* South Korea, Japan refiners to take first two U.S. cargoes
* Iran condensate exports to China made at deep discounts
* China, India unlikely to buy due to high freight costs,
* Asian buyers cautious over wide variety of oil, quality
By Florence Tan
SINGAPORE, July 28 The United States faces an
awkward rival in its first attempts in 40 years to export crude
oil - Iran.
Iran, whose economy has been throttled by Western sanctions
that have halved its crude shipments, is now selling higher
quality and cheaper oil to China that leaves little room for the
U.S. crude to enter the world's top energy consumer.
While buyers in Japan and South Korea have been willing to
trial a U.S. grade of the super-light crude known as condensate,
China has already locked in annual contracts with Tehran and is
not expected to take any U.S. oil in the short-term.
With U.S. producers looking to open a trade route to sell
surplus condensate from the U.S. shale boom, worries about
quality and legal issues have added to doubts about how much of
the oil the rest of Asia can take.
"China gets condensate from Iran, which is much cheaper than
that from the U.S.," said a Singapore-based trader with a
European trading company. "They might get involved at a later
stage but they will not be at the forefront."
Condensate won export approval from U.S. officials in June
as long as it has been minimally processed, softening a
decades-old ban on selling U.S. crude abroad.
The light oil can be cracked in a processing plant called a
splitter to make petroleum products and petrochemicals, or
blended with heavier crude for use in refineries.
South Korea and Japan have purchased the first condensate
from the United States. Mitsui & Co bought a cargo from
Enterprise Product Partners for loading this month and
has onsold it to South Korean refiner GS Caltex,
Refiner Cosmo Oil Co has also bought a cargo of
U.S. condensate that will load in late August for arrival at the
Yokkaichi refinery in Japan in October, a source said.
Japan and South Korea, which together account for just over
half of Asia's 1.1 million-barrels-per-day (bpd) in condensate
splitter capacity, are seen as more open to trying the United
States as an alternative supplier.
Enterprise has also signed a short-term contract with
another Japanese trader, Mitsubishi Corp, with a first
loading likely in September.
Asian buyers have been waiting to see if the U.S. oil is
suitable and if exporters can price it competitively given it
has to be shipped a further distance than competing grades from
the leading regular suppliers Qatar and Australia.
"They are testing the waters so we're not expecting huge
volumes this year," said Richard Gorry, managing director of
energy consultancy JBC Asia.
Showing the competition U.S. exports face, Iran exports
about 55 percent of its roughly 250,000 bpd of South Pars
condensate output to two Chinese buyers at deep discounts under
Since U.S. and European Union sanctions were eased late last
year in exchange for Iran curbing nuclear activities, Tehran's
exports have risen about 30 percent to 1.25 million to 1.3
million bpd, much of this as South Pars shipments to China.
Some of the Iranian condensate could be sold as low as $5 a
barrel below Dubai quotes or about $8 a barrel cheaper than
U.S. condensate would likely have to be priced lower than
the similar Qatari grades to attract buyers, traders said.
Qatar is the biggest supplier of condensate to Asia at about
450,000 bpd, followed by Iran. Australia and East Timor together
produce nearly 170,000 bpd, with most of the output heading to
Asian markets, according to trade sources.
Higher shipping costs compared with the short distance from
the Middle East will deter India from buying U.S. condensate,
according to sources at Indian refiners.
LEGAL, QUALITY CONCERNS
Another issue is uncertainty over the future of U.S.
regulations on condensate exports.
Two U.S. senators have questioned the U.S. Commerce
Department's approval, saying exports may violate a ban in place
since the Arab oil embargo of the 1970s. Refined products, such
as gasoline and diesel, are not restricted.
"What happens if some ruling appears and penalises the
buyers?" asked a trader at a North Asian refiner. "Also, there's
not much economics in it so why take the risk?"
Asian users are also concerned that U.S. condensates may
vary widely in quality as they will be come from fields
scattered across shale formations such as the Eagle Ford in
southern Texas, from which Enterprise pulls its oil.
The U.S. oil is expected to be more commonly used as a blend
stock by refiners, limiting the amount available for 350,000 bpd
of new splitter capacity coming online in Asia this quarter.
(Reporting by Florence Tan, Jacob Gronholt-Pedersen and Keith
Wallis in SINGAPORE, Meeyoung Cho in SEOUL, Osamu Tsukimori and
James Topham in TOKYO, Chen Aizhu in BEIJING, Rania El-Gamal in
DUBAI, and Nidhi Verma in NEW DELHI; Editing by Manash Goswami,
Richard Pullin and Tom Hogue)