Iran sea storage cleared, struggles to boost oil exports

Iran parked loaded tankers offshore while under sanctions

After international sanctions against Iran were eased last year, the country has sold the millions of barrels of crude it had stored for years in tankers offshore and is now struggling to expand exports as it grapples with production limitations.

In a report by Reuters, tanker tracking and oil sources say Iran cleared out its inventory in the past two weeks, much of the oil stored was condensate, a very light grade of crude.

With the sell off complete, Iran is finding it difficult to prop up exports despite holding the world’s fourth-largest oil reserves .

“We do think that (floating storage) has been the primary cause of the boost in exports,” Energy Aspects analyst Richard Mallinson told Reuters, adding that now floating storage had ended total exports of crude and condensate were likely to slip.

“We see a very difficult path for Iran to raise crude output until it can get the Western expertise and investment back into the upstream, which has been notably slow to materialize,” he added.

After sanctions imposed by the West were eased, Iran’s crude output increased from 2.9 million b/d to about 3.6 million b/d in June.

But, with output fluctuating between 3.6 million and 3.7 million b/d, Iranian crude output has remained steady, signalling the country’s oil industry is still recovering from sanctions.

 

In November 2016, OPEC pledged to reduce output by 1.2 million b/d, but under the deal, Iran was allowed a small increase to compensate for the years it was under sanctions.  In the first three months of the OPEC pact, Iran has produced less than agreed upon.

Last month, Iranian Oil Minister Bijan Zanganeh said Tehran was prepared to output 3.8 million b/d if OPEC agreed to extend cuts into the second half of the year, a sign there was little chance Iran would significantly increase its production.

Since his election, US President Donald Trump has promised a tough line, which may have resulted in increased concerns among western banks concerning financing of Iranian oil projects.

Mehdi Varzi, former official at state-owned National Iranian Oil Company told Reuters “Iran needs billions of dollars of investment to boost crude oil production and natural gas capacity.”

“Most of the fields were discovered many decades ago and are way beyond their production capacity,” he said.

In February, French oil major Total said it should have a final investment decision of a $2 billion gas project in Iran by the summer.  But, the decision hinges on the renewal of US sanctions waivers.

 

“The uncertainty over the U.S. position on further sanctions is casting a huge shadow on the oil trade with Iran,” Paddy Rodgers, chief executive of tanker company Euronav told Reuters.

The Iranian oil minister hoping to secure deals with Western is also dealing with strife within Iran. Decisions have been postponed until after the country holds its presidential election in May.