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.
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.
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

Tired of Waiting, South Africans Demand Change ‘Now’

With chronic poverty and lack of basic services largely fueling recent xenophobic attacks, many in Rainbow Nation say it’s time for government to act More

Challenges Ahead for China's Development Plans in Pakistan

Planned $46 billion in energy and infrastructure investments in Pakistan are aimed at transforming the country into a regional hub for trade and investment More

Audio 'Forbidden City' Revisits Little Known Era of Asian-American Entertainment

Little-known chapter of entertainment history captured in 80s documentary is revisited in new digitally remastered format and book More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Study: Insecticide Damaging Wild Bee Populationsi
April 24, 2015 10:13 PM
A popular but controversial type of insecticide is damaging important wild bee populations, according to a new study. VOA’s Steve Baragona has more.

Video Study: Insecticide Damaging Wild Bee Populations

A popular but controversial type of insecticide is damaging important wild bee populations, according to a new study. VOA’s Steve Baragona has more.

Video Data Servers Could Heat Private Homes

As every computer owner knows, when their machines run a complex program they get pretty hot. In fact, cooling the processors can be expensive, especially when you're dealing with huge banks of computer servers. But what if that energy could heat private homes? VOA’s George Putic reports that a Dutch energy firm aims to do just that.

Video Cinema That Crosses Borders Showcased at Tribeca Film Festival

Among the nearly 100 feature length films being shown at this year’s Tribeca Film Festival in New York City are more than 20 documentaries and features with international appeal, from a film about a Congolese businessman in China, to documentaries shot in Pakistan and diaspora communities in the U.S., to a poetic look at disaffected South African youth. VOA’s Carolyn Weaver has more.

Video UN Confronts Threat of Young Radicals

The radicalization and recruitment of young people into Islamist extremist groups has become a growing challenge for governments worldwide. On Thursday, the U.N. Security Council heard from experts on the issue, which has become a potent threat to international peace and security. VOA’s Margaret Besheer reports.

Video Growing Numbers of Turks Discover Armenian Ancestry

In a climate of improved tolerance, growing numbers of people in Turkey are discovering their grandmothers were Armenian. Hundreds of thousands of Armenians escaped the mass deportations and slaughter of the early 1900's by forced conversion to Islam. Or, Armenian children were taken in by Turkish families and assimilated. Now their stories are increasingly being heard. Dorian Jones reports from Istanbul that the revelations are viewed as an important step.

Video Migrants Trek Through Western Balkans to Reach EU

Migrants from Africa and other places are finding different routes into the European Union in search of a better life. The Associated Press followed one clandestine group to document their trek through the western Balkans to Hungary. Zlatica Hoke reports that the migrants started using that route about four years ago. Since then, it has become the second-most popular path into Western Europe, after the option of sailing from North Africa to Italy.

Video TIME Magazine Honors Activists, Pioneers Seen as Influential

TIME Magazine has released its list of celebrities, leaders and activists, whom it deems the world’s “most influential” in 2015. VOA's Ramon Taylor reports from New York.

Video US Businesses See Cuba as New Frontier

The Obama administration's opening toward Cuba is giving U.S. companies hope they'll be able to do business in Cuba despite the continuation of the U.S. economic embargo against the communist nation. Some American companies have been able to export some products to Cuba, but the recent lifting of Cuba's terrorism designation could relax other restrictions. As VOA's Daniela Schrier reports, corporate heavy hitters are lining up to head across the Florida Straits - though experts urge caution.

Video Kenya Launches Police Recruitment Drive After Terror Attacks

Kenya launched a major police recruitment drive this week as part of a large-scale effort to boost security following a recent spate of terror attacks. VOA’s Gabe Joselow reports that allegations of corruption in the process are raising old concerns about the integrity of Kenya’s security forces.

Video Japan, China in Race for Asia High-Speed Rail Projects

A lucrative competition is underway in Asia for billions of dollars in high-speed rail projects. Cambodia, India, Indonesia, Malaysia Thailand and Vietnam are among the countries planning to move onto the fast track. They are negotiating with Japan and the upstart Chinese who are locked in a duel to revolutionize transportation across Asia. VOA Correspondent Steve Herman in Bangkok has details.

Video Scientists: Mosquitoes Attracted By Our Genes

Some people always seem to get bitten by mosquitoes more than others. Now, scientists have proved that is really the case - and they say it’s all because of genes. It’s hoped the research might lead to new preventative treatments for diseases like malaria, as Henry Ridgwell reports from London.

Video Bible Museum Coming to Washington DC

Washington is the center of American political power and also home to some of the nation’s most visited museums. A new one that will showcase the Bible has skeptics questioning the motives of its conservative Christian funders. VOA religion correspondent Jerome Socolovsky reports.

Video Armenia and Politics of Word 'Genocide'

A century ago this April, hundreds of thousands of Armenians of the Turkish Ottoman empire were deported and massacred, and their culture erased from their traditional lands. While broadly accepted by the U.N. and at least 20 countries as “genocide”, the United States and Turkey have resisted using that word to describe the atrocities that stretched from 1915 to 1923. But Armenians have never forgotten.

Video Afghan First Lady Pledges No Roll Back on Women's Rights

Afghan First Lady Rula Ghani, named one of Time's 100 Most Influential, says women should take part in talks with Taliban. VOA's Rokhsar Azamee has more from Kabul.

Video New Brain Mapping Techniques Could Ease Chronic Pain

From Boulder, Colorado, Shelley Schlender reports that new methods for mapping pain in the brain are providing validation for chronic pain and might someday guide better treatment.

VOA Blogs

World Currencies


Rates may not be current.