Tankers to profit from contaminated Russian crude crisis

The halting of crude flows last week through Russia’s Druzhba pipeline following the contamination of supplies could have serious repercussions for the tanker industry, principally the aframax segment, according to the latest weekly report from Alphatanker, part of AXS Marine.

The quality of crude shipped by the Ust Luga terminal on Russia’s Baltic coast has deteriorated which has seen a “degree of chaos” hit northern European Aframax markets, Alphatanker stated in its report published yesterday.

A number of refiners in Central and Eastern Europe along the northern and southern legs of the Druzhba pipeline were informed on April 19 that they would soon be receiving crude supplies contaminated with corrosive organic chloride, with some media reports suggesting it was a deliberate sabotage. The pipeline has yet to get back to normal operations, despite its operator, Transneft, suggesting it would be back to normal in a fortnight.

The outage has not seen volumes drop at the crude export terminal at Use Luga on the Baltic however with a number of lifters trying to sell their cargoes on to third parties or to put it in storage where it can be diluted with uncontaminated crude and eventually processed. “According to brokers, this is now seeing a large proportion of the tankers loading at Ust Luga being fixed with options for discharge far …and wide including East Coast Canada,” Alphatanker reported. These contaminated cargoes are being priced at a steep discount to uncontaminated shipments from Primorsk.

“Combined, the Druzhba and Ust Luga exports account for around 17% of European crude imports and thus replacing these supplies represents an enormous challenge for refiners,” Alphatanker noted.

The Odessa – Brody pipeline is one option, but Alphatanker data shows no uptick in tanker deliveries to Odessa.

“[I]f the crisis persists into late May or longer then it seems likely that there could be a shift as more Urals shipped via Novorossiysk will be processed in Eastern and Central Europe either being imported via Baltic ports or shipped via the Odessa – Brody, TAL or Adria pipelines. In theory, this could draw some of the Urals loadings away from longer-haul markets, notably India which has seen a huge jump in Urals imports to 120 kb/d since January,” Alphatanker reported, suggesting currently beleaguered aframax rates could benefit as the tonnage list would likely shrink. On the other hand, if there was a prolonged disruption Alphatanker believes this would see less Urals lifted from Novorossiysk head east then this would see suezmax trade replaced with aframaxes. Indian exports are transported on these 1 m barrel-capacity tankers.

The most significant impact on tanker markets of a long-lasting disruption could actually be on clean tankers, the report suggested.

“If European refinery throughputs drop as a number of these refineries cannot receive alternative supplies, and this coincides with heavy second quarter refinery maintenance, then Europe’s ULSD and jet fuel import requirements will soar,” Alphatanker stated. In this case, the AXS analysts expect incremental supplies to be shipped from east of Suez refineries via the Suez Canal which would potentially favour LR-sized carriers.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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