Iran courts Japanese energy investors

21 September 2016, Week 37 Issue 543

Iran is going all out to stimulate Japanese demand for its crude oil, promising preferential treatment for investors from the East Asian country when bidding for energy assets plus a place at the head of the queue for Japanese vessels refuelling at Iran’s upgraded Kharg oil terminal.

Iranian officials have said Tehran wants to give Japanese firms sweetened deals as a way of thanking Tokyo for its support throughout US-led sanctions that from 2010 severely dented Iran’s oil trade and revenue.

While international insurance companies refused during this period to extend coverage for oil tankers that lifted in Iran, Tokyo developed government-backed insurance for Japanese vessels, meaning Iran’s trade with Japan was hit far less severely than that with other countries. Overall, exports from Iran’s Kharg terminal – which handles more than 90% of Iranian oil exports – halved during the period of sanctions.

“We never forget our friends from the time of sanction,” the Japan Times quoted the managing director of Iranian Oil Terminals, Pirouz Mousavi, as saying last week. “As we expect the increase in Japan for Iran’s crude oil, we feel more commitment to be a better host for Japan. Iran is interested in having Japan as the first priority for investing in oil terminals rather than others.”

Japan had much to offer Iran, in a variety of areas, he added. “Iran is seeking Japan’s experience and high technology to protect the sea environment and both countries can start the co-operation by investing in refining oil sludge,” he said. “Japanese companies will have a firm position in the future of oil business with Iran and nothing can make a gap between Iran and Japan.”

Pole position

Japanese vessels looking to refuel at Iran’s Kharg terminal – which the government has decided to upgrade to allow tankers to refuel and load simultaneously – will also be given priority over vessels carrying other national flags.

Ships loaded at Kharg Island currently have to travel to the United Arab Emirates (UAE) to refuel.

“We are ready to refuel Japanese oil tankers as the first priority in Kharg during loading,” said Gholamhossein Gherami, operations and export manager of the Kharg oil terminal. “This can remove the risk of the refuelling of fully loaded tankers in UAE, on top of frugality in time and reducing extra expenses, including parking.”

At the same time, natural gas from Iranian oilfields can be refined and sold as a new petrochemical product, providing an area for Japanese investors to participate more in Iran’s energy industry, Gherami added.

The drive already appears to be paying off. Japan’s imports of Iranian crude surged to a record high of 257,000 bpd in July, having averaged 213,000 bpd over the first seven months of the year.

Japan’s government lifted sanctions on Iran in January. The following month it signed a bilateral investment pact with Tehran with a view to helping give Japanese firms a head start as more international companies began to jostle for access to Iran.

In February, the state-backed Japan Bank for International Cooperation (JBIC) and Nippon Export and Investment Insurance pledge a credit line of up to US$10 billion for energy activities in Iran.

Risks

That said, Japanese firms remain cautious about ramping up their exposure to Iran. The slow reform of Iran’s financial sector, tension between Tehran and neighbours such as Saudi Arabia and uncertainty ahead of next year’s presidential election all create risk for Japanese energy firms looking to invest in the country.

Japanese investors in Iran have also had their fingers burned in the past. Inpex was forced to withdraw in 2010 from Iran’s huge Azadegan oilfield – in which it held a 75% stake – because of tightening US sanctions against Iran.In 1991, the Iran-Iraq war also killed a multi-billion yen petrochemical project in the Middle Eastern state that Japan Petrochemical had invested in.

Iran is open for business and Tokyo is as keen as any other Asian state for its energy firms to win a slice of the action. While preferential deals will help compensate Japanese firms for the relatively high risk attached to dealing with Iran, Tehran will need to address geopolitical issues before they are prepared to spend big.

Edited by

Andrew Kemp

Editor

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