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Australia, Iran could set condensate price trend


Australian Ichthys condensate may spur new competition among suppliers

Iran's South Pars condensate exports to Asia expected to be lower in 2018

Buyers may turn to Africa, US, Europe amid tight Iranian supply outlook

Australia and Iran could play a leading role in shaping new price trends in the Asia Pacific ultra-light crude market in 2018 as the Oceania producer's new condensate stream is expected to spur intense competition among various suppliers around the region, while an expected drop in Iranian exports next year may ignite Asia's desire to buy more arbitrage barrels.

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Asian traders noted that regional refiners and petrochemical companies may have to brace themselves for some price volatility next year, and the supply and demand balance in the Asian condensates market could swing either way as Oceania will likely see a boost in production, though supply is expected to tighten in the Middle East.

"There will be a boost in production from Australia, but less supply from Iran [next year]. I reckon this will shape the market [price] trend," said a Southeast Asian crude trader.

Asian end-users have been keeping a close watch on the latest development in Australia's new Ichthys gas and condensate project, as the naphtha-rich grade will likely make its debut sale in the Asian spot market within the first half of next year, posing a direct competition to ultra-light crude producers in Southeast Asia and Oceania, traders said.

Project operator Inpex said earlier this year that first production of Ichthys condensate is scheduled to start towards the end of March 2018, and the company is expecting to see the combined output of the field and plant condensate to reach 100,000 b/d at peak.

"Regional [East Asia and Oceania] condensate supply will probably double [as a result]. Australia will dominate [the overall supply pool.]," said a Southeast Asian condensates trader.


Price differentials for various Southeast Asia and Oceania condensate grades may come under pressure in 2018 as monthly Australian ultra-light crude supply in the spot market could almost double when the new Ichthys production comes on stream according to schedule.

Although the quality of Ichthys condensate remains in question with no complete assay of the grade made available yet, traders said the peak output target of 100,000 b/d would be enough to grab plenty of Asian buyer interest.

The 100,000 b/d peak output target would roughly equate to around four to five 650,000-barrel cargoes for sale every month, market sources said.

In comparison, around three to four 650,000-barrel cargoes of Australia's flagship North West Shelf condensate and a 300,000-barrel parcel of either Pluto or Laminaria condensate are offered in the Asian spot market in a typical trading cycle. NWS is currently the most liquid and actively traded condensate grade in the regional spot market.

During an industry event in November, Inpex presented a brief overview of the preliminary assay report from a single production well showing that Ichthys has a gravity of 50 API with a sulfur content of 0.09% and mercury content of less than 10 parts per barrel. The condensate is rich in heavy naphtha, with a yield of 34% at 70-155 degrees Celsius. It also yields around 20% each of kerosene and gasoil.

South Korean end-users have so far shown little excitement over the preliminary data, though the companies remained upbeat as the new grade could potentially cool prices down in the regional condensates market.

"It's too early to ask for a sample to test because only one or two of the many production wells are active at the moment ... We are very hopeful that [when Ichthys reaches peak production next year,] it will put pressure on many regional condensate premiums," said a trade source at Hanwha Total Petrochemical.

Indonesia's Pertamina, the biggest customer of NWS condensate over the past two years, also indicated that the company was hopeful that the new grade would help trim regional ultra-light crude prices.

"We are still not sure about the mercury content but [Ichthys] offers very good chance to diversify ... [100,000 b/d] volume is massive for a regional grade, so it will spark competition [among regional sellers] too," a company source said.

Most, if not all, regional ultra-light grades have commanded healthy premiums over the Platts Dated Brent price benchmark over the past few years.

Among recent trade deals, Petronas was said to have sold a 300,000-barrel cargo of Malaysian Muda condensate at a premium of around $3.8/b to Dated Brent on a FOB basis, while Woodside Petroleum sold a 650,000-barrel cargo of NWS condensate for loading in February 12-16 at a premium of around $3/b.


Iran's ultra-light crude exports could fall sharply next year as a slew of new Iranian condensate splitters may become operational within the next 18 months, essentially boosting the major Persian Gulf producer's own domestic requirements going forward.

Any significant drop in Iranian condensate supply next year could encourage various Asian refiners and petrochemical makers to venture into North America, Europe and Africa for extra supplies, market sources said.

South Korean refiners, especially, could increase their purchases of non-Middle Eastern grades in 2018 as the big Iranian ultra-light crude consumer secured less South Pars condensate term supply for 2018 compared with this year, industry sources based in Seoul said.

Asian traders said the tight Iranian supply outlook could be a boon for US Eagle Ford condensate suppliers next year as many Asian refiners consider the North American ultra-light grade a good substitute for South Pars condensate.

"Eagle Ford [with gravity above API 55] has a high naphtha yield and it can easily be used as a gasoline blending stock [as well as diluent for] heavier crude oil ... a great alternative for South Pars," said a trader at a South Korean refiner.

Regional traders also point to several African and European grades including Equatorial Guinea's Alen and Alba condensate, Libya's Mellitah condensate as well as Norway's Snohvit and Orman Lange as potential candidates that could actively find outlets in Asia in the event of significant reduction in Iranian South Pars exports next year.

"Tighter [condensate] supply [in the Middle East] will push prices sharply up ... [this could subsequently encourage Asian] buyers to seek barrels from both their traditional and non-traditional arbitrage sources on a regular basis," said a Singapore-based sweet crudes trader.

European trading firms, Glencore, Vitol and Lord Energy have been the regular suppliers of Alen, Alba and Mellitah condensate to Asia in recent years and any drop in Iranian exports would likely boost their arbitrage sales, sources close to the companies said.