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As US kicks off crude exports, Iran casts a shadow in Asia

As US kicks off crude exports, Iran casts a shadow in Asia thumbnail

The United States faces an awkward rival in its first attempts in 40 years to export crude oil – Iran.

Iran, whose economy has been throttled by Western sanctions that have halved its crude shipments, is now selling higher quality and cheaper oil to China that leaves little room for the U.S. crude to enter the world’s top energy consumer.

While buyers in Japan and South Korea have been willing to trial a U.S. grade of the super-light crude known as condensate, China has already locked in annual contracts with Tehran and is not expected to take any U.S. oil in the short-term.

With U.S. producers looking to open a trade route to sell surplus condensate from the U.S. shale boom, worries about quality and legal issues have added to doubts about how much of the oil the rest of Asia can take.

“China gets condensate from Iran, which is much cheaper than that from the U.S.,” said a Singapore-based trader with a European trading company. “They might get involved at a later stage but they will not be at the forefront.”

Condensate won export approval from U.S. officials in June as long as it has been minimally processed, softening a decades-old ban on selling U.S. crude abroad.

The light oil can be cracked in a processing plant called a splitter to make petroleum products and petrochemicals, or blended with heavier crude for use in refineries.

South Korea and Japan have purchased the first condensate from the United States. Mitsui & Co bought a cargo from Enterprise Product Partners for loading this month and has onsold it to South Korean refiner GS Caltex [GSCAL.UL], sources said.

Refiner Cosmo Oil Co has also bought a cargo of U.S. condensate that will load in late August for arrival at the Yokkaichi refinery in Japan in October, a source said.

Japan and South Korea, which together account for just over half of Asia’s 1.1 million-barrels-per-day (bpd) in condensate splitter capacity, are seen as more open to trying the United States as an alternative supplier.

Enterprise has also signed a short-term contract with another Japanese trader, Mitsubishi Corp, with a first loading likely in September.


Asian buyers have been waiting to see if the U.S. oil is suitable and if exporters can price it competitively given it has to be shipped a further distance than competing grades from the leading regular suppliers Qatar and Australia.

“They are testing the waters so we’re not expecting huge volumes this year,” said Richard Gorry, managing director of energy consultancy JBC Asia.

Showing the competition U.S. exports face, Iran exports about 55 percent of its roughly 250,000 bpd of South Pars condensate output to two Chinese buyers at deep discounts under annual contracts.

Since U.S. and European Union sanctions were eased late last year in exchange for Iran curbing nuclear activities, Tehran’s exports have risen about 30 percent to 1.25 million to 1.3 million bpd, much of this as South Pars shipments to China.

Some of the Iranian condensate could be sold as low as $5 a barrel below Dubai quotes or about $8 a barrel cheaper than Qatari grades.

U.S. condensate would likely have to be priced lower than the similar Qatari grades to attract buyers, traders said.

Qatar is the biggest supplier of condensate to Asia at about 450,000 bpd, followed by Iran. Australia and East Timor together produce nearly 170,000 bpd, with most of the output heading to Asian markets, according to trade sources.

Higher shipping costs compared with the short distance from the Middle East will deter India from buying U.S. condensate, according to sources at Indian refiners.


Another issue is uncertainty over the future of U.S. regulations on condensate exports.

Two U.S. senators have questioned the U.S. Commerce Department’s approval, saying exports may violate a ban in place since the Arab oil embargo of the 1970s. Refined products, such as gasoline and diesel, are not restricted.

“What happens if some ruling appears and penalizes the buyers?” asked a trader at a North Asian refiner. “Also, there’s not much economics in it so why take the risk?”

Asian users are also concerned that U.S. condensates may vary widely in quality as they will be come from fields scattered across shale formations such as the Eagle Ford in southern Texas, from which Enterprise pulls its oil.

The U.S. oil is expected to be more commonly used as a blend stock by refiners, limiting the amount available for 350,000 bpd of new splitter capacity coming online in Asia this quarter.



14 Comments on "As US kicks off crude exports, Iran casts a shadow in Asia"

  1. Davy on Mon, 28th Jul 2014 6:04 am 

    Geeze, spare me the incompetence of the MSM this morning. I am a doomer but give me some confidence and hope. These folks are advising our population into a train wreck!

  2. Pops on Mon, 28th Jul 2014 7:34 am 

    China already makes all our plastic phones and polyester parkas, why not send them the raw material too?

