Energy Opportunities on Post-Sanctions Horizon

Energy Desk
Energy Opportunities on  Post-Sanctions HorizonEnergy Opportunities on  Post-Sanctions Horizon

Tehran voiced readiness on Sunday to rekindle trade ties with the world and stick to its commitment of raising crude exports by 500,000 barrels a day in an international conference held hours after decades-old sanctions against it were officially lifted.

The conference was held to mark the 60th anniversary of the National Iranian Tanker Company. Senior Iranian figures, including Minister of Cooperatives, Labor and Social Welfare Ali Rabiei, NITC chief executive, Ali Akbar Safaei, and deputy oil minister for international affairs, Amirhossein Zamaninia, addressed the convention.

"Iran is ready to boost oil exports by 500,000 barrels per day, under the current global supply and demand dynamics," Zamaninia told some 600 representatives of domestic and international oil, gas, shipping and insurance companies on Sunday.

He outlined the implementation of Iran's nuclear deal, officially known as the Joint Comprehensive Plan of Action. “The accord was the culmination of a collective national effort … Iran maintained a ‘constructive engagement’ policy since negotiations started a decade ago.”

Zamaninia noted that sanctions helped Iran maintain growth under the Resistance Economy, a set of policies proposed by the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei to counter sanctions, cut consumption and enhance economic growth.

“Before the sanctions, oil revenues made up around 50% of the country’s budget, but it has been cut to around 40% on the back of the Resistance Economy,” he said.

Iran relies heavily on crude oil, a commodity that has lost value by 70% since mid-2014, when oil traded at around $115 per barrel. Brent, the global benchmark, has touched below $30-per-barrel range, the lowest in 12 years, and shows no sign of recovery in the near future.

Rabiei also said the conference is an opportunity to introduce post-sanctions Iran to multinationals.

“Iran has the capacity to transport 130 million tons of crude oil and condensates annually,” he said. “Oil output will rise by 1 million barrels a day in the first phase.”

"The Islamic Republic is keen to expand its foothold in the European markets by offering competitive prices while complying with global environmental standards."

Rabiei added that a Chinese bank has voiced interest in a $5 billion investment to expand Iran's tanker fleet, but did not give more details.

   New Era of Cooperation

The cooperatives minister said NITC is planning a new era of cooperation in the post-sanctions period.

"It is ready to supply around 90% of Iran’s oil in the post-sanctions period. NITC is embarking on globalization to boost economic profit and security," he said.

Rabiei added that transfer of technology and holding shipping-related courses top NITC’s agenda.

“NITC is keen to attract new technologies and investment to boost maritime transportation,” he added.

Iran has lined up around $180 billion worth of projects ranging from upstream projects such as exploration and drilling to downstream petrochemical projects.

Rabiei said Iran is targeting an 8% economic growth in the long run, adding that around $27 billion in investment are required to drive up growth by 1% annually.

“Iran is no longer a mere consumer [of energy], but a major producer in the region," according to the official, who said Iran’s "unrivaled" political and said its economic prosperity will benefit foreign partners.

Safaei said ahead of Sunday’s conference that sanctions removal will ease the docking of Iranian oil vessels in international ports.

Many Iranian crude shipments were forced to set off on a "ballast voyage" under the sanctions regime, meaning they returned empty or carried a cargo with little or no value after the discharge.

  Long-Term Strategy

The NITC director said under a five-year strategic plan, the company is aiming to diversify its sources of income, improve maritime safety and security, slash operational costs, add more tankers to its fleet and expand its global sales network.

“Despite international sanctions, the NITC made headways in boosting oil revenues and bolstering the country’s economy,” Safaei said.

NITC is also expected to list a percentage of its shares in the capital markets, its chief executive said.

Iran's Civil Servants Pension Organization and Social Security Organization are major stakeholders of NITC.

The company has 62 vessels with a total deadweight capacity of 15.5 million tons. It shipped more than 70 million tons of products in March-December under the sanctions regime.

Reuters said in a report last week that Iran has 22 very large crude carriers floating off its coast, with 13 fully or almost fully loaded.

The Wall Street Journal said in a report in July that Iran has the world's largest fleet of supertankers. Having 42 VLCCs, or very large crude carriers, "no other company in the world owns that number of VLCCs", the report said. The accuracy of the report cannot be independently verified.

