacity, said it plans to cut contracted volumes. The company hadn’t started talks with Iran for crude imports for the financial year that started April, Chairman Akihiko Tembo said April 19, declining to comment on the size of the existing deal.

Mitsubishi Corp. (8058) buys South Pars condensate from Iran to supply to Japanese refiners, including JX Energy. The contract, with a buyer’s option, is for 500,000 barrels to 1 million barrels a month. Shunsuke Nanami, a company spokesman, declined to comment on negotiations April 9.

Toyota Tsusho Corp. (8015) hasn’t renewed a contract with Iran for the supply of 5,000 barrels a day of crude, said two people with knowledge of the company’s purchases.

The contract was for supplies from April to March 2013, according to the people, who declined to be identified because the information is confidential. The trader still has another contract running from January to December for almost 40,000 barrels a day, according to one of the people.

SOUTH KOREA (Imports from Iran in 2011: 239,000 barrels a day)

The government said it will make a decision on cutting Iranian crude imports by the end of June. A South Korean delegation visited the U.S. from Feb. 21 to Feb. 24 to discuss Iran sanctions.

Iranian imports fell 22 percent to 17.7 million barrels in the first three months of this year from the same period last year, according to data from state-run Korea National Oil Corp.

SK Innovation Co. and Hyundai Oilbank are the only South Korean refiners that purchase Iranian crude.

SK Innovation, South Korea’s biggest refiner, is consulting with the South Korean government on the reduction of purchases while it hasn’t been determined how much is to be cut, Jo Eun Kee, the head of the corporate planning office at SK, said April 27. Iranian crude accounts for 10 percent to 15 percent of the Seoul-based refiner’s monthly purchasing volumes, Jo said.

Hyundai Oilbank bought 70,000 barrels a day from Iran in 2011, about one-sixth of its total purchases. Crude imports from the country accounted for about 20 percent of Hyundai’s total March imports, compared with 30 percent in 2011, the Seoul Economic Daily reported March 19, citing a company document.

MALAYSIA (Petronas’ Engen unit imports from Iran before suspension: 65,000 barrels a day)

Petronas’ Engen unit in South Africa suspended purchases. Engen operates the country’s second-biggest refinery, which is based in Durban and has a capacity of 135,000 barrels a day. The company, which normally buys about 80 percent of its supplies from Iran, has contingency supplies in place, according to Tania Landsberg, an Engen spokeswoman.

SRI LANKA (Imports from Iran in 2011: 31,000 barrels a day)

Iran is Sri Lanka’s largest oil supplier. The South Asian nation received “positive responses” from Saudi Arabian Oil Co. and Oman Oil Co. for supplies as the country seeks to reduce its dependence on Iran, Susil Premajayantha, its oil minister, said April 24.

The island nation, which imports 13 of its 14 annual crude cargoes from Iran, plans to cut shipments to 10 a year, he said. It would like to double purchases from Saudi Arabia to 2 lots, and obtain 2 consignments from Oman, the minister said.

TAIWAN (Imports from Iran in 2011: 30,000 barrels a day)

Taiwan buys less than 4 percent of its crude from Iran, according to data from the Ministry of Economic Affairs, Bureau of Energy.

CPC Corp. plans to stop imports in July because the company will be unable to remit money for payment under sanctions, the company’s president, Lin Maw-wen, said March 26. CPC had renewed a 22,000 barrel-a-day contract that runs from January to December. The company will continue taking delivery until July, Lin said.

Formosa Petrochemical Corp. (6505) has renewed its 2012 term contract.

Most refiners have annual contracts with National Iranian Oil Co. to buy a fixed volume of crude over a term that runs from either January to December or April to March.

To contact the reporter on this story: Pratish Narayanan in Mumbai at pnarayanan9@bloomberg.net

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

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