    That way we can focus on the higher functions of the economy like shelf stocking and overnight shipping.

  3. Makati1 on Mon, 28th Jul 2014 7:47 am 

    Well, Pops, if the Us cannot under price their competitors, they will not make a sale. That’s Capitalism at work. From what I am reading lately, shelf stocking (Walmart) and over night shipping (Amazon) is down also.

    This is actually a good article from Reuters without any spin.

  4. Makati1 on Mon, 28th Jul 2014 8:06 am 

    Davy, I’ll ease up on the US some, and bash Japan. Is that Asian enough? They are gearing up for war, egged on by the US. Not that they could win one with China, but then, they thought they could win WW2 also.

  5. Davy on Mon, 28th Jul 2014 8:25 am 

    Mak, just put yourself in my shoes and show some empathy of feelings. That’s all I ask. You can whip the kids with a small flimsy stick or a big rough pointy one. Ask any kid what whoop stick they would prefer.

  6. Arthur on Mon, 28th Jul 2014 8:31 am 

    Now that Davy and Makati are off for a beer, I am left with the question: what happened to DC?

  7. Davy on Mon, 28th Jul 2014 9:06 am 

    Art, he joined the special forces of the Liberation of the Boreal Forests of Canada as a psych-operative. We were too lame for him. Being over 70 he is a liaison for the kiddies on field trips.

  8. shortonoil on Mon, 28th Jul 2014 9:15 am 

    “Condensate won export approval from U.S. officials in June as long as it has been minimally processed, softening a decades-old ban on selling U.S. crude abroad.”

    Reuters really needs to hire someone to advise them on what is going on instead of continuing to publish confusing junk. Condensate is a gas in the well, as opposed to crude which is a liquid. With condensate the heavies, mostly pentane and 1 to 5% heavier hydrocarbons, condensate out into a liquid at atmospheric temperatures and pressures. The rest is the lighter fraction gases, ethane, propane, and butane which have always been exportable. What a couple of oil companies got was the right to export some ultra light crude that has passed through their “stabilizers”, not “splitters”. Stabilizers remove the highly volatile light ends to make shipping safer. They have grown so sophisticated that they are almost mini refiners, complete with distillation towers.

    The problem with ulta light crude is that there is not much of a market for it. Most of it wouldn’t make transportation fuels. The US shale industry produces a lot of it, and has relied on shipping about 40% of it to Canada to produce dilbit from their bitumen production. The problem that the shale industry is facing today is that condensate production from Western Canada is likely to take most of that market over the next couple of years. Leaving the US shale industry with a whole lot of production, and with no place to go.

    Condensate is produced in many places all over the world. It usually comes from high permeability fields that are much cheaper to operate than the US tight oil fields. With the loss of their main market (Canadian bitumen) eminent, US shale is going to have a rough time competing in the world condensate market place. Like we have said before the only reason US shale was developed was because of its unique situation. That being: infrastructure already in place, market, and cheap money. The loss of any one of those will bring the illusion of the shale miracle back to earth!

  9. diemos on Mon, 28th Jul 2014 11:34 am 

    Oh Makati. As the play ground teaches us you don’t need to be able to win. You just need to be able to make fucking with you expensive enough that they’ll decide to find some other way to occupy their time.

    If I was in charge of the defense of an island whose nearest neighbor across the sea outnumbered me ten to one and was in a score settling mood from previous interactions I’d be making nukes as fast as I could.

  10. rockman on Mon, 28th Jul 2014 12:59 pm 

    Pops – I suspect you already understand this: nearly all plastics and synthetic fibers are made from NG. And since the US is a net NG importer there isn’t much we can do to help China in that regards.

    As far as oil exporters worrying about competition from the US that’s not a problem at all. In fact since the US has become a major refined product exporter we’ve put upwards pressure by pulling about 3 million bopd out of the global market that we don’t consume in the US: it’s refined here and the products shipped overseas competing with foreign refineries. How big a deal is it? From:

    “The (Texas) terminal began exporting distillate and plans are to add gasoline export capability during the third quarter. The terminal also will have the capability to export jet fuel.

    “Average exports of distillate fuels exceeded 1.1 million b/d in 2013, an increase of 110,000 b/d over the level in 2012,” the EIA said. “Cost-advantaged domestic crude oil and natural gas encouraged near-record-high refinery runs, and 2013 distillate fuel production increased 160,000 b/d over 2012.

