Russian Crude and Product Highlights
Feb. 25, 2022
With uncertainty and volatility the main themes in the tanker markets this week, we look at high level numbers for Russia’s crude and product supply and exports in an attempt to quantify a full sanctions scenario.
Current Russian crude oil production stands at 10.9 million b/d divided among large and small producers. Out of this volume, approximately 5.9 million b/d are consumed domestically in the country’s refining system. From the remaining balance, JBC Energy data reveals that about 4.6 million b/d are destined for exports, with China responsible for taking about 30.5% and Europe for about 50.1%. These exports to Europe include an estimated 0.6 million b/d delivered through the Druzhba pipeline.
If 100% of Russia’s crude exports are sanctioned, the expectation is for the pipeline volumes to translate into “new” marine transportation demand, with the remainder requiring a re-alignment of flows. It is likely that we will see increased domestic crude (North Sea, Libya) intake with the balance of requirements likely sourced from the AG, especially if Iranian sanctions are removed and these barrels return into trading. The overall net impact in ton-mile demand is likely going to be a positive one.
On the product side, current Russian refinery utilization stands at about 92%, with limited room to take additional crude. Out of the total production, we estimate about 2.8 million b/d of domestic product demand, with about 2.9 million b/d exported – including 0.6 million b/d fuel oil exports. In the event of the entirety of these exports becoming sanctioned, we note that substitution will likely only be possible if it is followed by an increase in existing (outside of Russia) refinery utilization.
For the larger CPP tankers, current naphtha flows to Asia are likely to be substituted by more AG exports, especially given the expanding refining capacity in the latter region (a shorter voyage). Some of the same flows to Asia could be substituted by increased exports from the US Gulf. To Europe, decreased flows are likely to reduce gasoline supply, taking a toll on MR routes to the US and West Africa. In this scenario, gasoline volumes could be substituted by flows from the AG as well as the US Gulf – with refineries in the latter region probably faced with increased utilization requirements and as a result, more domestic crude consumption. Similar to the DPP sector, the overall net impact in ton mile demand is likely to be a positive one.
Figure 1 – Russian Crude Oil Production and Distribution
Source: McQuilling Services, JBC Energy
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