Samsung Total strikes Iran deal
Arab News - 26 January, 2013
South Korea's Samsung Total Petrochemicals Co. has revived a contract to buy
Iranian oil after a year’s hiatus, as thin margins in plastics make the
cheap fuel from Iran hard to resist, people familiar with the deal said.
Stringent US and European sanctions aimed at reducing Iran’s oil income and
forcing Tehran to curb its nuclear program have made shipping and paying for
the oil hard, halving the Islamic Republic’s crude exports.
The deal is a rare example of a buyer returning to the market for Iranian
oil despite the obstacles arising from sanctions and efforts by Western
powers to stem the flow.
After jarring interruptions in exports from Iran last year that included a
halt in shipments to top consumers Japan and South Korea, importers have
found ways to keep oil flowing without violating sanctions.
The allure of cheap oil and improved margins has made it worthwhile for the
South Korean joint venture between two big international firms to find ways
The deal may save Samsung Total as much as $ 6.7 million in costs, according
to Reuters calculations.
“The deal can be easily understood if you look at Samsung Total’s financial
situation,” according to a government source in Seoul with direct knowledge
of the matter.
The company is a joint venture between South Korea’s Samsung Group and
French energy giant Total.
Spokespeople at Total, Samsung Total and the Samsung Group declined to
Samsung Total stopped importing oil from Iran last year as the US and
European Union imposed sanctions to halt a nuclear program the West suspects
Iran may be using to develop arms. Tehran denies this. To comply with US
sanctions, importing countries are required to reduce purchases of Iranian
Co-owner Total also stopped buying Iranian oil for its refineries to comply
with EU sanctions last year.
Replacing the Iranian oil forced up Samsung Total’s input costs,
contributing to a fall in operating profits, sources said. Those profits
fell 90 percent in the second-quarter of 2012, according to the company’s
regulatory filings. The company switched to more expensive Australian and
Russian condensate last year, sources said.
Samsung Total had an annual contract to buy about 550,000 barrels a month of
Kangan condensate until June last year, although it is unclear if it
actually imported the full volume during the first half of 2012. The volume
of the new contract is unclear.
Other South Korean refiners will have to import less to make way for Samsung
Total’s new contract if Seoul is to comply with US sanctions.
To renew six-month exceptions to sanctions granted by Washington, buyers of
Iran’s oil have to show continuous import cuts. South Korea’s waiver is next
due for review in May.
The north Asia nation slashed crude purchases from Iran 36 percent to
153,405 barrels per day (bpd) in 2012. If Samsung Total starts buying a
similar-sized cargo every month, South Korea’s imports from the OPEC member
may rise by 10,000 bpd.
Condensate imports were not included when South Korean and US officials
discussed cuts in Iranian crude imports, the South Korean government
official said. For talks due in May, it is unclear whether Iranian
condensates would be included in the crude import data or whether it would
be counted separately.
“The US side may raise the issue with us when they next meet for talks if
they spot higher imports of Iranian condensate,” the official said.
“In the talks with the US last December, we only talked about a cut in
Iranian crude oil imports. Iranian condensate was not discussed.”
Samsung Total kicked off imports from Iran by buying 30,000 tons, or 280,000
barrels, of Kangan condensate, which will be delivered in March to the
petrochemical company’s plant in Daesan, the sources said.
Condensate is a light oil usually processed in a unit called a splitter to
produce naphtha, to make petrochemicals.
Samsung Total is looking to diversify supply sources to feed expanded
facilities. It is adding a new 140,000 bpd condensate splitter, due to start
in August 2014. The company operates a 1 million ton per year (tpy) ethylene
cracker, a 90,000 bpd splitter and other petrochemical units in Daesan.
Kangan is usually priced $ 1 or $ 2 per barrel cheaper than one of the
alternatives, which is condensate from Australia’s North West Shelf (NWS),
traders said. Without any additional discount, the price difference means
the Kangan cargo for March cost anything between $ 280,000 and $ 560,000
less than NWS.
If Samsung Total buys a same-sized cargo as the one for March each month for
a year, annual savings would be as much as $ 6.7 million.
The company’s operating profits fell to 5.52 billion won ($ 5.16 million) in
the second quarter of 2012 from 68.04 billion won a year earlier, the
company said in a regulatory filing.