Safaei also said 10.8 billion tons of products were transported by sea in 2015, with crude and petroleum products making up around 30% of that amount. The global shipment of products is expected to reach 11 billion tons in 2016.

He referred to Iran as a regional and global force in the global maritime transportation, adding that cooperation with an Iranian partner is a prerequisite for internationals planning to do business in Iran.

The official also unveiled plans for establishing "Oil, Gas and Maritime Trade Center" in Tehran to help facilitate foreign trade and cooperation.

NITC faced pressure in conducting business with international partners against a backdrop of sanctions despite a temporary suspension of trade restrictions, including a ban on the insurance of Iranian tankers and crude shipments from January to June 2014.

Officials say Iran holds a considerable amount of condensate at sea, which will go on sale immediately after the sanctions removal.

CNN claimed last year that Iranian vessels hold 30-40 million barrels of oil at sea, while the New York-based information portal Platts estimated the number to be around 53 million barrels.

  LNG Trade With China

Chairman of Guangdong JOVO Group, a Chinese trader of liquefied petroleum gas, said, "We look forward to enhancing cooperation with NITC through LNG or FLNG production."

Zhang Jian Guo said through a translator that his company wants to establish a joint venture with NITC to produce LNG on floating production facilities because Jovo Group wants to buy the output from the joint project.

"This will secure our LNG procurement," he said.

Jovo Group conducted business with Iran through third-party companies during the sanctions and currently has an office in the capital.

Iranian officials have engaged in talks with several companies over the pas t few months to lease or build FLNG facilities. Oil Minister Bijan Namdar Zanganeh said in November that Iran was in talks with Belgium to deploy the country's FLNG production facilities near Kharg Island in the Persian Gulf.

Also last month, an Oil Ministry official said Iran and France had reached an agreement to build an FLNG unit in the Persian Gulf amid ongoing negotiations with an unnamed German company.

FLNG production includes all systems to enable offshore liquefaction of natural gas into LNG. An FLNG facility would produce, liquefy, store and transfer LNG at sea before carriers ship it directly to markets.

Iranian officials say investing in FLNG infrastructure is financially viable, because the cost of producing LNG offshore is relatively on a par with LNG production at onshore facilities.

   Insurance Opportunities

City Marine Insurance Brokers is among several companies in the neighboring UAE that has set sight on new grounds for cooperation in marine transport with Iran.

The company's director, Stephen Massey, said on the sidelines of the conference that City Marine worked with NITC for nearly three years before the US and the EU introduced tougher sanctions against Tehran.

"We recently initiated negotiations with NITC officials. There are historic connections [between the two sides] I respect," he said.

Massey proclaimed that his company faces stiff competition from European and Persian Gulf-based marine brokers.

"We have to cater for the very competitive rates that insurance has in the Persian Gulf," he said.

NITC also held talks with major European firms to provide insurance for the country's oil vessels, including two British firms and a Swedish company that offer protection and indemnity insurance to oil tankers.

According to officials, the majority of these companies had ties with NITC before the introduction of tougher US and EU sanctions against the Persian Gulf country in 2011.

Regarding pirate attacks on ships and vessels, he said the number of such blitzes has significantly dropped over the past few years.

"For instance, not many ships would travel down the Horn of African unless they've got security onboard," he said.

  Big Bucks for Brokers

John Bradley, representative of the Ocean Shipbrokers Ltd, a multinational tanker broker headquartered in London, said, "As Iran is coming back to the international scene, we intend of hopefully doing business, chartering their [Iranian] oil tankers with some of the people we deal with back in London. I'm sure we will be doing deals with the NITC in the near future."

Bradley stressed that with trade and financial restrictions removed against Iran, a deal will now depend on business matters, such as tonnage request by clients.

Antonio Margaritis, managing director of Marant Shipping and Trading S.A., briefly described the Greece-based company's plans for resuming trade with Iran.

"We were engaged in business with the NITC before the sanctions," he said, hoping to rekindle ties with the company in the next few months, particularly in tanker chartering.

Tim Webb of the Barry Rogliano Salles, a leading global shipbroker company based in Paris, touched on the long history of BRS operations in Iran and said, "We would like to be involved in some sort of shipping or transportation with either an Iranian ship owner or an Iranian oil company and a foreign entity."

On the impact of additional Iranian crude in the already saturated market, Webb said, "I don't think they're going to flood the market, but this could make a change for certain other oil producing countries."