Condensate Export Can Help Offset Oil Loss

Legal/Contract Advisor
Condensate Export  Can Help Offset Oil LossCondensate Export  Can Help Offset Oil Loss

There is a growing potential for Iran to increase its gas condensate exports to part compensate for its loss in oil revenues due to sanctions.

As a byproduct of natural gas or oil production, condensates are excluded from the sanctions when produced from a natural gas field, even though they are routinely mixed with heavier grades of oil later for making fuels.

Under the sanctions, crude oil exports to most nations are now banned. Sanctions do not apply if the parent country of the entity has received an exemption for “significantly reducing” oil purchases from Iran. As for natural gas, Iran was banned from exporting it to the European Union in late 2012. This, however, did not include Asia, which provided an opening for gas condensates sales.  

Crude oil exports are limited to one million barrels per day (mbpd). However, the cap on oil exports does not apply to condensate sales.

Iran is seeking to capitalize on sales of oil products such as petrochemicals and condensates to make up for the drop in oil sales. Petrochemical sales are also allowed, with no restrictions on volumes, under the Joint Plan of Action (JPA). Iranian exports of gas condensate have more than doubled this year from 2013, according to the latest International Energy Agency (IEA) report. Shipments of condensate from South Pars gas field averaged about 190,000 barrels per day (bpd) from January through November this year up from 90,000 bpd during the same period a year ago, the IEA said.

Meanwhile, the Custom Administration's monthly reports indicate that during a 10-month period corresponding Jan-Oct, Iran exported an average of 394,352 bpd of condensates. Almost 57 percent of Iran's total exports during the first eight months of the current Iranian calendar year (started March 21), pertain to gas condensate and petrochemicals, according to official customs' data. Gas condensate accounted for 27.8 percent of total exports in the said period, up from last year's 21.6 percent.

Total non-oil exports have shown a 26.4 percent increase in value compared with the same period last year. The increase is attributed to the surge in gas condensate exports, and loopholes in the sanction regime.

The main buyers of Iranian gas condensates are the same as its traditional oil customers, namely China, India, South Korea, Turkey, Taiwan and Japan, which had waivers to continue importing some Iranian oil.

  Impact of Sanctions

Iran’s $400 billion economy shrank more than 7 percent over the past two years, according to International Monetary Fund data, as sanctions drove oil output to the lowest since 1990 and deterred investment. Now the government, determined to develop phases 12, 15, 16, 17, and 18 of South Pars as well as other gas fields, can significantly increase gas condensate production while sanctions are still in place.

Head of the Phase 12 South Pars refinery, Jamshid Sourani, said the high quality of gas condensates produced in the phase has resulted in attracting many international customers. He said so far four consignments of 4.7 million barrels of gas condensates have been exported from Phase 12, with additional consignments to be shipped soon. When full operation of Phase 12 is realized, 750 tons of sulfur, 120 thousand barrels of gas condensates and three billion cubic feet of sweet gas will be produced daily.

There are also plans for the construction of eight gas condensate storage facilities in Assalouyeh, with a total capacity of 640,000 cubic meters. With construction of the storage facility, condensate export is projected to rise from current 400,000 barrels per day to 1.2 million.

South Pars gas field is one of the largest independent gas reservoirs in the world lying on the territorial border between Iran and Qatar in the Persian Gulf. It covers an area of 9700 square kilometers, of which 3700 square kilometers belongs to Iran. The Iranian portion is estimated to contain some 14 trillion cubic meters of gas and around 18 billion barrels of gas condensates. This amounts to roughly 7.5 % of the world gas reserves and approximately half of the Iran’s reserves.

The US imposed sanctions on Iran to curb the country's nuclear program which it claims is geared to military use, but Iran insists it is peaceful. Iran and P5+1 (a group of world powers including the US, Russia, China, UK and France, plus Germany) were unable to reach a comprehensive deal by a November 24 deadline and extended the talks for seven more months.