Iran's fuel oil exports will plunge to as little as a third of previous levels over the next few months as winter demand forces the country to divert the product to its own power plants, according to a National Iranian Oil Company (NIOC) source, Reuters reported.
The sanctions have also hobbled Iran's ability to keep its oil and gas infrastructure in good repair and start up new projects, making it hard to meet local gas demand.
Iran and six world powers failed in marathon talks over the weekend to clinch a deal to curb Tehran's nuclear programme, removing any possibility of a let-up in sanctions anytime soon.
"This year, the power stations will use more fuel oil instead (of natural gas)," said the NIOC source, who declined to be identified as he was not authorised to talk to the media.
Iranian oil minister Bijan Zanganeh said on Oct. 1 that the country faces serious gas shortages the next two years because it has not been able to develop the South Pars field fast enough, forcing it to use oil products to fire power stations.
Sanctions have made it difficult to track Iranian fuel oil flows. The country typically exports about 600,000 tonnes of fuel oil a month, about 130,000 barrels per day, most of which heads to China and the rest of Asia, trade sources said.
Exports of the heavy fuel have reached as much as 1 million tonnes in some months. But the lower volumes that started at end-September and are expected to last until early January will drop monthly shipments to about 200,000-300,000 tonnes, the NIOC source said.
Iran's low density, low sulphur fuel oil is suitable both as a feedstock for the smaller, independent refineries in China, often called teapots, and for blending with heavier grades.
The impact of the drop in Iranian exports is already evident in Asia, with premiums to benchmark prices skyrocketing for similar grades from other sources such as India, Jubail, Thailand and Malaysia, trade sources said.