European refiners prefer cheaper seaborne exports of Russian oil

Druzhba pipeline load has fallen in January

European refiners prefer cheaper seaborne exports of Russian oil
Photo: SzederLaci

Russian crude exporters are redirecting supplies from pipelines to ports, as seaborne exports are currently more profitable due to lower costs, and refiners are fighting for low prices in order to maintain falling profits.

Exports of Russian Urals oil via Druzhba pipeline have dropped this month, as sellers are opting for the sea route following disagreements over pricing with European refiners, says ETEnergyworld.com citing Reuters. The Soviet-built pipeline with a capacity of 1 million barrels per day links Russian oilfields to European refineries. However, only around 70% of that capacity has been used since the beginning of the month, state Reuters’ sources familiar with Russian oil export data.

The decrease is caused by lower seaborne transportation costs for Urals crude, which made supplies via the pipeline less profitable than shipping by the sea in 2020. This month, Urals exports via Druzhba have fallen by 10% compared to the previous month and 20% compared to January 2020, while Urals oil exports from Russia’s Baltic ports have grown by 35%.

Urals oil exports from Russia’s Baltic ports have grown by 35% this month. Photo: Raita Futo

Russian sellers sought to increase prices, but refiners have resisted. For example, at the end of 2020, Total failed to agree with major Russian oil supplier Surgutneftegaz, and the latter had to redirect its oil to Baltic seaports. Russia’s largest oil company Rosneft continues negotiations over 2021 supply terms with Poland’s two main refiners Grupa Lotos PKN Orlen. According to trade sources, the refiners are disputing the price. “Poland’s refiners are always tough to agree with, as they have the alternative of seaborne supplies,” said one of the sources. Rosneft’s contract with Gruppa Lotos, which owns Gdansk refinery, expired at the end of last year, while the agreement with PKN Orlen ends on 31 January.

Meanwhile, Saudi Arabia overtook Russia as China’s top crude supplier in 2020. Last year, Chinese oil imports increased by 7,3% to record 542,4 million tonnes or 10,85 million bpd. According to data from the General Administration of Chinese Customs published last week, Saudi shipments to China in 2020 increased by 1,9% year on year and reached 84,92 million tonnes, or about 1,69 million bpd. Russia showed sharp growth of 7,6% compared to 2019 but ended up with 83,57 million tonnes, or 1,67 million bpd. Russia had led the race for most of 2020 with more flexible transport options and geographical proximity, but at the end of the year, Saudi Arabia cut prices to woo customers. Iraq and Brazil became China’s third- and fourth-biggest crude suppliers respectively.

By Anna Litvina
Analytics