Northwest Europe has opened its doors to the first shipments of Iranian gasoil after a 10-year hiatus, and these nascent flows are adding to the desulfurization opportunities within the Amsterdam-Rotterdam-Antwerp refining hub.
The specifications of the recent fixtures put Iranian gasoil as a prime candidate for desulfurization and blending within the ARA hub, market sources said.
So far this year, the HSGO shipments have been straight run 0.7-0.9% gasoil from Bandar Mahshahr, middle distillates traders and sources close to the parties involved said.
In aggregate, high sulfur gasoil exports from Iran have amounted to approximately 100,000 mt each month, booked for the West of Suez, the Mediterranean, Northwest Europe and West Africa, a source with knowledge of the matter said.
The latest fixture to Northwest Europe was on board the Glorious, a 60,000 mt cargo, which discharged into Amsterdam on November 26, having left Bandar Mahshahr, Iran, on November 12, S&P Global trade flow software CFlow showed. The Mahshahr Oil Terminal is used to store products from the Abadan Refinery to the west.
This vessel was laden with 0.7% sulfur gasoil, sources said.
The identity of the charterer remains unclear.
Among the other Iranian ports, Bandar Abbas exports 6-7 cargoes of 5,000 ppm (0.5%) gasoil each month, National Iranian Oil Company said, while port Lavan Island supplies one cargo on average of maximum 500 ppm gasoil.
No high sulfur gasoil volumes are presently being offered from these ports.
Before desulfurization facilities were launched this year, both Bandar Abbas and Lavan Island supplied high sulfur specifications around 10,000 ppm (1.0%) gasoil.
Desulfurization facilities by Bandar Abbas port were made operational in November, while those at Lavan Island became active six months before, a NIOC source said.
NIOC doesn't publish tenders for high sulfur gasoil, opting for private negotiations instead.
So far this year, Iranian exports from Bandar Mahshahr have ranged between 7,000-9,000 ppm, sources said.
The first gasoil shipment from Iran since its trade sanctions were removed was chartered by trading company Vitol, according to shipping sources and broker reports.
Vitol wasn't immediately available for comment on the matter.
The UN Security Council lifted petroleum sanctions on Iran in January.
The trade sanctions were originally imposed by the UN Security Council in 2006, but were tightened up in 2008 and again in 2010 in opposition to Iran's nuclear program.
Since the sanctions were lifted, Iran has exercised the opportunity to sell oil to Europe, with a large proportion of this crude and condensate rather than refined or finished products.
A GOOD FIT FOR ARA
Firstly, being straight run gasoil, the Iranian streams can be fed through a wide range of desulfurization units across the ARA region. Unlike cracked material, straight run gasoil contains fewer impurities and unwanted metals and is therefore a more malleable product.
Certain desulfurization units apply restrictions on metal contaminants within cracked material, to optimize the longevity of the unit. Desulfurizers need to burn at higher temperatures in the presence of contaminants, which in turn reduces the desulfurization unit's life span, a refinery source said.
Handling cracked material becomes more complex.
"If there are additives beyond the technical specifications, you need to do a cost-benefit analysis. If the catalyst is burning at a higher temperature, this affects the life [of the unit]. So you must know the burn rate, and then you do the analysis," the refiner said.
Conversely, the straight run nature of the Iranian gasoil offers better optionality in the way of desulfurization across units in Europe, where there is a vast desulfurization capacity.
While the Iranian material could journey east toward Singapore's oil products hub, Northwest Europe offers superior desulfurization capabilities, with facilities built to manage Europe's cleaner energy evolution towards the current 10 ppm ultra low sulfur diesel specification.
As sulfur content requirements became more stringent across Europe, the infrastructure was developed simultaneously within the region to satisfy the lower sulfur demands.
"Singapore does not have desulfurization capacity, so it is easier to take into ARA. Freight is not too expensive on a bigger vessel [to ARA]," a trader said.
LOW FLASH, LOW DENSITY
Globally, the trend is for lower sulfur levels in gasoil and diesel. However, one of the few outlets left for high sulfur material is West Africa.
Indeed, the Torm Sara loaded in Bandar Mahshahr and, after visiting the oil terminal at Fujairah, the vessel is now heading towards Lome, Togo, the main point in the West African offshore market.
However, in West Africa the predominant grade traded is 0.3% gasoil -- high sulfur, high density, high flash gasoil. However, Iranian gasoil initially falls short on the latter two aspects.
The flash point for the latest Iranian gasoil offered ranged between a minimum of 54-60 degrees Celsius, while the grade traded in the offshore Lome market typically requires a very high flash point of 70 C, according to sources.
The density of Iran's gasoil also fails to meet WAF's requirements, as the typical traded density in the offshore market is a minimum of 0.865, according to traders.
As a result, the material is likely to have been blended in Fujairah in order to meet the market's requirements.
"It is too low density for WAF, even after desulfurization. ARA makes sense," according to the first trader, who also specializes in West African trade.
Other high-sulfur consumer markets in the region are also a tricky prospect without blending. But even here the move is towards lower sulfur specifications.
For example, Pakistan is set to move from 0.5% sulfur to 500 ppm at the beginning of 2017, and as part of the general trend to lower sulfur material, the ability of Iranian material to go into short positions without blending or being desulfurized is extremely limited.
For now, Iran's gasoil shipments to ARA are expected to continue, market sources said, together with the existing flows of condensate and crude products.
However, there remains uncertainty over the regularity of these shipments.http://www.platts.com/latest-news/oil/london/analysis-iran-emerges-as-high-sulfur-gasoil-supplier-26620138