Russian hydrocarbon (Oil and Gas and Coal) Industry: News #4

ESPO is technically not a seaborne oil, so price cap was never applied to it, even if majority of oil is loaded in Kozmino port, where one of the pipeline terminals is. Also, Druzhba pipeline oil was never subject of a price cap. It is an loophole in sanctions, left by the buyers.

Point of sale for ESPO in Kozmino is pipeline terminal. That is why it is not considered to be seaborne oil in the first place. Technically, buyer paid for oil at terminal and it is loading their oil on ships. As such, it didn't go under sanction price cap. Exception was provided only for SOKOL oil leaving De Kastri.

They've sanctioned URAL, since it was mostly bought by EU and US and is the blend with highest volume and most complicated export geography. Japan asked for exemption for De Castri (SOKOL blend), as their companies still own part of the Sakhalin projects. In any case, Japan buys very little oil from Russia, to begin with and when they do it is almost exclusively Sakhalin oil. They are more interested in LNG.
And 1 million b/d from Kozmino was picked up entirely by China.
As with previous oil sanctions, West always leaves door open for oil exports and tries to lower revenues of the sanctioned country, as they are well aware of possible ramifications for their economies. If MBS wanted to play ball like US insisted on, Russia would have to pay much higher price from the sanctions.
Iran oil sanctions were also made to lower revenues, not to close exports completely.

How Siberian oil became more expensive than the Brent benchmark, by Olga Samofalova for VZGLYAD. 09.19.2023.

The cost of Russian ESPO oil, which is exported to China, has exceeded the cost of Brent. However, this situation is not an anomaly, because ESPO light oil should cost more than the global benchmark Brent. This situation shows that the price of Russian oil is just returning to normal. Moreover, the ESPO variety has acquired critical political significance.

Oil pumped from the country's Far East is selling at a rare premium to the global benchmark Brent. Russian ESPO crude, which arrived in China in October, was trading at a premium of about 50 cents a barrel to Brent on a delivery basis, according to traders who asked not to be identified, Bloomberg noted.

That would be the highest since Western countries imposed price ceilings, according to Kpler. The last time ESPO was more expensive than Brent was in November 2022.

After the West imposed sanctions and a price ceiling, the cost of Russian oil decreased. This applied to both the Urals variety and the Far Eastern variety ESPO.

How are these types of Russian oil different?

The ESPO grade of oil is a Siberian grade of light, low-sulfur oil, in which the sulfur content does not exceed 0.65%. Its price is tied to the UAE grade of oil Dubai Crude. Russian Urals oil is a medium-sulfur grade of oil.

“Russian ESPO and Urals are not traded on the world exchange, so they are tied to other types of oil that are traded. Urals is tied to Brent, as they are both medium-sulfur grades of oil. Urals is a mixture of light West Siberian low-sulfur oil and heavy high-sulfur oil, primarily from the Volga region. By mixing them, medium oil is obtained. It was this mixture that went to the West via the Druzhba oil pipeline, to the Baltic and to Novorossiysk. “Recently, Urals has been increasing the amount of sulfur and becoming heavier,” says Igor Yushkov, a leading expert at the Financial University under the Government and the National Energy Security Fund.

Brent crude oil was originally produced from a field in the North Sea that depleted and closed. But the name of the variety was preserved as a stock quote.

“Siberian ESPO oil is a different category of oil, it has always been lighter, and light oil usually costs more than medium and, especially, heavy oil. That's why when ESPO costs more than Brent, this is just a normal situation. During the period of restructuring of the oil market, a discount on ESPO appeared, but it was small and, as a rule, amounted to only a few dollars, even compared to the Middle Eastern grade of oil to which it is tied. That is, there was no such big discount on ESPO as on Urals. Therefore, now the price of ESPO is returning to normal after an anomaly in the form of a lower price,” says Igor Yushkov.

The discount of Urals to Brent by mid-September also decreased significantly from $30 per barrel to less than $12 per barrel, according to data from the Russian Ministry of Finance.

