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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.
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.
Showa Shell 82
Nippon Oil 72
Toyota Tsusho 50
Cosmo Oil 45
Japan Energy 33
Idemitsu Kosan 12
Total 374 (Additional reporting by Simon Webb in DUBAI, Judy Hua and Alejandro Barbajosa in SINGAPORE; Editing by Ed Lane and Ramthan Hussain)