Factbox: Asia ex-China refiners see plenty of alternatives for Russian crude oil

Asian refiners are broadly unfazed by the the Russia-Ukraine conflict and Washington’s focus on sweeping financial sanctions on Moscow as Russian oil makes up only a small portion of many Asian countries’ refinery feedstock import baskets, with many alternatives seen available.

With the US and its allies blocking some Russian banks from accessing the SWIFT international payments system, feedstock managers at major South Korea, Indian and Japanese refiners said purchasing Far East Russian sweet crudes, including Sokol, ESPO and Sakhalin Blend may become rather troublesome going forward.
Several crude cargoes heading to India and South Korea from the Black Sea for delivery in March and April have not been affected by Russia’s military operation in Ukraine, trading sources at India’s BPCL and Indian Oil Corp. as well as an official at SK Innovation told S&P Global Commodity Insights previously.

Considering the recent reports of attacks on chemical tankers and bulk carriers in the Black Sea, the latest conflict, on top of the rising shipping and insurance costs, are the risks that Asian buyers would need to seriously consider before committing to the next rounds of spot cargo purchases, the refinery sources said.

As Russian crude makes up only 1%-6% of overall crude imports by Asian economies, excluding China, major refiners across the region indicated that it wasn’t too difficult setting up contingency plans with several US, Middle Eastern, West African and Southeast Asian crude grades set to be included in the list of potential replacement grades for Russian crudes that the companies regularly procure.

In addition, Indian, South Korean and Japanese refiners are not overly worried about the potential shortfall in crude procurement from the Black Sea and the Far East Russian markets as the top Asian oil consuming nations have ample commercial and state reserves to tap into.

TRADE
* Russian crude accounted for less than 3% of the around 4.3 million b/d crude that India imported in 2021, according to S&P Global Commodity Insights’ Platts Analytics.

* 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 in 2021, equating to just 3.6% of its total crude imports for the year, Ministry of Economy, Trade and Industry data showed.

* In Southeast Asia, 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.

* For South Korean refinery systems, the best option to replace ESPO crude is Alaskan North Slope crude, according to a plant manager at a major South Korean refinery based in Yeosu.

* 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.

* Russian Urals could be replaced by most of the medium sour Middle Eastern grades, including Upper Zakum and Arab Light for Indian refineries, according to a trading desk manager at state-run IOC.

* US Mars Blend crude could also substitute the Russian medium sour Urals grade, according to feedstock and plant operation source at BPCL.

* South Korean refiners said additional purchase of light sweet US crude grade including WTI Midland, Eagle Ford crude and condensate, would comfortably make up for any shortfall in Far East Russian Sokol and Sakahlin Blend supplies.

* Around two additional VLCCs/month from the US could fill any gaps should the need for incremental barrels become necessary, said a crude and condensate trader at a major South Korean refiner.

Major South Korean refiners and petrochemical makers including SK Innovation, Hanwha Total, GS Caltex and Hyundai Oilbank combined imported 15.09 million barrels of US crude in January, almost a threefold jump from 5.427 million barrels received a year earlier and marking the highest ever monthly intake, according to latest data from state-run Korea National Oil Corp.

PRICES
* Far East Russian sweet crude price differentials have been trending lower in recent trading sessions in Asia as traders fret over the sweeping financial sanctions on Moscow, and ExxonMobil’s decision to discontinue operations at its large Sakhalin-1 oil and gas development could mean purchasing Sokol, ESPO and Sakhalin Blend may become rather troublesome.

* S&P Global assessed light sweet Far East Russian Sokol crude at a premium of $6.95/b to Platts Dubai crude assessments on CFR Yeosu basis March 1, down by almost $1/b from Platts Dubai plus $7.9/b assessed Feb. 17.

* Second-month ESPO crude was assessed at Platts Dubai plus $4.50/b on a FOB Kozmino basis March 1, down from the first quarter peak of Platts Dubai plus $6.2/b Feb. 17.

* Light sweet Sakhalin Blend was assessed at a premium of $6.2/b to Platts Dubai crude assessments on CFR Northeast Asia basis, down from the Q2 peak of Platts Dubai plus $7.2/b assessed Feb. 22.

INFRASTRUCTURE
* In 2021, India liberalized its oil policy by allowing Indian Strategic Petroleum Reserves, or ISPRL, to commercialize up to 50% of its reserves.

* In its first phase, India set up SPRs at three locations with a combined capacity of 5.33 million mt — 1.33 million mt at Visakhapatnam, 1.5 million mt at Mangalore and 2.5 million mt at Padur in Karnataka. All three facilities have been commissioned.

* In the second phase, India is augmenting storage capacity further by creating an additional 6.5 million mt of SPRs at two locations: 4 million mt at Chandikhol in Odisha and another 2.5 million mt at Padur.

* South Korea currently holds 97 million barrels of strategic reserves — 83 million barrels of crude and 14 million barrels of oil products — equivalent to around 106 days worth of domestic demand as recommended by the International Energy Agency.

* In December 2021, state-run integrated oil company Korea National Oil Corp. completed construction of a new underground crude oil storage facility in Ulsan located in the country’s southeast coast which can hold 10.3 million barrels of crude, expanding the country’s total storage capacity of strategic reserves to 146 million barrels.

* About 80% of the total state storage capacity are tunnel-type underground facilities, which are safer and more environmental.

* South Korea’s private sector currently holds a combined total of around 103.11 million barrels — 38.9 million barrels of crude and 64.21 million barrels of oil products — allowing South Korea to go 200 days without imports of oil in case of emergencies.

* Japan plans to sell an additional 260,000 kiloliters, or 1.64 million barrels, of Khafji and Hout crude oil from its national petroleum reserves via public tenders in March, the Ministry of Economy, Trade and Industry said.

* In tenders scheduled to take place March 9, Japan will offer up to two shipments of Khafji crude, amounting to around 943,470 barrels, from ENEOS’ Kiire oil terminal in the southwest for delivery over April 20-July 31, METI said.

* At the end of December, Japan held a total of around 484 million barrels of petroleum reserves, equating to 241 days of domestic consumption, comprising national petroleum reserves, oil reserves held by the private sector and a joint crude oil storage scheme with Saudi Arabia and Abu Dhabi, according to the latest METI data released Feb. 15.
Source: Platts