Exploiting a 'gray area': Iran sidesteping international sanctions through gas byproducts
An energy powerhouse, Iran has the second-largest reserves of natural gas in the world after Russia,
Iran is finding a way around Western sanctions to export increasing amounts of ultralight oil to China and other Asian markets, expanding the value of its trade by potentially billions of dollars a year.
The exports come during a slight thaw in Iran’s relations with the West as negotiations over its nuclear program continue.
According to Iranian customs data, the country in recent months has exported 525,000 barrels a day of the ultralight oil, known as gas condensates, over two times more than it did a year ago. In the last three months, the sales have generated as much as $1.5 billion in extra trade — a rate of about $6 billion a year — based on Iranian trade figures and market prices, analysts said.
The result has been an overall increase in petroleum shipments to China and other Asian markets without violating the letter of the sanctions. American officials have aimed to keep Iranian oil exports at around one million barrels a day, but when combined with condensate sales, they averaged 1.4 million barrels a day between January and May, according to the Energy Department.
The condensates can be a byproduct of natural gas or oil production. But under the sanctions, they are fully covered only when they come out of an oil field, and not when produced from a natural gas field, even though they are routinely mixed with heavier grades of oil later for making fuels.
U.S. officials said that the countries that had waivers to continue importing some Iranian oil — China, India, South Korea, Turkey, Taiwan and Japan — were not technically prohibited from buying the gas condensates and were not breaking the letter of the agreements with Washington.
The increase in condensate exports compensates for a small part of Iran’s lost oil revenues. According to OPEC estimates, the value of Iranian oil exports in 2013 had plunged to $62 billion, down from $102 billion in 2012 and $115 billion in 2011.
Still, there has been some slippage. The Energy Department reported that from January to May, Iranian oil and condensates exports were 300,000 barrels a day higher than the 2013 average, with China and India accounting for most of the increase.
Under the sanctions, crude oil exports to most nations are now banned. As for natural gas, Iran was banned from exporting it to the European Union in late 2012, but not to Asian markets — providing an opening for the gas condensates sales.
An energy powerhouse, Iran has the second-largest reserves of natural gas in the world after Russia, and it ranks among the world’s top five gas producers, according to the Energy Department. It ranks fourth in proven crude oil reserves.
Iran appears to be looking to increase condensates exports even further with the development of its enormous South Pars gas field. The National Iranian Oil Refining and Distribution Company recently announced plans to build a new condensates processing plant with the capacity to produce 60,000 barrels a day.
Condensates represent a gray area in the oil and gas world, and even OPEC is challenged about how to define the product. Under OPEC rules, condensates are not included in oil export quotas allotted to its members even though they are commonly included in statistics for oil production and reserves.
In the end, energy experts say the extra supply of Iranian condensates on the world market can have some benefits, at least for a short while, given the potential for big disruptions in global oil supplies from mounting crises in Libya, Iraq and Ukraine.
“A little seepage in the market right now,” said Frank Verrastro, an energy and geopolitical strategist at the Center for Strategic and International Studies, “is a good thing.”