Iran rial sanctions 390.
(photo credit: REUTERS)
LONDON/SEOUL - EU sanctions on Iran's natural gas have unintentionally also brought its exports of liquefied petroleum gas to a near halt, industry sources say, starving Tehran of yet more dollar revenue and threatening to push European winter fuel bills yet higher.
LPG, which comprises propane and butane, comes mainly from oil rather than natural gas, but shippers and insurers are steering clear of Iranian supplies due to uncertainty over the scope of the new European Union sanctions.
"It's a grey area if natural gas includes LPG or not," said one LPG trader. "Not many want to take a risk on that."
Earlier this month the EU announced tighter restrictions on trade with Iran, adding to already comprehensive international sanctions aimed at forcing Tehran to halt its nuclear program.
These included a ban on importing and transporting Iranian gas, as well as financing gas sales. Western nations suspect Iran is trying to develop atomic weapons, something that Tehran denies, but the gas curbs had appeared symbolic as Iran exports none to the EU.
In reality, the measures announced by EU foreign policy chief Catherine Ashton are already strangling Iranian LPG exports to countries outside the bloc, notably South Korea.
Officially, the gas sanctions became binding on EU governments from October 16 but technically they do not apply to companies until detailed legislation is prepared and issued. An EU source said this could happen in November.
In the absence of hard and fast EU rules, Iran's LPG customers outside the EU are acting cautiously due to the uncertainty, with the result that shipments are drying up.
Previous U.S. and EU measures slashed Iran's crude oil exports, hitting its hard currency earnings and contributing to a plunge in the rial's value. The International Energy Agency estimated its crude exports at 860,000 bpd in September, down from 2.2 million bpd at the end of 2011.
Similar curbs on LPG will likewise hurt Tehran. Before the sanctions, Iran exported almost four million tonnes a year, worth over $4 billion at current market prices.
After South Korea, Norwegian energy giant Statoil was the main buyer of Iranian LPG, industry sources said.
Company spokesman Morten Eek said Statoil had taken Iranian LPG as repayment of debts owed by the National Iranian Oil Company (NIOC) for completed projects on the giant South Pars gas field and exploration on the Anaran and Khoramabad fields.
"We receive the cargo at the LPG terminals in Iran and transport it by ship to markets outside Europe and the USA. Cargoes of LPG serve as down payment of NIOC's debt to us," he said.
"We have informed the Norwegian and United States authorities on this and we will continue the dialogue to ensure that our activities are in accordance with the current sanctions," Eek added, without commenting on whether Statoil would be able to continue taking the shipments.
A source at one South Korean energy company said his firm had stopped taking Iranian LPG since mid-October as Japanese insurers were refusing to provide cover for the cargoes.
Japanese shipping company Phoenix Tankers is one such company. Phoenix shipped Iranian LPG to South Korea earlier this year on a spot basis, said Tetsutaro Kozai, a spokesman at Mitsui OSK, the parent company of Phoenix.
"It is now up to our customers as the EU has discussed but not yet decided if LPG is subject to sanctions," he said. "If there is such a spot order, we'll comply with the EU's decision and consider if we can transport safely before accepting it."
This illustrates the problems in conducting the trade, even before the EU legislation officially comes into force.
London is the global center for shipping insurance and with Britain an EU member, the sanctions will paralyze cover for Iranian gas. Likewise, shippers do not want to touch any trade that could risk business with clients such as major oil firms.
"Now some Western majors say if a vessel has loaded in Iran in the last three cargoes, they will not charter her," said one LPG trader.