Japanese imports of Iranian crude are set to drop sharply under new term contracts to be concluded shortly, sources close to the matter told Platts Thursday.
Refiners have delayed finalizing import volumes for the 12 months starting in April because of the implications of US and European Union sanctions. But having secured additional force majeure clauses in their contracts that can be invoked if sanctions prevent or limit execution of the contracts, Japanese buyers are now close to concluding their new contracts, the sources said.
Japanese refiners are expected to receive some 300,000 b/d from Iran in April, similar to volumes over the first three months of this year. Although some Japanese companies have contracts running from January through December, most contracts with Iran run from April to end-March. Japan imported 310,000 b/d of Iranian crude last year, when Iran was the country's fourth-biggest supplier.
But, once the new contracts are in place, Iranian volumes are set to drop to around 240,000 b/d after April, in line with a recent agreement between Tokyo and Washington exempting Japan's banks from US financial sanctions in exchange for lower purchases of Iranian oil, the sources said.
Actual imports of Iranian crude could be higher or lower than the contractual volumes each month because of such seasonal factors as the scheduled maintenance season at refineries and peak summer and winter oil demand seasons, the sources said.
For instance, May imports could be as low as 200,000 b/d as refiners make adjustments to ensure that their full-year volumes comply with the agreement between the Japanese and US governments. Several buyers with small-volume contracts have decided not to take any deliveries in May, in the midst of the maintenance season, sources said.
Nominations for May supplies were due to be submitted Thursday.
BIGGEST CUTS FROM SHOWA SHELL, JX NIPPON OIL & ENERGY
Showa Shell and JX Nippon Oil & Energy, Japan's biggest buyers of Iranian crude, are expected to account for the biggest volume cuts, the sources said.
Under their previous contracts, volumes were 100,000 b/d for Showa Shell and 90,000 b/d for JX Nippon Oil & Energy, sources said.
Showa Shell was closed Thursday but a company official reached Wednesday declined to comment on the status of the negotiations with the National Iranian Oil Company on new term contracts starting in April. He would say only that the company intended to comply with the recent agreement between Tokyo and Washington.
JX Nippon Oil & Energy, Japan's largest refiner, has two contracts with Iran -- one for 80,000 b/d which runs from January to December and one for 10,000 b/d which runs from April to March. It is still talking to NIOC about whether it will renew the contract for 10,000 b/d of crude, a company official said, declining to comment on the status of its negotiations. Sources, however, said the company might not renew this 10,000 b/d contract so as to comply with the Japan-US agreement.
Cuts are also expected from other refiners such as Cosmo Oil and Idemitsu Kosan, which have relatively smaller import volumes, sources said.
Japanese refiners are understood to be reducing their purchases of Iranian oil by between 15% and 20% for the year ahead as part of the agreement between Tokyo and Washington.
Idemitsu Kosan Chairman Akihiko Tembo told Platts in Kuwait on March 12 that the company was currently importing around 6,000 b/d of Iranian crude, "which means if we cut 1,000 b/d it could easily be about 20%."
Sources said, meanwhile, that the securing of additional force majeure clauses -- which will also be applied retroactively to contracts which started in January -- had removed a major obstacle from the negotiations on new contracts with Iran.
The additional clauses mean that Japanese buyers will be able to invoke force majeure if, for example, they cannot find vessels to lift Iranian crude because of loss of insurance cover, as Platts reported on April 2.
Japanese buyers will have to give advance notice of 30 days to NIOC if they want to invoke force majeure, Platts reported.
An ongoing concern for the Japanese companies is whether they will be able to load oil from Iran after the end of June.
On March 23, the EU agreed to allow European P&I clubs to continue to provide third party liability -- Protection & Indemnity -- cover until its ban on the import of Iranian oil and other provisions come fully into force.
EU foreign ministers are scheduled to review the sanctions legislation on May 14.