According to the expert, ESPO oil has become cheaper than Brent since November 2022, most likely due to decreased demand from China due to Covid restrictions, which were lifted only at the beginning of this year. And then China swayed for a very long time, but finally there is a recovery in demand. China is the main recipient of this Russian grade of oil. ESPO in the amount of 30 million tons per year goes along a branch of the ESPO oil pipeline to the Kozmino oil loading port in Nakhodka Bay, Primorsky Territory. Then it is reloaded onto tankers, most of which go to China.

“Russian ESPO at one time became in great demand in China specifically at small refineries. Because it is easy to process, you do not need to buy special technological equipment to obtain a good yield of light petroleum products. The logistics for delivering this oil to China are the simplest, and delivery costs are very low. In addition, there are long-term contracts with Rosneft and Transneft, which were signed even before the emergence of the ESPO project. The advance payment from these contracts was used to build the gas pipeline itself, and then its expansion to the port of Kuzmino. ESPO has never entered Europe; its target market has always been China,” says the FNEB expert.

Now demand from China is recovering. Moreover, there is already talk on the world market about the threat of a shortage of diesel fuel due to the downtime of a number of oil refineries. This is a good time for Chinese refineries to fill their capacity to capacity and resell scarce petroleum products at high prices.

Many experts do not rule out that by the end of 2023 the price of Brent may exceed $100 per barrel.

Prices continue to rise now thanks to the coordinated actions of Saudi Arabia and Russia to voluntarily reduce oil production and exports. Accordingly, the cost of ESPO may subsequently increase. However, the expert believes that oil will not stay at $100 per barrel for long, because the Saudis and Russians will enter the game again. “I would bet that if the price consolidates around $100 per barrel, then Russia and Saudi Arabia will begin to increase production, that is, gradually remove their voluntary cuts in production and exports. Because expensive oil kills demand, and even the producer doesn’t need super-expensive oil,” predicts Yushkov.

Therefore, there is no need to fear that Chinese refineries will buy less ESPO because of its high price. Moreover, petroleum products on the world market are also rising in price following oil. And if necessary, the price of ESPO can be slightly adjusted in relation to other varieties in order to maintain demand, Yushkov believes.

Finally, the Russian ESPO grade of oil has gained a serious political advantage in recent years.

“The more competition between China and the United States intensifies, the greater the tension in their relations, the more China thinks about the reliability of energy supplies.

Russian oil goes through the ESPO directly to China, as does gas through the Power of Siberia gas pipeline. These supplies are reliable and difficult to block for third parties. When oil comes in tankers from Africa or LNG from the Middle East to China, the tankers need to cross several straits, and here there are many risks for cutting off these supplies if Washington wants to make China hungry for resources. Therefore, ESPO supplies for China are becoming even more important today,” concludes Igor Yushkov.

https://vz.ru/economy/2023/9/19/1230973.html

Put this here as it is part of the Russian energy business

Donetsk coal in Turkey.

Reuters has somehow familiarized itself with the data of the Russian customs and found out the terrible thing. Between February and July 2023, about 160,400 tons of coal from Donetsk and Luhansk arrived in Turkey worth at least $14.3 million. Three producers named in the customs data confirmed to Reuters that they had shipped coal from the two regions to Turkey during that period.

The data shows that Turkey was the largest destination for coal exports from the new Russian regions, accounting for 95% of shipments during the period.

Coal sellers are registered in Russia and the annexed territories of Ukraine, according to the Spark database of Russian companies of the Interfax news agency.

According to customs data, the buyers were companies registered in Hong Kong, the UAE and offshore jurisdictions including Belize and the British Virgin Islands. Turkish companies were not on the list. I.e. Turkey.... transshipment?

@Slavyangrad

How can he do this when Russia doesn't control the pipelines for a significant part of the gas's journey? Plus Hungary's contract is for a significant proportion of part of the pipeline's capacity.

Zlatti71
@djuric_zlatko
.
2h
Lavrov has guaranteed the continuation of oil and gas supplies to Hungary.

"Now I have again received guarantees, confirmation of guarantees from Minister Lavrov that deliveries will continue according to the framework of the contracts," Szijjártó said following a meeting on the margins of the UN General Assembly with the Russian minister.

