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Far East Russia Crude Oil Exports: A Legitimate Tanker Play?

With tanker owners looking for clues on future oil demand and potential new trade routs, it’s worth taking a look at the developments in the Far East Russian front. In a recent weekly report, shipbroker Banchero Costa said that “just 10 years ago, Russia, the world’s second-largest oil exporter after Saudi Arabia, was hardly exporting any oil to Asia, with the vast majority of its trade being with the West, either seaborne or by pipelines. As strains between Russia and the European Union mounted, and as the Asian economies expanded, the Russian government decided to diversify oil export routes”.

According to Banchero Costa, “the main element has been investment in the Eastern Siberia–Pacific Ocean oil pipeline (ESPO) from East Siberian oil fields to the Far East port Kozmino near Nakhodka. The pipeline was built and operated by Russian pipeline company Transneft. The terminal at Kozmino was inaugurated by then Russian prime minister Vladimir Putin on 28 December 2009, and the pipeline connection to Kuzmino was inaugurated on 25 December 2012. In terms of seaborne trade only, of the total 181.4 mln tonnes of crude oil exported by Russia in 2018 (January to December), as much as 27.3 mln tonnes (15 percent) were now shipped from Kuzmino in Russia’s Far East. For reference, 86.8 mln tonnes were shipped in 2018 from Black Sea ports (mostly Novorossiysk), and 67.4 mln tonnes were shipped from Baltic Sea ports (Primorsk, Ust-Luga, and Kaliningrad). In the first 10 months of 2019, based on Refinitiv vessel tracking data, Russia’s crude oil exports from Kuzmino were 26.1 mln tonnes, showing an increase of 14.6 percent year-on-year. For reference, shipments from Baltic Sea ports also recorded a growth of about 13 percent year-on-year, whilst exports from Black Sea ports saw a much more modest increase of only about 4 percent year-on-year”.

The shipbroker noted that “in recent years, China has become by far the biggest buyer of Russian oil via new routes, purchasing huge volumes from Kozmino. In fact, China was the destination for 77 percent of the total shipments from Kuzmino this year, importing 20.5 mln tonnes in January-October 2019, up 15.5 percent year-on-year. The ESPO blend is the most favoured grade among China’s small independent (“teapot”) refineries due to its spec and geographical proximity – 100,000 mt cargo size, five-day voyage and heavy gasoil yield. The journey from Kuzmino to Northern Asia is less than a week, compared with 10-15 days from Southeast Asia and Oceania, up to 30 days from the Persian Gulf ports and over 45 days from the US Gulf Coast”.

It added that “Far East Russia also exported 2 mln tonnes of oil to Japan this year, down a considerable 12.1 percent year-on-year. Japan was the destination of 8 percent of Far East Russia’s crude oil exports. At the same time, 1.5 mln tonnes of oil headed to South Korea, a good gain of 13.5 percent year-on-year. South Korea accounted for 6 percent of oil shipments this year. Of the total volumes exported so far this year from Kuzmino, 87 percent was shipped on Aframaxes vessels, 4 percent on Suezmax or VLCC vessels, and 9 percent on vessels smaller than 78,000 DWT. The short journey makes it economically practical to use Aframaxes, rather than regular Suezmax and VLCC vessels. Russia is nearly completing a fresh expansion of its oil pipelines to the Pacific coast that will secure its role as a top Asian supplier and allow it to ship up to a third of its total oil exports to Asia-Pacific markets”, Banchero Costa concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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