The first crude cargo from the newest North Sea oilfield, Johan Sverdrup, which could potentially disrupt the global Dated Brent benchmark, is destined for China, according to a shipping fixture and market sources.
The Suezmax Orpheas was booked by Unipec to load a 135,000 mt cargo from Mongstad, the loading port for Johan Sverdrup, on Oct. 26-28 bound for Ningbo in China at a cost of $6.7 million, according to a tanker fixture.
The Johan Sverdrup loading program showed that the first cargo to be shipped would be a one-off million-barrel lot on Oct. 25, which four equity partners can lay claim to. The next parcel, a regular 600,000-barrel cargo also allocated to the four companies, will be lifted on Oct. 29, the program showed.
Flows from the largest North Sea oil field to come onstream in decades will then come thick and fast in 600,000-barrel lots with output estimated at 317,000 barrels a day (b/d) based on the shipments of 12 cargoes over the 24 days to Nov. 18.
Equinor, operator of the field, announced on Oct. 5 that Johan Sverdrup had begun production. Its partners in the project, which has 2.7 billion barrels of recoverable reserves, are Lundin Norway, Petoro, Aker BP and Total.
The field would reach a mid-term peak of 440,000 b/d next summer and full production of 660,000 b/d in end 2022.
The additional medium sour barrels is a huge relief for Asian refiners who are grappling to cover missing Iranian and Venezuelan supplies especially after the latest U.S. sanctions on six Chinese shipping companies and ExxonMobil’s ban on using tankers that have called at Venezuelan ports in the past year, market sources said.
“The global sour crude pool is tight and it’s great that we have a new source,” said one trader, adding that Chinese refiners were now increasingly turning to Urals to make up for the shortfall.
Market sources said the cargo was sold to Unipec at a discount of about $0.50/bbl to Dated Brent, which they said was cheap relative to similar West African grades but added that the lower price maybe due to it being the first cargo.
“They might have gotten a discount as the first customer testing it out,” one source said.
With an API of 28 and sulfur of 0.8% the blend is similar to Angolan grades such as Mostarda and Saturno, which are in demand because of their high vacuum gas oil yield in the run up to the IMO 2020 mandate to use low sulfur marine fuels.
Just like North Sea Forties crude, market sources earlier said it was likely that much of the Johan Sverdrup barrels would end up in Asia and turn Norway into a major supplier to Asia in general and China in particular compared with minimal exports at the moment.
Norway Crude Exports to Asia, Including India
According to one industry estimate about 3 million b/d of heavy, mostly sour, crude output was lost in the past year due to the sanctions, OPEC output cuts and various production issues.
These issues have placed a premium on Middle East crude, sources said.
Futures market show that ICE Brent has been trading below DME Oman for the past few sessions. The first time it happened was in late September right after the U.S. slapped its sanctions on the Chinese shippers including two units of Cosco Holdings.
On Thursday, December Oman futures at the Singapore 4:30pm marker was at $59.06/bbl compared with $58.65/bbl for ICE Brent, exchange data showed.
Starved of their usual slate of sour crude and facing exorbitant freight charges, Unipec recently started to ship Urals crude in smaller Aframax tankers instead of pooling that into one very large crude carrier (VLCC), according to sources and fixture lists.
Data from IHS Markit’s Commodities At Sea (CAS) show that China is due to take delivery of 4.9 million barrels of Urals crude over the next month with 3.3 million loaded from Novorossiysk and 0.8 million each from Ust Luga and Primorsk.
Urals on the Water Bound for China
Shipping fixtures released on Oct. 4 show Unipec booking the Marlin Seoul to load 135,000 mt from Ust Luga on Oct. 23 for Ningbo at a cost of $5.625 million. It chartered the Seavigour for the same voyage for loading on Oct. 13 at $4.65 million, according to a Sept. 30 fixture list.
The $1 million jump in freight rates within a few days was testament to the jumps seen in the past week after the twin moves of the U.S. sanctions and ExxonMobil’s ban, which sent shipping costs soaring.
On Wednesday, a shipping fixture list showed one VLCC put on provisional charter at a cost of $14 million for the US Gulf Coast-China route, which had soared from about $5.5 million prior to all the developments that took out a huge chunk of available tanker tonnage.
The U.S. government on Sept. 25 banned dealings with six Chinese shipping companies: China Concord Petroleum Co., Pegasus 88 Ltd., Kunlun Shipping Co., Kunlun Holding Co. and two subsidiaries of Cosco, China's largest shipping company - Cosco Shipping Tanker (Dalian) and Cosco Shipping Tanker (Dalian) Seaman and Management.
More than 50 oil tankers, including 37 VLCCs, are operated by shipping companies affected by the sanctions, CAS data showed.
-- Raj Rajendran, (Rajendran.Ramasamy@ihsmarkit.com)
Copyright, Oil Price Information Service