Needs must

Olga Bazova
@OlgaBazova
·
5h
The former division of the Russian gas giant Gazprom, nationalized by Germany , the energy company Securing Energy for Europe GmbH, plans to load liquefied gas from Russia.

Funny how all the stans thought countries were to keep killing their economies in the name of Zelensky.

Oil exports from Russia to India are rising rapidly again, by Sergei Tikhonov for Rossiyskaya Gazeta. 09.27.2023.

India's purchases of Russian oil in September will increase by almost 20% compared to August and will reach 1.83 million barrels per day. This forecast was made by Kepler based on data on sea shipments of our raw materials. This is not a record, but in one month the growth is more than significant, and moreover, most likely, it will continue.

The forecast clashes with statistics from the Finnish Center for Research in Energy and Clean Air (CREA) on Russian oil supplies by sea in the first half of September. India confidently took first place here, even ahead of China, if you do not take into account its pipeline imports of oil from our country.

Apparently, supplies will continue to increase in the near future. They will be limited only by our country’s voluntary reduction in oil exports by 300 thousand barrels per day, which is in effect until the end of this year. In addition, our ban on the export of gasoline and diesel fuel, which were supplied to the countries of the Asia-Pacific region (APR), Africa and Turkey, with a high degree of probability for re-export to Europe, will now begin to influence the market.

Our oil is sold to Indian companies well above the price ceiling.

As Freedom Finance Global analyst Vladimir Chernov notes, India is likely planning to increase supplies of petroleum products to Europe.

Especially diesel fuel and gasoline against the backdrop of their deficit in the region. A temporary ban on the export of Russian petroleum products to stabilize the domestic market creates an imbalance in the global fuel market, and in order to compensate for the lack of Russian volumes, it will be necessary to increase the production of petroleum products, for which India is increasing purchases of crude oil, Chernov explains.

Oil supplies to India will return to normal in the spring of 2024, says Kirill Rodionov, an expert at the Institute for the Development of Fuel and Energy Technologies. For example, in May 2023, seaborne supplies of Russian oil to India reached 1.92 million barrels per day, while in August their volume fell to 1.25 million barrels per day, according to S&P Global Platts.

According to Chernov, as long as there is a ban on the export of petroleum products in Russia, their shortage on the world market will have to be compensated by increasing production in other countries, including from Russian oil. For example, Türkiye can increase its fuel production in this way.

At the same time, purchases of Russian petroleum products for the purpose of re-export may increase in the EAEU countries that were not subject to this ban (Kazakhstan, Armenia, Kyrgyzstan, Belarus), Chernov believes. But re-export volumes here are unlikely to be large, given that supplies there are possible only under intergovernmental agreements and to maintain indicative balances. And increasing production is only possible where there is free oil refining capacity. There are not many countries like this. In addition to Turkey, these are India, China and European countries, but to do this they will have to bypass their own sanctions by purchasing Russian oil.

It is significant that our oil is sold to Indian oil refineries at significantly higher prices than the price ceiling ($60 per barrel), which was adopted last December by the EU, G7 and Australia, but cheaper than raw materials from other exporters. According to Indian customs, in 2023, the average price of Russian oil for India was $69.8 per barrel, while oil from Iraq was $75 per barrel, and from Saudi Arabia was $85 per barrel.

Despite the fact that the discount on our oil remains, it is unlikely to suit Western countries, since the price is still higher than the ceiling they set. Moreover, in this case it only makes our oil more attractive to buyers.

At the same time, according to CREA, two-thirds of the volume of maritime transport of Russian oil is carried out by tankers from the EU and G7 countries. That is, by ships from countries that must comply with price restrictions. As CREA group leader Isaac Levy noted, the effectiveness of oil sanctions was undermined not only by the use of the shadow fleet created by Russia, but also by the inability of the governments of the countries that initiated the price ceiling to fully enforce it and stop violations.

However, in the current state of affairs there are also negative aspects for our country. The market for our oil is still limited. Not by the number of countries, there are many of them, but by the number of big buyers.

