Peru’s light sweet crude has window of opportunity in international market

Peru's state refiner Petroperu is looking at the possible export of a light, sweet crude next year that could be ideal for refiners seeking to meet International Maritime Organization's 2020 bunker fuel regulation.

A drastic reduction in sulfur levels of bunker fuels, from 3.5% to 0.5% effective January 1, 2020, will cause some refiners to buy crude oil with lower levels of sulphur.

Petroperu expects to have a decision on possible exports by the end of the year, according to a source close to the refiner.

The main driver for Peru's state oil company to export is a planned year-long shutdown at its 62,000 b/d Talara refinery for maintenance starting in March or April 2020.

Petroperu could find itself an exporter of a light crude that is known as "crudo del noroeste", never before seen in international exports as it is refined with heavier grades by Petroperu, including heavy, sour Loreto crude. The crude has a gravity of 37 API and 0.2% sulfur content and is produced in the northwest of the country.

Peru typically has a Panamax-sized vessel (360,000 barrels) of Loreto crude, 18.1 API and 1.3% sulfur content, every other month for export. Buyers are usually Chevron in California or Spain’s Repsol for its Peruvian refinery.

Production of the light, sweet crude stands at 35,000 b/d. At those rates, Petroperu could have a Suezmax or two Aframax-sized vessels or three Panamax-sized vessels per month for export. Of the 1 million barrels per month of production, Petroperu could likely consume no more than 10% of that volume at its 15,000 b/d Conchan refinery.

Petroperu receives the light, sweet crude from several blocks operated by five independent producers.

Olympic Petroleum produces about 2,000 b/d from its Lote XIII, while China's CNPC is the largest producer with 12,000 b/d from Lote X. SAPET produces from Lots VI and VII, while GMP produces from Lot I, XX, IV and V and Savia produces from Lot Z2B.

However, no increase in production is expected in the next year from these producers, so it is not certain if Peru enters the market to offer this crude, that it would continue to export this crude once the Talara improvements are completed.

This type of crude would be ideal during IMO 2020 for refiners that do not have coking units or desulfurization units, as their only means of reducing sulfur will be through refining "sweet" or low-sulfur grades of crude. These include crudes produced by the United States, Nigeria and – increasingly – Argentina’s Vaca Muerta shale play.

Go deeper: S&P Global Platts' infographic on the changing balance in global crude quality

This is a crude that is currently delivered to Petroperu's refining assets. Although Petroperu does not have an assay, the crude is considered to be light and sweet.

Once the refinery is upgraded, it is not known if Petroperu will be able to refine a light sweet crude or will seek a heavier, more sour grade of crude.