Source: 

March 30, 2010

 *2010 imports seen down 11 pct y/y at 374,000 bpd -sources

 *Weak oil sales, high prices, political pressure, hit
demand

 *Iran crude fall outpaced Japan's overall drop in '09
imports

 By James Topham

 TOKYO, March 30 (Reuters) - Japan's imports of Iranian
crude oil in 2010 look set to fall to the lowest level in 17
years, industry sources say, as lower consumption, high prices,
and political pressure weaken demand from the OPEC producer.

 The Islamic republic is likely to offset the drop in sales
to Japan by increased buying from China, which overtook Japan
as Iran's top crude buyer in 2009.

 But falling sales to Japan piles pressure on Iran, the
world's fifth-largest oil exporter, which is already seeing
trade opportunities squeezed by sanctions.

 Iranian crude imports in 2010 look to fall about 11 percent
to around 374,000 barrels per day (bpd), industry sources say,
adding that overall Japanese crude imports will fall 6.5
percent in the same period.

 "Japanese firms are cutting term contracts with Middle East
producers across the board, but Iran will face the brunt of the
cuts," said one senior oil industry executive.

 "First off the metallic properties of their crudes make it
hard for refiners to process, next their crudes have gotten
increasingly expensive compared to similar grades and then
there's all the political issues involved," the source added.

 SANCTIONS

 Buyers in the past have faced difficulties as sanctions by
the United States and United Nations over Tehran's disputed
nuclear programme have targeted Iranian and international banks
that do business with Iran.

 The sanctions make it difficult to open letters of credit,
which are often required for the buyer and seller of a cargo or
volume of oil in order to guarantee payment upon delivery or at
the agreed-upon time, an industry source said previously.

 In 2007, Indian refiner Reliance quit selling gasoline and
diesel to Iran after French banks BNP Paribas (BNPP.PA: , , ) and
Calyon stopped offering credit on the deals.

 Earlier this month, it was reported that oil trading firms
Trafigura and Vitol have halted gasoline sales to Iran.
[ID:nLDE627129]

 The news came as some Japanese refiners planned to cut term
contracted volumes of crude with state-run National Iranian Oil
Company (NIOC) that start from the business year on April 1.

 Cosmo Oil (5007.T: , , ), Japan's fourth-biggest refiner, will
cut its 2010 term contracted volumes of crude oil with Iran to
around 45,000 bpd for its new contract that starts in April,
down about 10 percent. [ID:nTOE61H05N]

 Japan Energy, the country's sixth-largest refiner, will
curb volumes in its yearly contract that starts in April by
about 15 percent, an industry source said, though this could
not be confirmed.

 When asked about the move by Japan Energy, a senior
official at NIOC said: "It sounds right since the demand in
Japan has gone down and Iran is one of Japan's suppliers."

 Many of Japan's top buyers of Iranian crude, including
refiners Showa Shell Sekiyu (5002.T: , , ) and Nippon Oil (5001.T: , , )
along with trading house Toyota Tsusho (8015.T: , , ), have also cut
term volumes, industry sources said. But the exact timing and
amount of the cuts could not be confirmed.

 Other Japanese term buyers are not expected to make any
changes to their volumes in 2010, after making cuts in recent
years, separate company and industry sources said.

 "We're taking pretty much minimum volumes as it is, so
anything below that would mean that we would have to terminate
our contract, and if we do that we'd lose the opportunity in
the future to raise volumes if we'd like to," a source at one
term buyer said.

 CHANGING SUPPLY-DEMAND PATTERNS

 In 2009, Iranian crude oil imports fell by around 15
percent year-on-year to 24.42 million kilolitres, or 421,000
bpd, leading the OPEC producer to lose its perch as Japan's
third-largest crude supplier to Qatar, data from Japan's trade
ministry showed.

 The fall in the amount of Iranian crude shipped outpaced
Japan's overall decline in crude imports in 2009, which dropped
by about 13 percent versus a year earlier, when a recession,
shift towards cleaner energy sources, and OPEC production cuts
dented demand.

 The global financial crisis exacerbated already falling
Japanese oil demand last year, which had been steadily dropping
for years amid a declining population and shift overseas of
manufacturing.

 But even as Japan's economy recovers, more efficient cars
and the increasing use of electricity and gas instead of oil in
areas other than transport are expected to limit future demand
increases.

 The fall in Japan's Iranian crude demand was partially
offset in 2009 by increased buying from China, which imported a
total of 23.15 million tonnes, about 463,000 bpd, of Iranian
crude, up 8.6 percent from a year earlier.

 Still, recent data shows China's imports of Iranian crude
oil shrank by nearly 40 percent in the first two months of
2010, compared to the same time last year, despite the Asian
economy's expanding hunger for foreign oil. [ID:nTOE62L01K]

 Iran's crude oil production in 2009 also declined by about
4 percent to 3.74 million bpd, the International Energy Agency
said, along with several other producers in the Organization of
the Petroleum Exporting Countries (OPEC).

 That led to a fall in Japanese imports as members of the
group limited production, but unlike other OPEC producers, Iran
imports are not expected to rise as production curbs ease.

 Several Tokyo-based industry sources said one big reason
for the cuts in term contracts was the increased cost of
procuring grades from OPEC's second-largest producer nation.

 In the first quarter of 2010, term volumes of medium-heavy
Iranian Light crude to Asia were nearly 60 cents a barrel
higher on average than spot assessments of competing Qatar
Marine crude, and about 30 cents more expensive than Oman
crude.

 Following are industry estimates of Iran's export volumes
in 2010 by its Japanese customers. Volumes are in thousand
barrels per day.

 CUSTOMER           VOLUME

 Showa Shell          82

 Nippon Oil           72

 Toyota Tsusho        50

 Cosmo Oil            45

 Mitsubishi           35

 Japan Energy         33

 Mitsui               15

 Kanematsu            15

 Idemitsu Kosan       12

 Marubeni             10

 Itochu                5

 -----------------------

              Total  374
 (Additional reporting by Simon Webb in DUBAI, Judy Hua and
Alejandro Barbajosa in SINGAPORE; Editing by Ed Lane and
Ramthan Hussain)