As Rodionov notes, two key trends that emerged last summer will most likely continue in our oil exports. Firstly, the geography of seaborne oil supplies will remain quite narrow. Thus, in August 2023, India and China accounted for a total of 72% of supplies (2.16 million barrels per day), Turkey, Bulgaria and South Korea accounted for just over 14% (431 thousand barrels per day), and almost the same amount for all other suppliers (413 thousand barrels per day). Secondly, Russia’s obligations under the OPEC+ deal will have a decisive impact on supply volumes. For example, in August 2023, the volume of seaborne oil exports from the Russian Federation was 870 thousand barrels per day lower than in May 2023.

https://rg.ru/2023/09/27/podnialis-na-deficite.html

Russia’s gasoline output rises by 3.3%, diesel fuel - by 6.4% over 8 months, 09.27.2023.

MOSCOW, September 27. /TASS/. Gasoline production in Russia in January - August 2023 increased by 3.3%, diesel fuel - by 6.4% compared to the same period a year earlier, Russian Deputy Prime Minister Alexander Novak said at a meeting with Russian President Vladimir Putin.

"The output of gasoline and diesel fuel increased, motor gasoline - by 3.3%, diesel fuel - by 6.4% compared to last year," he said.

He added that the Russian government proposed raising the protective duty on oil product exports from 20,000 rubles ($207.3) to 50,000 rubles ($518.26) per ton for resellers. "We will impose a protective duty, raising it from 20,000 to 50,000 rubles," Novak said, adding that he believes it is possible to totally ban exports of oil products acquired on the domestic market.

Novak noted that the Russian government anticipates that the fuel market changes announced by the government would have a long-term stabilizing effect. The steps will be implemented in the near future.

https://tass.com/economy/1681463

By resuming diesel exports, Russia "took advantage" of Western sanctions, 09.28.2023.

After the ban on the purchase of Russian diesel, the prices of this fuel in Europe began to rise, and "this may explain" Moscow's decision to resume diesel supplies, thus benefiting from the sanctions, according to 'Financial Times'.

Russia remains a key supplier of diesel to world markets. Russian supplies account for a fifth of the total volume transported by sea. Under the restrictions against Russia's energy sector, diesel is being shipped through Turkey, North Africa and the Middle East, eventually reaching the European market.

In February 2023, when Europe imposed a ban on Russian oil products, including diesel, the markets reacted "quite weakly", and there was even a drop in prices. But "the situation is different now," and oil traders are paying more and more attention to diesel, the British outlet stressed.

According to the newspaper, the supply of diesel in Europe and the United States "is not easy today." In addition, refineries cannot keep up with demand, as the price difference between diesel and other fuels — refining margin - increased.

Due to the decrease in European stocks and the limited capacity of refineries, the diesel refining margin in Europe has doubled since July and stands at $40 per barrel.

This price increase, stresses the Financial Times, "may explain Moscow's decision to resume exports of the dirtiest diesel", despite the temporary ban on shipments outside the country, with the aim of "stabilizing fuel prices on the domestic market", decreed by the Russian government on September 21.

The upward trend in diesel prices on the European market could be reversed if speculations about the resumption of Russian supplies and increased production "bear fruit," the media outlet predicted.

"But for now, Moscow is using the oil sanctions that have been imposed on it to its advantage," it acknowledged.

On February 4, the EU Council decided to set maximum prices for diesel and petroleum products that come from or are exported from Russia, this comes after Brussels imposed a limit on Russian gas and oil in December.

Yandex Translate from Spanish

https://sputniknews.lat/20230928/al-reanudar-la-exportacion-del-diesel-rusia-se-aprovecho-de-las-sanciones-occidentales--1144191983.html

I have not seen this put so clearly before.

Victor vicktop55
@vicktop55
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4h
Putin on the resumption of gas supplies to Germany via Nord Stream:

One branch of Nord Stream 2 is being preserved. It is intact and can supply 27.5 billion cubic meters of gas to Europe.

This is only the decision of the German government. Do not need anything else. Today is the decision - tomorrow we turn the valve, and that’s it - the gas flows.

But they don't do this. Because the Washington does not allow it. To the detriment of their own interests.