Europe cuts back on Russian oil purchases by 20% due to poor quality

Europe continues to cut back on its oil purchases from Russia due to the dropping quality of the Urals variety.

At the end of January-May, shipments to the EU through the primary ports of export fell by double-digit figures, Transneft vice president Sergey Andronov told Vedomosti.

European clients bought 24% less from Primorsk than last year (16.1 million tons). Shipments out of Novorossiysk fell by 17% (to 7.7 million tons), and shipments from Ust-Luga by 26%.

Only the export volumes to Eastern Europe through the Druzhba pipeline remained relatively stable. In the last 5 months, the volume dropped by only 1%, to 19.8 million tons, Andronov noted.

The total export volume to Europe has been dropping at an increasing pace: for January-April it fell by 10%, but by May this figure had grown to 16%.

European clients do not like the sulfur content of the Russian oil, Transneft spokesman Igor Demin explained in May. According to Transneft, the sulfur percentage reached 1.75%, which is close to the limit set by GOST and specified in the agreements with the buyers (1.8%). However, citing  eight sources in the energy market, Reuters reported that this target was not met at the start of the year.

According to data from measurement stations provided by three European companies, in February through Druzhba’s northern line, Russia sold oil containing as much as 1.81-1.85% sulfur. The sulfur content is “off the charts, and this is becoming systemic,” a European oil trader commented.

The sulfur content of maritime shipments of Urals has remained normal, but the density has gone off the charts. In batches sold from the Novorossiysk port at the start of the year, the density reached 877.7-878.3 kilograms per cubic meter at 15 degrees Celsius, exceeding GOST limit of 873.5.

Since oil that exceeds the limits cannot be processed, oil refineries are forced to purchase lighter varieties and mix them with Urals.

Light crude oil with a low sulfur content is sold primarily to China, a source in the Russian oil sector explained to Reuters. China buys crude oil according to an intergovernmental agreement, and Europe only gets “whatever is left over”.

According to data for January-May, the volume supplied to China through the Eastern Siberia-Pacific Ocean pipeline grew by 50% to 15.6 million tons. On the other hand, the export volume through the Kozmino port fell by 6% to 12.4 million tons.

By the end of the year, Russian oil shipments to Europe will drop by 14% and the shipments to China will grow by 45%, Transneft predicts.

The European buyers of Russian oil will switch to shipments from Iran, the only country in the OPEC which was able to increase its crude oil extraction, and Kazakhstan, which has virtually neglected to make use of the deal it signed with the OPEC, explained Dmitry Marinchenko, Oil and Gas department director at Fitch Ratings.

  Russian oil, Europe, Russia