Accumulated crude volumes increase Iranian export

Oil&Gas Materials 16 July 2011 14:35 (UTC +04:00)
Accumulated crude volumes increase Iranian export

Azerbaijan, Baku, July 16 /Trend T.Konyayeva/

An increase in Iranian crude oil export to certain countries might be both a temporary measure required to reduce the volume of the Iranian tankers stockpiling crude which IRI failed to ship to India, Malaysia and Southern European countries because of international sanctions and a result of removing subsidies, experts believes.

"The increase in exports [to China, Pakistan and South Africa amongst others] is a temporary measure to reduce the volume of float (that is unsold stockpile of crude) in the Iranian-owned tankers which Iran has not been able to sell due to sanctions," EU consultant on economic issues Mehrdad Emadi wrote Trend in an email. "Sanctions whilst not affecting sale or export of crude directly, through payment limits and banking restrictions are making exports very difficult."

Iran has increased oil exports by 260,000 barrels of oil per day (bpd) in the past two weeks, with the country's production capacity currently hitting 4 million barrels per day, Mehr News Agency reported this week.

According to BP statistics, Iran's oil production volume in 2010 was 4.245 million bpd, 4.199 million bpd in 2009, and 4.327 million bpd in 2008.

Earlier, the Head of the Parliament's Energy Commission Hamidreza Katuzian said that Iran's oil production decreased by 72,000 bpd compared to 2008. Iran's crude oil consumption in 2010 was 1.799 million bpd, indicating one percent increase compared to 2009.

Mehr News Agency did not clarify how Iran was able to increase oil exports without increasing oil production or decreasing oil consumption in the local market.

According to Emadi, payment limits and banking restrictions have resulted in Iran seeing a rise in the volume of crude that now has to be kept in the tankers since all land-based reserve sites are filled with crude.

"To cope with falling demand for its oil arising from sanctions-related payment problems, tankers now are used more and more for keeping stockpiles and less for transport," he underscored. "To summarize the two week rise in export of crude is exactly that and is the result of cancelled shipments to India, Malaysia and Southern European markets which are beginning to feel the bite of sanctions. It is unsold oil exported to be sold at sub-market price."

Iran's refusal to abandon its nuclear activities has resulted in resolutions adopted by the UN Security Council in 2010, as well as additional unilateral sanctions approved by the U.S. Congress and the foreign ministers of all EU countries, which were primarily directed against the banking, financial and energy sectors of Iran.

Restrictions imposed by the EU include the ban on the sale of equipment, technologies and services to Iran's energy sector which is a major source of revenue for the Iranian regime; the same measure refers to the refining industry.

Emadi added that BP's statistics are somewhat overestimating the actual output of the oil industry.

"My own figures tally with those of Mr. Katuzian and show that by May 2011, oil production had fallen by 110,000 bpd compared with 2008," he said.

According to Emadi, cancellation and pull out of Total, Statoil, ENI, RD/Shell and Inpex following their cooperation with sanctions induced a fall of more than 250,000 bpd in production compared with March 2005.

Last September, expanded U.S. sanctions on Iran there have prompted four of Europe's five biggest oil companies - Total, Statoil, Eni and the RD/Shell - to stop investing in Iran.

In October, 2010, Inpexç Japan's top oil explorerç announces withdrawal from Iran's Azadegan oil field project to avoid U.S. sanctions. Inpex has invested $153 million in this giant project.

Emadi believes that the substitution of CNPC (China) and Sinopec (China) in Azadegan and Darkhovin fields have been much less effective to fill the gap left by the exit of Total, Eni and Statoil than hoped by the authorities.

"As a result even though the new discoveries of oil has increased proven oil in Iran by 25 percent in the last two years, poor maintenance and substandard servicing of infrastructure have caused as decline of 2-4 percent in output per well since 2003," he thinks.

Furthermore, Emadi said, increase in domestic production of petrochemical products which have been increased to reduce the effects of sanctions on the import of gasoline, diesel, gas-oil and other processed fuels has diverted about 140,000-150,000 bpd of crude away from exports. Also domestic crude consumption has risen by 1.4 percent since November 2009, he noted.

"Being optimistic and using the above figures, sub-standard maintenance (2 percent), increased domestic production of petrol and diesel (150,000bpd or 12 percent in volume available for exports) and increased domestic consumption of crude (1 percent), suggest a fall of about 15 percent in the volume available for exports," Emadi said.

The expert believes that the situation has been exacerbated by the most recent restrictions on investment in oil and gas industries.

"The basic arithmetic of these numbers contradicts the scenario of increased exports except in this case it seems that the increasing volume of float crude and the cost of tanker usage have forced the authorities to sell the float volume at below market prices which seems a rational short term solution," Emadi believes.

But the facts of the industry show that the potential for increasing exports is very limited, he said.

"Until new technology comes in and sanctions are lifted, at best we will see present level of exports" Emadi said. "I personally expect a small annual fall in the figures."

According to Hooman Peimani, Head of the Energy Security Division at the Energy Studies Institute of Singapore, the increase in Iranian oil export is possible because of lifting energy subsides.

"The price of gasoline, gas-oil and other oil products increased and therefore the domestic energy consumption has decreased, but we don't know the exact volume of Iran's surplus oil for export," he said.

The targeted subsidy plan launched in December 2010 aims to gradually remove all subsidies over a five-year period and instead give families cash handouts as compensation.

It eliminates subsidies on gasoline, natural gas, electricity and food and is considered to be one of the most important economic undertakings in Iran's modern history.