News / Economy

    Putin's Asian Oil Drive Brings Pain to European Refiners

    FILE - An employee works at the Bashneft-Novoil refinery in the city of Ufa, Russia, in this April 11, 2013.
    FILE - An employee works at the Bashneft-Novoil refinery in the city of Ufa, Russia, in this April 11, 2013.
    Reuters
    European refineries are seeing their bills soar by billions of dollars a year as Russia shifts oil exports to Asia, driving up the values of Urals, one of their preferred crudes.
     
    Huge volumes have switched away from saturated European markets.
     
    From virtually zero five years ago, Russia's oil exports to China and the Pacific coast have risen to 750,000 barrels per day or 17 percent of its total, and they are set to double in the next five years.
     
    “With the International Energy Agency estimating growth in Chinese crude demand from just around 10 million bpd this year to 12 million bpd by 2020, the decision by Russia, currently the world's largest crude producer, to make a dramatic eastward shift in crude exports has a clear rationale,” the Eurasia think-tank said.
     
    Russia's President Vladimir Putin speaks during a news conference, part of the Gas Exporting Countries Forum (GECF), in Moscow, July 1, 2013.Russia's President Vladimir Putin speaks during a news conference, part of the Gas Exporting Countries Forum (GECF), in Moscow, July 1, 2013.
    x
    Russia's President Vladimir Putin speaks during a news conference, part of the Gas Exporting Countries Forum (GECF), in Moscow, July 1, 2013.
    Russia's President Vladimir Putin speaks during a news conference, part of the Gas Exporting Countries Forum (GECF), in Moscow, July 1, 2013.
    The move has proven to be a double win for President Vladimir Putin, who back in 2005 asked his ministers to explain why Urals sold at a discount of $5-$6 per barrel to the European benchmark, dated Brent.
     
    At the time, most industry experts laughed at the remark, saying Putin should go no further than the quality of Urals, which is much inferior to Brent.
     
    Fast forward eight years and Urals barely ever trades at discounts of more than $2 to Brent and often spikes to a premium, including an all-time high of $0.90 per barrel reached this week.
     
    Russia, the world's second-largest oil exporter after Saudi Arabia, is shipping around 3.5 million bpd to Europe. Any $1 per barrel upward move in Urals relative to dated Brent means an extra cost of $1.2 billion a year for European refiners. The difference in values versus 2005 could exceed $5 billion a year.
     
    That is bad news for the sector, in which more than a dozen refineries have closed in the past decade, and more are expected to shut due to the dismal European economy and poor fuel demand.
     
    Experts point to a myriad of factors behind the rise in relative values of Urals, most importantly the U.S. shale oil boom, which created a global glut of sweet Brent-like grades.
     
    By contrast, previously cheap, heavier and sourer grades such as Urals have become scarce. Iranian exports of such crudes have been curtailed by sanctions and Iraqi exports disrupted by pipeline outages.
     
    But a major reason that Urals has become expensive is Russia's shift in flows towards Asia, which U.S.-based think-tank ESAI Energy described as “the 21st century equivalent of Peter the Great's founding of Saint Petersburg as Russia's window on Europe”.
     
    An ESAI report said, “[The] Putin regime is tacitly turning away from 'energy superpower' aspirations in favor of securing stable markets for its energy resources. A Russian shift from West to East and the forging of a stronger China-Russia axis are two of the consequences.”
     
    Irreversible Trend
     
    Russian flows to Asia are coming not only from East Siberian oil fields but also from Vankor and other swing sources that could flow either to Europe or Asia.
     
    “Given oil demand trends in the European market, Russia could be making a turn to the East that is irreversible,” ESAI said. “It seems President Putin has finally learned something about securing access to markets”.
     
    Eurasia also said the industry had questions whether East Siberian fields could ramp up output quickly enough to supply Asia, meaning that more volumes could be diverted away from Europe.
     
    Igor Sechin, the boss of state-controlled oil company Rosneft and one of Putin's closest allies, may have been the man who explained to the Kremlin all the advantages of changing oil flows.
     
    “When Sechin was explaining his plan to re-route oil flows to China, he said that it would lead to a strengthening of Urals in Europe,” a Russian industry source said.
     
    A Rosneft representative said stronger Urals was beneficial for Rosneft but did not comment on Sechin's views.
     
    Industry analysts also say rising Russian domestic refining means Urals will be even more vulnerable to spikes to new record premiums, especially in summer driving season when more fuel is needed to meet demand from a steadily growing number of cars.
     
    “The summer months typically show high refinery utilization rates and coupled with rising exports to Asia means that we do not expect an uptick in shipments to North West Europe,” said David Wech from JBC Energy.

