US Crude Exports to Asia Stall
An aggressive strategy by Mideast Persian Gulf producers to exploit the lowest oil prices in five years to defend market share is showing signs of bearing fruit as US crude exports to Asia grind to halt.
Asian refineries have suspended imports of condensate, a light crude oil produced from the US shale boom, just four months after they began in favor of cheaper Middle East grades, according to trade and industry sources.
The suspension illustrates how competition between suppliers has heated up following a more than 40% decline in oil prices since June.
Ali al-Naimi, the oil minister of Saudi Arabia, warned his fellow OPEC members they must combat the US shale boom. He argued against cutting OPEC production so as to keep prices depressed and undermine the profitability of North American producers.
“There’s so much oversupply that Middle East crudes are now trading at discounts and it is not economical to bring over crudes from the US anymore,” said Tushar Tarun Bansal of consultancy FGE in Singapore.
US oil became uncompetitive against similar grades from Qatar, Saudi Arabia and the UAE after Persian Gulf producers began dropping prices in August to maintain their market share in an oil market glut.
Crude oil prices have fallen more than 40% since June and the market tumbled further after OPEC, largely led by its Persian Gulf members, decided at a meeting in Vienna against cutting output in order to support market share instead of prices.
Middle East crude currently accounts for about two-thirds of Asia’s imports.
Adding to pressure on US crude exports to Asia, freight rates from the US to Asia have risen by 50%, forcing sellers to market their cargoes to Europe instead. This is partly due to higher demand in the Middle East and Africa.
The US eased a 40-year-old ban on crude exports last year in the wake of its shale oil boom, opening up new trade routes for surplus flows to Asia and Europe this year.
US exports of lightly processed condensate, also known as light oil, started arriving in Asia in August and exports doubled to about 600,000 barrels in October.
Royal Dutch Shell bought the last cargo coming to Asia, due to arrive at its Singapore refinery in December, but as a result of the price shifts no more cargoes are expected to head east for at least the next two months, three traders who specialize in the market said.
The pressure could undermine plans to send further US condensate to Asia. BHP Billiton Ltd and Enterprise Products Partners have both issued tenders to sell condensate next year.
Trading house Vitol, which bought the latest US condensate cargo to load in December, is likely to send it for use at its Swiss refinery instead of Asia, trade sources said.
Asia Pacific States, Russia’s Key Partners
Russia takes Asia-Pacific states as main partners in the oil and gas sector, director of the department of oil and gas production and delivery at Russian Energy Ministry Alexander Gladkov said at the opening of the Russian stand at the 20th Offshore South East Asia Conference and Exhibition (OSEA 2014).
Russia “counts on development of mutually beneficial cooperation in this sphere,” he said.
“In September Singaporean businesspeople visited (Russia’s Far East) Sakhalin where they stated for the first time that they were interested in oil and gas cooperation with Russia,” Russian Ambassador in Singapore Leonid Moiseyev said. In general, the republic “is turning in one of Russian key partners in this region,” he said. This year “the bilateral trade will grow 50% to reach $8 billion” this year, the ambassador noted.
Subprograms on development of the oil industry and development of the gas industry and Russian state-funded program on energy efficiency and energy development will be presented at the forum, members of Russian delegation told TASS. Meanwhile, Energy Ministry’s officials will deliver a report on long-term energy development through new oil-and gas-producing fields and technologies.
Europe to Wean Itself off Russian Gas
After Russia called off the South Stream project, EU officials have urged the bloc to end its dependence on gas from Moscow.
Russia meets around 30 percent of the EU’s gas annual needs.
EU Budget Commissioner Kristalina Georgieva said: “This confirms the importance of not being dependent on a single source of gas. Diversification of energy sources is very important.”
The International Energy Agency (IEA) has said that Europe should do more to liberalize its energy markets
Speaking at the European Parliament, former Russian energy tycoon and political prisoner Mikhail Khodorkovsky casted doubt on whether Vladimir Putin’s move to scrap South Stream would be effective.
“I don’t believe that this decision is final, because the alternative solutions economically don’t make sense.”
The Russian president made the announcement on in the Turkish capital of Ankara.
One of the main reasons for pressing ahead with the project was to bypass Ukraine.
It would have cost some 20 billion dollars, or 16 billion Euros.
Aside from the current political climate, there were also doubts whether Russia’s Gazprom would be able to comply with EU competition rules in relation to the pipeline.
No Turkey-Russia Gas Deal Yet
Turkey has not reached any new gas deal with Russia beyond an agreement to discuss the possibility of routing Russia's planned southern gas export line (South Stream) via Turkey, Turkish energy minister Taner Yildiz told a press conference.
"An agreement to discuss and no agreement for anything else related to the projected line have been signed" he said, adding that Turkey is not involved in the disputes between Russia and Ukraine or Russia and the European Union.
Yildiz said no agreement has yet been reached with Moscow over its unilateral cutting of gas exports to Turkey via Turkey's western Transbalkan import line which carries gas arriving via Ukraine.
Nor has there been any resolution to Turkey's request for a discount on the gas it buys from Russia, despite a joint press conference by Turkish President Tayyip Erdogan and Russian president Vladimir Putin in which it was suggested that the two countries had reached a number of agreements on Russia's gas exports To Turkey.
Neither Putin nor Erdogan referred to the ongoing gas cuts during their press conference.
Yildiz did not say if the talks covered the 4 billion cubic meters a year of Russian gas being imported by Turkey's state gas importer Botas via the western Transbalkan line, or if it also included the 10 Bcm/year of gas being imported through the same line by seven private companies and the 16 Bcm/year being imported by Botas through the Blue Stream line across the Black Sea.
But he stressed that any discount negotiated with Moscow will not be passed on to consumers because Botas is currently selling gas it imports at below the price it pays, suggesting that the talks may only cover gas being imported by Botas.
"Botas has an (existing) debt of Turkish Lire 2 billion ($900 million) which has to be covered," he said.
Yildiz also made no reference to Gazprom's Turkish subsidiary Bosphorus Gaz, one of the seven private companies importing gas from Russia through the Transbalkan line and holds two contracts and two licenses to import a total of 2.5 Bcm/year despite complaints confirmed by Turkish officials that Gazprom is continuing to supply Bosphorus in preference to other importers despite it having already exceeded its annual licensed import volumes.