Singapore (Platts)--6Feb2013/624 am EST/1124 GMT

The EU ban on propane and butane trade from Iran has brought its LPG exports to a near standstill, but the Islamic republic has been consuming its production for power generation during winter, industry sources said Wednesday.

But once winter ends around March and as more natural gas supplies are restored from Turkmenistan, Iran will be tested with excess liquefied petroleum gas, as it had previously exported more than 300,000 mt/month to Asia, they said.

After the EU sanctions on natural gas exports from Iran were included under tightened trade curbs announced in October, most importers in Asia and trading firms have avoided imports from the Middle Eastern producer, even though LPG was not explicitly mentioned at that time.

Propane and butane have now been included in an annex to the EU Council Regulation of December 21, 2012, concerning restrictive measures against Iran for its disputed nuclear program.

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In its latest "frequently asked questions" document issued last week, the International Group of P&I Clubs, an association of major marine insurance providers, also clarified that propane and butane are included under the EU ban on natural gas trade from Iran.

"We have seen or heard nothing for a few weeks now, seems the above has been adhered to already," said a trader familiar with Middle East exports, pointing to the absence of Iranian LPG shipments since the rule on LPG was made clear in December.

The amended rules prohibit "the purchase, transport or import into the European Union of Iranian 'natural gas', being, natural gas condensates, natural gas in liquefied state, natural gas in gaseous state, propane and butane, the swapping of natural gas which originate in Iran or has been exported from Iran," said the document from the grouping of 13 member clubs that provide liability cover for nearly 90% of the world's shipping tonnage.

"There have been no takers," one trade source said, referring to fears among shippers that they would not be insured to transport Iranian LPG.

The grouping was also informed by the European Commission and UK authorities that the ban applies to all destinations for the gas.

Even before the clarification, Iran's LPG exports since October had been limited to two to three monthly cargoes -- mainly to China which uses its own ships to move the tons -- from about seven parcels to Asia previously.

"I don't think anything is going there these days," said one trader, referring to imports by China following the ban on LPG.

Major South Korean importers E1 and SK stopped taking Iranian LPG in October, trade sources said. Taiwan's government-run refiner CPC Corp. and privately run Formosa Petrochemical Co. have specifically excluded Iranian LPG from their latest tenders for March cargoes, sources said.

Japan ceased imports of Iranian LPG last year, starting even before the sanctions were tightened, compared with a recent peak of 852,067 mt in 2010, or 7.1% of its total imports, industry data showed.

IRAN NEEDS TO FIND OWN TANKERS TO EXPORT LPG

"The problem with Iran's export is to find vessels," a shipping source said, adding that the last Iranian cargo heard lifted for export was in November aboard a Middle Eastern vessel. "And the vessel ended up waiting outside Singapore for five to six weeks," he said.

However, another trade source said the Iranian cargo had actually been discharged in the Suez region before the vessel headed East. "Yes, it's almost zero now. Owners will not take the risk," the source added.

Trade and shipping sources said in order to export LPG, Iran needs to acquire gas tankers the way it is using its own vessels to deliver fuel oil and crude to customers.

The last known Iran-owned LPG carrier -- Iran Gaz -- was sold off two years ago by NITC, formerly National Iranian Tanker Co., but it was unclear whether there are any vessels on time charter to Iranian entities.

Iran may be looking to purchase or charter gas carriers on a long-term basis from ship owners or national oil and gas companies that own such vessels, trade and shipping sources said.

They said that in late December, a Middle Eastern-registered shipping firm had been enquiring to buy up to five Very Large Gas Carriers of around 15-20 years old, but no transactions were heard. Some sources said the firm might be seeking the vessels for Iran, but this could not be confirmed.

Industry sources said that during Iran's current winter, forecast to last through February, domestic LPG was consumed by power generators, households and the commercial and industrial sectors.

This has enabled Iran to compensate for the shortfall of imported natural gas from Turkmenistan. The Central Asian country exported 4 billion cubic meters of gas to Iran since March last year, down more than 60% year on year, Javad Owji, managing director of the National Iranian Gas Company, was quoted as saying by the semi-official Mehr news agency.

Mehr reported in early September that Iran's debts to Turkmenistan exceeded $1 billion due to difficulties related to Iran's banking system being hit by sanctions, complicating negotiations over new term contracts. In January, NIGC said it had reached a deal with Turkmenistan but gave no details.

A source familiar with the Iranian gas industry said LNG supplies from Central Asia to Iran had also been disrupted in November by pipeline maintenance. Though pipeline operations have resumed, it was unclear if Iran is still using LPG for power generation.

The OPEC member's domestic gas consumption is around 600 million cu m/day and production is 580 million cu m/day.

--Ramthan Hussain, ramthan_hussain@platts.com
--Rajan Pradeep, rajan_pradeep@platts.com

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