In Hellenic Shipping News 18/11/2016
In what could release further VLCC tonnage in the market, Iran’s floating storage play could be nearing its end. In its latest weekly report, shipbroker Gibson noted that “when Iranian nuclear sanctions were lifted in January many industry participants were of the opinion that the country would struggle to bring its crude production quickly back to pre-sanction levels, not least due to years of underinvestment in aging infrastructure. Defying these expectations, Iranian output surged from 2.9 million b/d in December 2015 to 3.6 million b/d in May 2016, registering an impressive 0.7 million b/d gain. Since then, however, the growth in production has slowed down notably. Monthly gains have been marginal, ranging between 10,000 to 30,000 b/d per month between May and October, with the latest assessment for total crude output at 3.72 million b/d (Source: IEA). Overall, increases in Iranian crude exports provided a major boost to crude tanker demand, particularly for larger crude tankers. In terms of export markets, Iran was largely successful in re-establishing trade links. China and India are the two largest buyers of Iranian crude, accounting for more than 50% of total exports”, said the shipbroker.
Gibson added that “between August and October, China imports averaged around 0.67 million b/d and India around 0.62 million b/d of Iranian crude. In fact, in terms of absolute volumes, crude trade to these countries is now higher than prior to sanctions. Crude shipments to South Korea are back to similar levels seen in 2008, while trade to Japan remain depressed, averaging close to 0.2 million b/d in three months to October, less than half the level back in 2008. Similarly, at 0.6 million b/d, trade to Europe and Turkey is strong but still 0.2 million b/d short of volumes seen before sanctions. Interestingly, westbound shipments are largely carried on Suezmaxes, while VLCCs are routed via Cape of Good Hope”.
It’s worth noting that “when sanctions were lifted, a major concern in the industry was the potential release of VLCC tonnage engaged in Iranian floating storage back into the international tanker market. At the time, we were of the opinion that the majority of these units would remain in storage for an extended period of time. This proved to be the case. In fact, the number of VLCCs storing Iranian crude/condensate actually increased between January and March 2016 from 24 to 28 units and only more recently it has started to slip. At the end of October, 24 VLCCs were involved in storage of Iranian crude and condensate, ironically this number is the same as in the beginning of the year. However, going forward floating storage is expected to continue to decline. It is widely believed that the majority of Iranian storage consists of condensate. The demand for condensate is firm in Asia and this could lead to a gradual drawdown of condensate stocks. Furthermore, Iranian media reports that the first phase of Persian Gulf Condensate Refinery is expected to come on stream by March 2017 and this is likely to support stronger domestic demand for condensate”, said Gibson.
“Finally, it will be interesting to see what role Iran plays in the proposed OPEC production cut. The country’s officials have consistently stated that Iran will not discuss limiting its output until the presanctions production level of 4 million b/d is reached. The latest estimates of Iranian production are 0.3 million b/d below that level. Longer term, prospects are strong for large increases in Iranian output and exports. However, for that to happen, Iran will need investment and the expertise of international oil companies, something that to date has largely failed to materialize. Mr Trump election also creates a new level of uncertainty, following the future president’s criticism of the West’s nuclear deal with Iran”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
