The first cargo of the much sought-after Australian heavy-sweet Vincent crude was loaded this week after a more than one-year hiatus due to field expansion and integration works, according to shipping fixtures, market sources and IHS Markit ship tracking data.
The Aframax North Sea left the Floating Production Storage and Offloading (FPSO) unit Ngujima-Yin, where Vincent crude is loaded, on Aug. 11 and is signaling Tanjong Pelepas in the Johor Strait as its next destination, according to data from IHS Markit’s Commodities at Sea (CAS).
The North Sea is due to arrive on Aug. 18, CAS data showed.
Market sources said that Mitsui, which has a 40% equity stake in the North Western Australia development, chartered the tanker and will probably add the crude to its blending pool for use as a marine fuel that is compliant with the new International Maritime Organization 2020 mandate.
Woodside Petroleum Ltd., which owns the remaining 60% and is operator of the development, had shut the field as part of the Greater Enfield project to boost output that involved subsea tiebacks with other assets in the area that would utilize the FPSO Ngujima-Yin .
The project will increase initial Vincent crude output to around 40,000 barrels a day (b/d), while the Ngujima-Yin has a production capacity of 120,000 b/d, according to Woodside.
Oil production from the Vincent wells resumed on July 4, Woodside said in its half-yearly report.
Shipping fixtures show that Mitsu has booked a second tanker, the Sea Holly, to load Vincent crude on Aug. 29-31 bound also for Tanjong Pelepas. The Japanese trading house had originally booked the Saint Nicholas to load the first cargo but the tanker is still anchored off Perth in Western Australia, MINT data showed.
The loading dates suggest that output from the Greater Enfield project is ramping up as there’s about a 20-day gap between the two Aframax loadings, which can load about 600,000 barrels.
Vincent crude, in line with other heavy-sweet Australian grades such as Pyrenees and Van Gogh, should trade at around $12-14/bbl over Dated Brent, making it among the most expensive crude oil in the world.
September-loading Pyrenees and Van Gogh changed hands at premiums of $13-14/bbl, market sources said.
This surge in their value compared with about a year ago is driven by the biggest disruption to the oil market in recent memory – the IMO mandate to limit sulfur emissions from vessels to less than 0.5% from January 2020. To comply ships will have to either burn low-sulfur fuels or install scrubbers that clean-up the emissions.
The Australian crudes have sulfur content that’s well below this threshold, ranging from 0.37% for Vincent to 0.21% for Pyrenees.
Oil traders have amassed a fleet of very large crude carriers (VLCC) around Singapore waters to act as a storage and blending facilities to get ready for the new legislation, which players even now struggle to place an accurate forward value on the new fuel that would be used.
Unlike the well-used 380-centistoke high sulfur fuel oil (HSFO) that is a standard product across the world that all ships can use, the new fuel is still going through trials.
Ahead of this paradigm shift, traders are taking positions to leverage on the uncertainties.
The huge amount of IMO-complaint fuel stored on these VLCCs as well as in on-shore tanks are all part of this trading play that also calls for various forward hedges.
The most liquid hedge used in Asia at the moment is based on a spread between benchmark Singapore 10ppm gasoil and 380-CST HSO, market sources said.
That spread between 0.5% MGO and 380-CST is currently at about $110/mt but blows up to around $200/mt for early next year, mostly due to a sharp drop in the value of 380 CST, one source said.
Based on this spread it is not unreasonable for the crudes to trade at up to $14/bbl above Dated Brent, the source said.
Going into the second-half of this year, market sources said there will continue to be a demand for these heavy-sweet crudes as traders build up inventories in anticipation of the demand switch next year.
--Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com
Copyright, Oil Price Information Service
