Viewpoint: Geopolitics drive Iran’s LPG potential

The inauguration of new US president Joe Biden later this month is likely to set in motion shifts in US foreign policy, with significant repercussions for LPG markets. Biden's team is expected to rethink US-Iran relations, a policy item that may have important long-term consequences for global LPG supplies.

Somewhat surprisingly, Iran's overall LPG exports have hardly been impacted since May 2018, when the US formally exited the Joint Comprehensive Plan of Action (JCPOA) nuclear deal. This is in pronounced contrast to crude and condensate exports, which have fallen sharply.

Iran's refrigerated seaborne LPG exports have been remarkably resilient. Exports over the last three years, during most of which the country had been under severe US sanctions, averaged 4.75mn t/yr, according to ship tracking data from oil analytics firm Kpler. This compared with average seaborne exports of 4.65mn t/yr in 2016 and 2017, when the US was still part of the JCPOA. China has solidly remained Iran's top customer, taking an average of 77pc of its exports over the past five years, the Kpler data show.

Iran's total LPG exports have likely fluctuated in a range of 7mn-9mn t/yr since 2015, after taking into account land-based exports to neighbours Pakistan and Afghanistan, as well as seaborne exports that are break-bulked and sold on smaller pressurised vessels to India, Pakistan, Bangladesh or Thailand.

The "maximum pressure" policy pursued by the outgoing Trump administration in the past four years has curtailed Iran's growth potential as an LPG producer by setting back its capacity expansion plans. The sanctions have also dented the country's export revenues and complicated the logistics of selling seaborne LPG.

Iranian LPG has regularly traded at $20-40/t below market levels, while its limited access to the pool of international shipping has meant its exports can significantly fluctuate month on month, based on vessel availability. The country's LPG exports to China fell by around 65pc in November and December last year as weather-related delays in China tied up a number of very-large gas carriers that plied the Iran-China trade route.

Untapped potential

Iran's massive associated and non-associated gas resources could see it produce 16mn-17mn t/yr of LPG, the bulk of which would be exported. This would make the country the second-largest LPG producer in the region after Saudi Arabia and potentially the second-largest exporter globally after the US.

But much-needed upstream investment to develop the country's offshore and onshore gas resources will remain dependent on geopolitics. This includes the development of the remaining phases of South Pars, the world's largest gas field, which could double Iran's exports from the field to 10mn t/yr, and the construction of export infrastructure.

Iranian president Hassan Rouhani is hopeful that Iran's ability to export its hydrocarbons will improve this year, after the Biden campaign signalled its willingness to return to the nuclear deal. But with both countries' leaders saying the ball is in the other's court when it comes to returning to compliance with the nuclear deal, it could be a long road ahead before US sanctions are lifted and Iran can relaunch its ambitious oil and gas expansion plans.

By Reza Amanat and China staff