Russia's ESPO Crude Advances as an Oil and Gas Price Reference for Asia

MOSCOW, Feb. 21, 2011 /PRNewswire/ -- Russia's Eastern Siberian Pacific Ocean (ESPO) crude oil, which first started serving Asian markets in December 2009, pushed further onto the global oil stage in early 2011 with the start of regular exports to China, according to a report released today by Platts, a leading global energy and metals information provider. A total of 1.318 million metric tons (mt) of ESPO, or the equivalent of 311,643 barrels per day (b/d), were delivered to China in January 2011 through the Eastern Siberian Pipeline.

In its February 2011 report entitled: Russian Crude Oil Exports to the Pacific Basin – An ESPO Update (http://www.platts.com/IndustrySolutionPapers), Platts took a close look at not only the new ESPO flows to China, but also the crude's first-year pricing record and Russia's plans for expanding production and distribution. The special report was released at the Platts London Oil Forum on Monday, held in association with the February 21-23 International Petroleum Week events in London.

Russia's exports to China, together with its January 2011 ESPO shipments to other Asia-Pacific countries such as Japan, South Korea and Philippines from the Pacific coast port of Kozmino, put the total daily ESPO exports for the month at about 600,000 barrels, the report notes, or double the exports since the oil stream's initial launch a little more than one year ago. January's ESPO flows to China are said to mark the end of phase one and the beginning of phase two in Russia's oil expansion plans.

"Not only is the ESPO crude stream steadily becoming a more important regional stream, it is gaining attention from many regions, including the Middle East," said Jorge Montepeque, Platts global director of markets reporting. "As is often the case with a new export stream, it took some time for ESPO to establish itself in the market, and as the new blend has become more widely accepted by refiners in Asia and the United States, its market value has risen."

Russia's first shipments of ESPO on December 28, 2009, from Kozmino to Hong Kong, traded at a discount to Middle East benchmark Dubai crude.  But by August 2010, the price had moved to a premium and the price differential edged higher across the second half of 2010, the report said. According to Platts Dubai assessments, a commonly-used price benchmark for Middle East quality crudes, ESPO hit its highest premium to Dubai of $3.62 per barrel for a cargo loading in January 7-9, 2011.

From a strictly geographic perspective, the report notes, Russia's ESPO pipeline deliveries to China and shipments to greater Asia raise question as to whether oil supply from the Middle East – which must travel a greater distance to Asia consumers than oil supply from Russia – will remain the preferred pricing reference for the Asia-Pacific region.

"ESPO has become a key indicator of price in North Asia, in large part, because the crude has quality and volume attributes that could, over time, lead it to become a major flat price indicator of spot oil volumes in Asia," Montepeque said.

In the meantime, the report emphasizes, supply fundamentals will likely keep ESPO in the global spotlight. ESPO production and deliveries are expected to continue to increase as Russia brings more fields on stream in eastern Siberia and as the country moves forward with refinery and pipeline expansion plans.  

Russia has already delivered 15.3 million mt of ESPO crude. While the bulk of those exports went to the Asia-Pacific region, some headed west and landed in the United States.

ESPO crude is similar in quality to Forties, which has lower sulfur content than Dubai or Arab Light oils, indicating it requires a less rigorous refining process than more sour crudes.

Platts publishes daily price assessments reflecting the open-market spot value of ESPO oil, which it has done since the stream's launch in December 2009. The assessments are known as Platts ESPO (Eastern Siberian pipeline Oil).  

For more information on crude oil, price assessment methodologies in oil and more, visit the Platts website www.platts.com.

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SOURCE Platts