Everyone holds his breath as one of the most important hydrocarbon exporters on earth gears up to get back into the business. However, that’s not an easy quest for even as big an oil & gas nation as Iran undoubtedly is. Because over the last couple of years, the world has become a very different place. The going has become very tough for all producers of hydrocarbons as for the first time in many years their wares are in plentiful supply and there is no end in sight.
The oil price has tumbled and with it the prices of pretty much all energy commodities. Not only does Iran face less money per barrel of whatever they can sell – they also face a market that is so oversupplied that it has become seemingly impossible to place new volumes. Steep discounts must be applied to everything lowering the yield per barrel even more. And there is no silver lining on the horizon as prices promise to stay low for quite a number of years.
That same logic of course applies to all refined products from the barrel, including LPG. The US Gulf coast currently spills waves of product onto a horribly oversupplied market. Those who bought the bulk of what was available on the market are scaling back their procurement efforts today as markets falter so the old sink markets do not perform anymore.
Enter Iran. Choices are bleak. Contrary to other producers they have very little in terms of a captive market or established relationships that would help them to weather the hard times. They are out in the open, have to start from scratch while the world needs nothing less than another oil producer.
Now we must admit that resilient Iranians are used to hardship and we can confidently assume that they will survive one more cliff but is this really one more cliff or are we facing a unique situation here? When before has a major hydrocarbon exporter been cut off from the rest of the buying world for such a long time and then immediately at re-entry faced a market in free fall?
Not really a great situation to find yourself in but when one looks all the way to the bottom of the barrel, things must become astonishingly clear to the entrepreneurial spirit. Cornered Iranians might just look at the situation with much less ache and see the glass rather half full than half empty.
As there is a fresh, almost untouched market right at their doorstep and it has huge growth potential – Africa and East Africa in particular. Now, there is a reason why this market is underdeveloped and has huge as yet unfulfilled growth potential. Doing business in Africa is not exactly a walk in the park and there is a glaring lack of basically anything. One cannot simply dump volumes of whatever (that includes LPG) as much as the market is theoretically willing and able to absorb.
Because in Africa, the intrepid exporter faces a collection of bottlenecks that would even make battle-hardened Business Developers blush. They lack terminals, they lack transport trucks, their harbors are not able to cope with big ships, there are not enough bottling plants, the list goes on forever.
But the local market craves more LPG as they want to get off burning dung and die from the smoke as a consequence. In Africa, access to LPG means a better life for millions and many of those millions are increasingly wealthy to afford some cleaner fuel. So this is a real opportunity for any would be exporter.
Why is this a bigger opportunity for Iran than for their exporting peers? Well, in fact the opportunity is there for everyone exporting LPG but as most exporters still sit back and hope the current lower price situation might somehow go away without doing anything, they might not see the opportunity opening up. Every grand organization that has enjoyed a situation like Christmas and birthday on the same day for every day for the last 10 years builds up enormous slack and it takes quite some violent jolts in order to shake the rust out of the system.
Iran did not have the luxury in the first place for at least a couple of years so while they still saw the market making somersaults, they did not quite get all the benefit they could have had. This means that there still is a sense of urgency in their bones and this might make them a little more enterprising as compared to their peers.
Besides and as said above, they don’t have a portfolio they can dwell on and which insulates the others from reality – a fact they sure will use as much as they possibly can. But I am speculating here.
Let’s get real – how could Iranian players penetrate the African market?
First of all – they need a base from where to operate with smaller vessels. African ports are shallow and terminals are on the tiny side. Big vessels cannot enter – let alone empty their cargo holds into those atrophied tanks. A VLGC or smaller vessel could be transformed to be an offshore Floating Storage Unit. A perfect base for such a FSU could be The Comoros islands. The islands are a very small market for LPG but they are located right south of the high potential markets Tanzania and Kenya and are very close to Madagascar and northern Mozambique.
But on top of that the government of the Comoros has always had very friendly relationships with the Islamic Republic and has solid Islamic credentials. The country is also south of the pirate zone around the horn of Africa which is way more dangerous for the small vessels necessary to serve African terminals rather than the big behemoths serving the hub. The Comoros could become a hub for distribution into the continent and hence an important trading outpost.
But this goes further – look south and you see the South African stalemate where local politics and paralyzed authorities create a perfect storm for energy companies. The country would need large scale imports and hence large terminals for doing so more than anything but they just don’t happen. Having a hub at the Comoros and serving small cargoes into the South African market would be an important door opener into this important economy.
The Comoros themselves are not really paradise for business man (looking at the beaches you might be forgiven to think otherwise) and someone would really have to find a way around one of the most expensive and stifling taxation systems on this planet but as said, there are no easy options so why not look at the hard ones?
The only thing missing is for someone to take the initiative and start working on this. It’s not easy, it’s not quick and there will be a lot of sweat and tears but it’s as real as a heart-attack. And with their mercantilist past plus a real incentive to do something new and a very enterprising population, Iran might just be the best country to do so.
(LPG Business Review)