Asia refiners unfazed by US-Moscow tensions, see plenty of alternatives for Russian crude
Asian refiners are broadly unfazed by the escalating tensions between Washington and Moscow as the companies do not expect any severe disruption to Russian crude trades in the region, while Russian oil makes up only a small portion of many Asian countries’ refinery feedstock import baskets with many alternatives seen available.
Far East Russian crude grades including ESPO Blend, Sokol and Sakhalin blend are actively traded in the Asian spot market and the cargoes are changing hands without any disruptions so far, according to feedstock managers and crude traders at major Thai, South Korean, Chinese and Japanese refiners.
The Russian light and medium sweet crude cargo trades are expected to continue as per normal as it would be extremely difficult for Washington to impose full-scale sanctions on Moscow and completely block off Russian energy exports, as such a move would have a severely negative impact on many US allies both in Europe and East Asia, according to the refinery trading sources, who declined to have their company names identified due to the sensitive nature of international corporate trading relationships.
The Far East Russian crude purchases could still become rather complicated if Washington imposes financial sanctions on Moscow, but Asian end-users would have little problem shifting and shuffling their crude slate given the fact that many Asian crude importing nations do not rely heavily on Russian crude supplies, the refinery trading sources said.
Southeast Asian nations, especially, hardly purchase Russian crude. Thailand is the region’s biggest importer of Russian crude oil, receiving 30,001 b/d in 2021, making up around 3.7% of its overall refinery feedstock imports in the year, Thai Energy Policy and Planning Office data showed.
In Northeast Asia, South Korea imported 147,300 b/d from Russia in 2021, equivalent to 5.6% of its 2.631 million b/d of overall crude imports last year, state-run Korea National Oil Corp. data showed.
Japan took 89,300 b/d of Russian crude oil, equating to 3.6% of its total crude imports, Ministry of Economy, Trade and Industry data showed.
Alternative crude grades
South Korean and Japanese refiners are drawing up contingency plans in case the escalating tensions lead to legal, financial and administrative hurdles doing businesses with Russian oil entities, with several US and Malaysian crude grades set to be included in the list of potential replacement grades for Russia’s light and medium sweet crudes that the companies regularly procure.
“If and when purchasing Russian cargoes become complicated due to all sorts of legal and diplomatic reasons, replacement grades for Far East Russian crude must be sorted out, but this shouldn’t really be difficult,” said a sweet crude trader at a major South Korea refining and petrochemical company.
For South Korean refinery systems, the best option is Alaskan North Slope crude, according to the trading source, indicating that the company typically and often uses the US crude as an alternative feedstock to Far East Russian ESPO Blend.
The API gravity for ESPO is approximately 34-35 degrees with a sulfur content of 0.58%-0.65%, while ANS crude has a typical API gravity of 32 degrees and sulfur content of 1.5%.
For Japan, light sweet Malaysian grades including Kimanis, Kidurong and Kikeh could swiftly replace the country’s need for light sweet crudes within close proximity if Far East Russian Sokol and Sakhalin Blend crude purchases become troublesome, according to traders at two major Japanese refiners.
“Light sweet Malaysian grades are familiar to several key plants in Japan and cargoes from Malaysia can be brought in just as quickly as those from the Far East Russian ports thanks to the close proximity,” said a sweet crude trader at a Japanese refiner with close knowledge of Southeast Asian spot cargo trades.
Russia was China’s second biggest crude oil supplier in 2021 and the giant Asian energy consumer will continue to absorb large volumes from Russia and depend heavily on the OPEC+ producer due to the very close trade and economic partnership between Beijing and Moscow, a feedstock procurement and trading strategist at PetroChina told S&P Global Platts.
State-run oil giant Rosneft has signed a 10-year supply deal with China National Petroleum Corporation or CNPC for supplies of 100 million mt, or 200,821 b/d, of crude on the sidelines of a state visit by President Vladimir Putin to China. The deliveries will be shipped via Kazakhstan for refining at plants in Northwest China, Rosneft said.
“Risks of Western sanctions on the Russian energy sector will only reinforce a desire to increase export optionality to Asia, in addition to a desire for Chinese investment in upstream development,” said Paul Sheldon, chief geopolitical adviser at Platts Analytics.
China’s crude imports from Russia rose 8% month on month to 7.24 million mt in December, overtaking Saudi Arabia to become China’s top crude supplier for the month. The volume was also the highest in nine months since March 2021, when Russian imports totaled 7.44 million mt, latest General Administration of Customs data showed.
China received 79.65 million mt of crude oil from Russia in 2021 and 87.57 million mt from Saudi Arabia in the year, the GAC data showed.