    “The largest increases in distillate export volumes were those destined for Central and South America, already the largest destination for U.S.-produced distillate fuel. U.S. distillate exports to that region increased by 60,000 b/d, reaching 550,000 b/d in 2013. Exports of distillate fuel to Europe increased by 50,000 b/d to an average of 400,000 b/d in 2013.

    Thanks to the shale boom, refineries in the United States have become more active participants in the Atlantic Basin gasoline market, EIA said in a report last December. “Average U.S. Gulf Coast exports to Latin America for the period January through September [2013] increased from 74,000 b/d in 2011 to 96,000 b/d in 2012, and have averaged 105,000 b/d in 2013,” EIA said”

    {Lots of diesel exports made from our booming “condensate” surge? How can that be since it isn’t much more than wet NG? As I’ve posted before just check out the competition of our condensate book liquids: it is OIL with a significant percentage that yields gasoline/diesel. The Eagle Ford and Bakken aren’t very different than WTI composition. It’s all posted on the web if folks would bother to look it up instead of just reading the mischaracterizations of others.}

    And all that Canadian oil sands producing we’re “consuming” in the US? It truly stunning how the American public is being so mislead by the politicians and MSM over the “oil export” debate. I doubt that more than a few percent of the Joe6packs out there have any clue as to how much oil we import, refine and then ship overseas. From:

    Proponents of the Keystone XL tar sands pipeline often cite energy security and the desirability of Canadian over Saudi or Venezuelan crude in promoting the project. But how does the pipeline enhance American energy security if much of the product it carries is refined and then exported?

    Research has shown that the pipeline’s major purpose is not to provide oil for the U.S., but to serve as an export pipeline fueling international markets. New data reveals that a full 60 percent of gasoline produced in 2012 at Texas Gulf Coast refineries was exported. These are the refineries that would process the majority of the tar sands bitumen flowing through the Keystone XL pipeline, if it were built.

    The changing dynamics of the U.S. oil market strongly suggest that exports would only rise over the lifetime of the pipeline. U.S. production is rising but consumption is declining and the industry will continue to maximize its profits through exports.

  11. Makati1 on Mon, 28th Jul 2014 7:02 pm 

    diemos, making friends would be easier. Only foolish Chihuahuas pick a fight with a lion. Since the Filipinos have even banned American military ships or planes from carrying nukes into the country, they are never going to be nuclear.

    They are not stupid. At this point, in any war, they would be a small target and easily taken over by the Chinese. Better than totally destroyed by a nuke or two.

    Japan is another dog picking a fight with that lion. Minutes from mainland China and it’s thousands of missiles. How long would it take China to blow up a few of the Japanese 40+ nuclear plants and the spent fuel there? An hour and Japan would be uninhabitable for millenia, not just lose 2 cities.

    Both countries are being egged on by the US, who is trying to get a major war going somewhere in the world. On someone else’ territory, and spilling someone else’ blood, of course. War is very profitable and hides a lot of sins. But next time, the war will come to the US 50, I think.

  12. MKohnen on Tue, 29th Jul 2014 1:05 am 

    “Art, he joined the special forces of the Liberation of the Boreal Forests of Canada as a psych-operative…”

    Thought I saw someone sneaking around behind our house. And the squirrels are acting … different! As if they know something. Could this be DC’s work?

  13. MKohnen on Tue, 29th Jul 2014 1:18 am 

    You’re right, Mak, and it’s going to be Canada that brings the fight to them. This time we’re not going to be satisfied with just setting the White House ablaze. No siree, eh! This time we’re going to build us a nuke! A really big one. One so big, you can boil up over 5000 cups of coffee in it at once. Then we’re going to serve that coffee with copious amounts of Timbits (doughnut holes for you uninitiates) to our US enemies. That’ll clog up their veins to the point they can’t fight back. Then we’re going to march over the border and wreck Detroit. … I’m just not sure how anyone is ever going to be able to tell 🙁

  14. Makati1 on Tue, 29th Jul 2014 5:32 am 

    MKohnen, if you wait a little longer, I think you will be able to watch the lower 48 self-destruct. With climate change, in a few decades, you may even be able to have palm trees in your front yard and grow oranges in your orchard. We shall see.

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