Iran’s ultra-light crude exports to Asia set to remain strong

By Gawoon PHILIP VAHN*

Iran has shipped more than 500,000 bpd of ultra-light crude to the Far East so far in 2017 and that flow is expected to remain strong for the rest of the year as South Korea steps up its purchasing plans and other Asian end-users eye naphtha-rich South Pars condensate for its competitive price.

Iran’s return to the international market following the lifting of economic sanctions in early 2016 was welcomed by various North Asian end-users, and condensate trade flows between Tehran and the Far East will likely remain robust, setting aside any potential supply disruption risks stemming from the recent Usiran diplomatic tension for now, regional condensate traders said.

Iran’s flagship South Pars condensate has fast become South Korea’s favorite ultra-light crude this year, and Asia’s top condensate consumer aims to buy at least 250,000 bpd of the grade in the fourth quarter, two sources with close knowledge of Iransouth Korea term deals said.

Hanwha Total Petrochemicals has been consistently receiving 100,000-120,000 bpd of South Pars condensate to date this year, said one of the sources, adding the growing popularity of US Eagle Ford condensate was unlikely to alter South Korea’s preference for Iranian supply.

“US condensate is hot property this year but, so what? South Pars is still cheaper delivered and the sheer volume can never be matched,” the Seoul-based source said.

Regional condensate traders said other major North Asian end-users with term purchase agreements, including South Korea’s SK Innovation and Hyundai Chemical and Japan’s JXTG, may continue to take at least one VLCC each of South Pars every month until the expiry of their 2017 supply contracts.

Traders also pointed out that Iran may have sacrificed the least among the key OPEC members at a time when major Middle Eastern producers are controlling their export volumes to Asia, and Tehran could also take full advantage of recent tightness in Qatari condensate supply.

“The absence of [Qatari] DFC [deodorized field condensate] for November may encourage them [South Pars term buyers] to ask for increment barrels... the delay in US crude [deliveries due to recent hurricanes] would also work in Iran’s favor,” the second source said. Last week, Qatar Petroleum for the Sale of Petroleum Products issued a spot tender offering an unspecified volume of low sulfur condensate for loading in November. QPSPP did not offer any DFC for the month, without indicating why in the official tender notice.

Some regional traders said the absence of DFC supply could be related to an expected jump in Q4 run rates at Qatar’s 146,000 bpd Laffan Refinery 2. In a typical trading cycle, QPSPP sells around four to seven cargoes of DFC and LSC in the spot market.

South Korean petrochemical firms may scramble to find naphtha feedstock for the typically busy winter season, providing incentives for condensate splitters to run close to their maximum capacities in Q4, traders said.

“Naphtha demand generally spikes [in Q4] because [South Korean] downstream players need to keep up with busy winter goods and clothes manufacturers,” said one North Asian condensate trader. For light-end product margins, the second-month naphtha versus Dubai swap crack has averaged 59 cents/b to date in September, up from minus 31 cents/b in August and minus $2.16/b in July. South Korea’s increased condensate processing capacity could also spur much higher ultra-light crude imports in Q4 than in the same period of last year, sources said.

Hanwha Total said earlier in Q3 that it has increased the capacity of its condensate splitter at Daesan to 180,000 bpd from 150,000 bpd. Lotte Chemical’s new condensate splitter has been actively processing ultra-light crude feedstocks this year and its run rate could have surpassed 80-85 percent in recent months, sources said. It started up a 130,000 bpd condensate splitter in a joint venture with refiner Hyundai Oilbank in Q4 last year, which likely needs about 4 million barrels/month of condensate feedstock.

Attractive price tags on South Pars condensate could encourage Northeast Asian term buyers to ask National Iranian Oil Corp. for additional supplies in Q4.

An NIOC source put Iran’s shipments of ultra-light crude to the Far East at more than 500,000 bpd in 2017 to date. “Official selling prices [set for major Middle Eastern] light crudes are very expensive ... Qatari [condensates] command [high] premiums too,” said a Singapore-based condensate trader.

Qatari ultra-light grades have been fetching solid premiums in recent weeks, with latest market talk indicating that QPSPP may have sold a 500,000-barrel cargo of LSC to a South Korea refiner at a premium of more than $3/b to Platts Dubai, FOB.

Last month, QPSPP was said to have sold three cargoes of DFC for October loading at premiums in the range of 80-85 cents/b.

In comparison, trade sources said the price differential set for term South Pars condensate barrels for loading in Q4 and bound for various North Asian term customers may have been set at discounts in the range of 50 cents-$1/b to Platts front-month Dubai assessments on an FOB basis. NIOC, however, declined comment on the latest term price when contacted, and the price details could not be immediately confirmed.

Although spot cargoes for South Pars condensate have been rarely seen in recent months, as barrels are largely tied up with term buyers, traders noted the cash differential spread between South Pars and DFC has remained in negative territory.

The Iranian grade’s discount to DFC has averaged $1.38/b so far in Q3, after averaging $1.57/b in Q2 and $2.47/b in Q1, S&P Global Platts data showed.

“The [South PARS-DFC] price spread may have narrowed [over the past year] but it’s still one of the cheapest condensates available in abundance,” the Singapore-based trader said.

“[In terms of pure spot market value], Asian end-users typically value South Pars about $2-$3/b below DFC,” a sour crude trader at a South Korean refining company said last month.

* Gawoon Philip Vahn is a regular contributor to Platts.