Monday, November 5, 2012

Brent, WTI, and ESPO? Russia's push into Asian oil markets

Russia is expanding its Asia oil delivery infrastructure through the ESPO pipeline. Historically Russia focused on supplying Europe with fuel, but that is starting to change.
JPMorgan: - The first phase of the ESPO line finished at Skovorodino, delivering about 300 kbd of ESPO blend crude to the Chinese border and a further 300 kbd that was transferred to rail for onward shipment to the port of Kozmino. The pipeline operator Transneft is now set to launch the second stage of the ESPO pipeline running from Skovorodino to Kozmino port in mid-November, expanding capacity and ending the need to rail crude, likely lowering the arbitrage cost to deliver to the east.

With that project, Russia also hopes that the ESPO crude will become a new benchmark for crude, similar to WTI or Brent. This is due to increased volumes expected to be achieved with the phase II ESPO pipeline reaching Vladivostok (Kozmino port). It will supply more ESPO crude to China's east coast and other Asian nations. Declines in the North Sea output may also contribute to increased use of this new benchmark for pricing crude.
Voice of Russia: - Russia’s East Siberian oil may soon make it into the world crude oil price charts, becoming a new benchmark along with Brent and West Texas Intermediate, experts say. Today, the majority of oil deals on international markets are calculated from the per-barrel Brent price. But with Brent reserves on the decline, market players are beginning to eye the Siberian ESPO brand as a possible alternative.
As output at key Brent deposits in the North Sea slumps rapidly, while the development of new oil fields is too costly, some Western analysts are predicting that by 2015, ESPO has every chance to become a regional crude benchmark in Asia. Next year, Russia is planning to sell about 400,000 barrels. Another 100,000 barrels per day – and Siberia’s ESPO will rank on a par with Brent. If this happens, the situation on the world fuel and energy market may change significantly in Russia’s favor.
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