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.
TEXT SIZE - +
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

Video Pope Francis Hopes Dual Canonizations Will Reconcile Church

John the XXIII and John Paul II will be made saints in a ceremony at St. Peter’s Square on April 27 More

Thailand Reacts to Plots Targeting Israelis

Authorities hope arrest of two Lebanese suspects will disrupt plot to attack young Israeli tourists More

Video In Capturing Nature's Majesty, Film Makes Case for Its Survival

'Once Upon a Forest' takes viewers deep into heart of tropical rainforest More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Pope Francis Hopes Dual Canonizations Will Reconcile Churchi
|| 0:00:00
...
 
🔇
X
Jerome Socolovsky
April 22, 2014 4:14 PM
On April 27, two popes - John the XXIII and John Paul II - will be made saints in a ceremony at St. Peter’s Square. VOA religion correspondent Jerome Socolovsky says the dual canonization is part of the current pope’s program to reconcile liberals and conservatives in the Roman Catholic Church.
Video

Video Pope Francis Hopes Dual Canonizations Will Reconcile Church

On April 27, two popes - John the XXIII and John Paul II - will be made saints in a ceremony at St. Peter’s Square. VOA religion correspondent Jerome Socolovsky says the dual canonization is part of the current pope’s program to reconcile liberals and conservatives in the Roman Catholic Church.
Video

Video In Capturing Nature's Majesty, Film Makes Case for Its Survival

French filmmaker Luc Jacquet won worldwide acclaim for his 2005 Academy Award-winning documentary "March of the Penguins". Now Jacquet is back with a new film that takes movie-goers deep into the heart of a tropical rainforest - not only to celebrate its grandeur, but to make the case for its survival. VOA's Rosanne Skirble reports.
Video

Video Boston Marathon Bittersweet for Many Runners

Monday's running of the Boston Marathon was bittersweet for many of the 36,000 participants as they finished the run that was interrupted by a double bombing last year. Many gathered along the route paid respect to the four people killed as a result of two bombings near the finish line. VOA's Carolyn Presutti returned to Boston this year to follow two runners, forever changed because of the crimes.
Video

Video Pacific Rim Trade Deal Proves Elusive

With the U.S.-led war in Iraq ended and American military involvement in Afghanistan winding down, President Barack Obama has sought to pivot the country's foreign policy focus towards Asia. One aspect of that pivot is the negotiation of a free-trade agreement among 12 Pacific Rim nations. But as Obama leaves this week on a trip to four Asian countries he has found it very difficult to complete the trade pact. VOA's Ken Bredemeier has more from Washington.
Video

Video Robotic Mission Kicks Up Lunar Dust

A robotic mission to the moon was deliberately crashed onto the lunar surface late last week, but not before scientists had collected data gathered by the spacecraft which was designed to self-destruct. VOA's Rosanne Skirble reports on the preliminary findings of the craft, called LADEE - an acronym for Lunar Atmosphere and Dust Environment Explorer.
Video

Video Boko Haram Claims Responsibility for Bombing in Nigerian Capital

The Nigerian militant group known as Boko Haram has claimed responsibility for a bombing in the capital on April 14th that killed 75 people. In the video message, Abubakar Shekau, the man who says he ordered the bombing, says nothing about the mass abduction of more than 100 teenage girls, most of whom are still missing. Heather Murdock has more for VOA from Abuja.
Video

Video Ukraine Developments Hang Over Obama Trip to Asia

President Barack Obama's trip to Asia this week comes as concerns over Beijing's territorial ambitions are growing in the region. Those concerns have been compounded by Russia's recent actions in Ukraine and the possibility that Chinese strategists might be looking to Crimea as a model for its territorial disputes with its neighbors. VOA's Bill Ide has more from Beijing.
Video

Video Autistic Adults Face Housing, Job Challenges

Many parents of children with disabilities fear for the future of their adult child. It can be difficult to find services to help adults with disabilities - physical, mental or emotional - find work or live on their own. The mother of an autistic boy set up a foundation to advocate for the estimated 1.2 million American adults with autism, a developmental disorder that causes communication difficulties and often social difficulties. VOA's Faiza Elmasry reports.
AppleAndroid

World Currencies

EUR
USD
0.7217
JPY
USD
102.17
GBP
USD
0.5949
CAD
USD
1.1009
INR
USD
60.326

Rates may not be current.