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

Analyst: Joint-Arab Military Force Poses Perilous Challenge

Although international forces are desperately needed to counter the threat of the Islamic State group, analysts say conflicting alliances could escalate fighting More

Asia’s Middle Class Changes Demand for Wheat Grain Exporters

Changes in tastes and diets are boon for wheat exporters such as Australia and the United States More

S. African Comedian Taking Over Popular TV Show

Mixed-race comedian Trevor Noah, who is loved for his edgy jibes about race and language, is taking the helm from Jon Stewart at The Daily Show in US More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Film Tells Story of Musicians in Mali Threatened by Jihadistsi
X
Greg Flakus
March 30, 2015 6:48 PM
At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.
Video

Video Film Tells Story of Musicians in Mali Threatened by Jihadists

At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.
Video

Video With Coalition Airstrikes, Iraq Entering 'Last Page' of IS Battle

American warplanes joined Iraq's battle against the so-called 'Islamic State' in northern Iraq late Wednesday, as Iraqi ground troops launched a massive assault on Tikrit. Analysts say the offensive could take the coalition a step further towards Mosul, the largest city held by Islamic State forces. Others say it could also deepen already-dangerous sectarian tensions in the region. VOA's Heather Murdock has more from Cairo.
Video

Video Philippines Wants Tourists Spending Money at New Casinos

Tourism is a multi-billion dollar industry in the Philippines. Close to five million foreign visitors traveled there last year, perhaps lured by the country’s tropical beaches. But Jason Strother reports from Manila that the country hopes to entice more travelers to stay indoors and spend money inside new casinos.
Video

Video Civilian Casualties Push Men to Join Rebels in Ukraine

The continued fighting in eastern Ukraine and the shelling of civilian neighborhoods seem to be pushing more men to join the separatist fighters. Many of the new recruits are residents of Ukraine made bitter by new grievances, as well as old. VOA's Patrick Wells reports.
Video

Video Islamic State Prisoners Talk of Curiosity, God, Regret

Islamic State fighter, a prisoner of Kurdish YPG forces, asked his family asking for forgiveness: "I destroyed myself and I destroyed them along with me." The Syrian youth was one of two detainees who spoke to VOA’s Kurdish Service about the path they chose; their names have been changed and identifying details obscured. VOA's Zana Omer reports.
Video

Video Germanwings Findings Raise Issue of Psychological Testing for Pilots

More is being discovered about the co-pilot in the crash of Germanwings Flight 9525 in the French Alps. Investigators say he was hiding a medical condition, raising questions about the mental qualifications of pilots. VOA's Carolyn Presutti reports.
Video

Video Hi-tech Motorbike Helmet's Goal: Improve Road Safety

In cities with heavily congested traffic, people can get around much faster on a motorcycle than in a car. But a rider who is not sure of his route may have to stop to look at the map or consult a GPS. A Russian start-up company is working to make navigation easier for motorcyclists. Designers at Moscow-based LiveMap are developing a smart helmet with a built-in navigation system, head-mounted display and voice recognition. Zlatica Hoke has more.
Video

Video DOJ: Illinois National Guard Soldier Tried to Join ISIS

U.S. federal law enforcement agents arrested two suburban Chicago men accused of trying to join ISIS overseas, while also plotting attacks in the United States. As VOA’s Kane Farabaugh reports from the Midwest state of Illinois, one of those arrested is a soldier of the Illinois National Guard.
Video

Video New Wheelchair Is Easier to Use, Increases Mobility

Traditional push-rim wheelchairs create a lot of stress for arm, shoulder and neck muscles and joints. A redesigned chair, based on readily available bicycle technology, radically increases mobility while reducing the physical effort. VOA’s George Putic reports.
Video

Video Liberia's Almost Last Ebola Patient Grateful but Still Grieving

Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.
Video

Video Space Program Status Disappoints 'Last Man on the Moon'

One of the films that drew big crowds last week at the annual South by Southwest festival in Austin, Texas, tells the story of the last human being to stand on the moon, U.S. astronaut Eugene Cernan. It has been 42 years since Cernan returned from the moon and he laments that no one else has gone there since. VOA’s Greg Flakus reports.

VOA Blogs

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

World Currencies

EUR
USD
0.9220
JPY
USD
119.88
GBP
USD
0.6757
CAD
USD
1.2640
INR
USD
62.626

Rates may not be current.