    You May Like

    Taj Mahal Battles New Threat from Insects

    Swarms of insects are proliferating in the heavily contaminated waters of the Yamuna River, which flows behind the 17th century monument

    Self-doubt, Cultural Barriers Hinder Cambodian Women in Tech

    Longtime Cambodian tech observer Sok Sikieng says that although more women have joined profession in recent years, there remain significant factors hindering women from reaching tech potential

    Trans-Adriatic Pipeline to Boost European Energy Security

    $4.5 billion-pipeline will become operational in 2020 and will deliver gas from Azerbaijan’s Shah Deniz II field to southern Italy

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Vietnamese-American Youth Optimistic About Obama's Visit to Vietnami
    X
    Elizabeth Lee
    May 22, 2016 6:04 AM
    U.S. President Barack Obama's visit to Vietnam later this month comes at a time when Vietnam is seeking stronger ties with the United States. Many Vietnamese Americans, especially the younger generation, are optimistic Obama’s trip will help further reconciliation between the two former foes. Elizabeth Lee has more from the community called "Little Saigon" located south of Los Angeles.
    Video

    Video Vietnamese-American Youth Optimistic About Obama's Visit to Vietnam

    U.S. President Barack Obama's visit to Vietnam later this month comes at a time when Vietnam is seeking stronger ties with the United States. Many Vietnamese Americans, especially the younger generation, are optimistic Obama’s trip will help further reconciliation between the two former foes. Elizabeth Lee has more from the community called "Little Saigon" located south of Los Angeles.
    Video

    Video First-generation, Afghan-American Student Sets Sights on Basketball Glory

    Their parents are immigrants to the United States. They are kids who live between two worlds -- their parents' homeland and the U.S. For many of them, they feel most "American" at school. It can be tricky balancing both worlds. In this report, produced by Beth Mendelson, Arash Arabasadi tells us about one Afghan-American student who seems to be coping -- one shot at a time.
    Video

    Video Newest US Citizens, Writing the Next Great Chapter

    While universities across the United States honor their newest graduates this Friday, many immigrants in downtown Manhattan are celebrating, too. One hundred of them, representing 31 countries across four continents, graduated as U.S. citizens, joining the ranks of 680,000 others every year in New York and cities around the country.
    Video

    Video Vietnam Sees Strong Economic Growth Despite Incomplete Reforms

    Vietnam has transformed its communist economy to become one of the world's fastest-growing nations. While the reforms are incomplete, multinational corporations see a profitable future in Vietnam and have made major investments -- as VOA's Jim Randle reports.
    Video

    Video Qatar Denies World Cup Corruption

    The head of Qatar’s organizing committee for the 2022 World Cup insists his country's bid to host the soccer tournament was completely clean, despite the corruption scandals that have rocked the sport’s governing body, FIFA. Hassan Al-Thawadi also said new laws would offer protection to migrants working on World Cup construction projects. VOA's Henry Ridgwell reports.
    Video

    Video Infrastructure Funding Puts Cambodia on Front Line of International Politics

    When leaders of the world’s seven most developed economies meet in Japan next week, demands for infrastructure investment world wide will be high on the agenda. Japanese Prime Minister Shinzo Abe’s push for “quality infrastructure investment” throughout Asia has been widely viewed as a counter to the rise of Chinese investment flooding into region.
    Video

    Video Democrats Fear Party Unity a Casualty in Clinton-Sanders Battle

    Democratic presidential front-runner Hillary Clinton claimed a narrow victory in Tuesday's Kentucky primary even as rival Bernie Sanders won in Oregon. Tensions between the two campaigns are rising, prompting fears that the party will have a difficult time unifying to face the presumptive Republican nominee, Donald Trump. VOA national correspondent Jim Malone has more from Washington.
    Video

    Video Portrait of a Transgender Marriage: Husband and Wife Navigate New Roles

    As controversy continues in North Carolina over the use of public bathrooms by transgender individuals, personal struggles with gender identity that were once secret are now coming to light. VOA’s Tina Trinh explored the ramifications for one couple as part of trans.formation, a series of stories on transgender issues.
    Video

    Video Amerikan Hero Flips Stereotype of Middle Eastern Character

    An Iranian American comedian is hoping to connect with American audiences through a film that inverts some of Hollywood's stereotypes about Middle Eastern characters. Sama Dizayee reports.
    Video

    Video Budding Young Inventors Tackle City's Problems with 3-D Printing

    Every city has problems, and local officials and politicians are often frustrated by their inability to solve them. But surprising solutions can come from unexpected places. Students in Baltimore. Maryland, took up the challenge to solve problems they identified in their city, and came up with projects and products to make a difference. VOA's June Soh has more on a digital fabrication competition primarily focused on 3-D design and printing. Carol Pearson narrates.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.8971
    JPY
    USD
    110.16
    GBP
    USD
    0.6811
    CAD
    USD
    1.3106
    INR
    USD
    67.378

    Rates may not be current.