TPT November 2012

Global Marketplace

Oil and gas An early judgment on the effect of the EU embargo on Iran’s oil shipments: a not unqualified success “The six-month run-up to the implementation of a full European Union embargo on Iranian crude left many market watchers complacent about the impact sanctions would have on consumers in Europe.” Writing in the Wall Street Journal about six weeks into the EU embargo, Sarah Kent observed that, by 1 July, most European refiners had already replaced Iranian oil with crude from countries like Saudi Arabia, Russia and Iraq. Oil prices were close to their lowest level since May. And yet, she noted, a significant dent to one Italian refiner’s profits in the second quarter suggested that – although European refiners had kept the oil flowing – the cost of sanctions “could still prove problematic.” (“Iran Oil Embargo Has Ripple Effect for Europe,” 10 August) Saras, one of Italy’s biggest private oil refiners, announced a net loss of $162mn despite a sharp drop in oil prices over the period. While other factors played a part in the disappointing results, it was fairly evident that the loss of Iranian crude was exacerbating an already difficult situation. According to the Paris-based International Energy Agency (IEA), Mediterranean refineries arguably have been hit hardest by the sanctions. They have access to few immediately available substitutes to Iranian crude; and the price of the default alternative – Russian Urals crude – shot up after the full EU embargo was implemented. DavidWech, head of research at JBCEnergy in Vienna, pointed out that soaring prices for crude grades of a similar quality to Iranian oil had diminished the benefit that refineries could reap from the fall in the benchmark price in the first quarter. He told the Journal , “Let’s say the Iran story has deepened the crude imbalance that is there anyway in a market where there is too much light, sweet stuff and not enough sour barrels.” › Indeed, Ms Kent noted, speculation on the effects of the sanctions against Iran – with Iranian oil simply redirected en masse to willing Asian buyers, freeing up other oil grades to flow back to Europe – might have been overly optimistic. But the data are open to interpretation. According to the IEA, exports of Iranian crude plummeted by nearly 750,000 barrels per day (bpd) in July to 1 million bpd. To David Fyfe, head of the IEA oil markets division, if anything the sanctions looked to be being even more successful than the EU and US were planning. Still, wrote Ms Kent, “Many believe that July and August would be the toughest months for Iranian exports, and that they could bounce back slightly in the autumn as Asian buyers find ways to navigate the sanctions.” JBC’s Mr Wech inclined to that view. “Without question Iran had big problems to sell its crude in July,” he told Ms Kent in mid-August. “But we think that that will improve from now on.”

Iran has been under embargo from the US

› With Iran’s oil inventory growing because of the Western embargoes, the Tehran Times on 15 September carried a report from the Mehr News Agency of a large sale of Iranian oil through private companies. Hassan Khosrojerdi, head of the oil products exporters’ union, was quoted as saying that a private consortium had signed two agreements to sell about four million barrels of Iranian crude “to be delivered in the [Persian] Gulf to foreign buyers”. Up to that point, the National Iranian Oil Co (NIOC) was solely responsible for exporting the Islamic Republic’s crude. The news agency took note of the official’s complaint that the Central Bank of Iran, the country’s main conduit for oil revenues, had been slow to devise and approve a financial mechanism for the sale of oil by private companies. Without that, Mr Khosrojerdi said, the private sector “cannot take any serious action to export oil”. The Central Bank of Iran is under sanction by the US. Entities that do business with it may be frozen out of US financial markets. Elsewhere in oil and gas . . . › Saudi Steel Pipe Co (SSP) has received contracts worth $57mn to supply Saudi Arabian Oil Co with steel pipes for lining oil wells and gas pipelines. As reported by Zawya Dow Jones Newswires (26 August), the pipe maker told the Saudi bourse website that the Aramco order would be fulfilled by the first quarter of 2013. SSP, which manufactures black and hot- dip galvanised welded steel pipe at its headquarters factory in Dammam, will utilise raw materials supplied by Saudi Basic Industries Corp, or Sabic. In July, SSP reported that higher raw material prices were weighing on its profit margins. › On 2 August, a 2" plastic gas pipe ruptured in the same San Francisco suburb of San Bruno where a pipeline explosion killed eight people in 2010. A spokesman for Pacific Gas & Electric Co told the Associated Press that the line burst when someone dug into the pipe near the site of the previous blast; a fire dispatcher said there were no injuries. The explosion on 9 September, 2010, of a high-pressure transmission line sparked a gas-fueled fire that destroyed 38 homes and laid waste to parts of the same neighbourhood.

Dorothy Fabian, Features Editor (USA)

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November 2012