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Kazakhstan's Caspian Pipeline Consortium (CPC) Blend crude moves to S Korea: traders

  • Author
  • Gabriel Yip    Shubhlakshmi Shukla
  • Editor
  • Jonathan Loades-Carter
  • Commodity
  • Oil

Kazakhstan's CPC Blend could begin flowing more regularly towards South Korea as growing volume encourages equity holders to look for new markets for the grade outside Europe, traders said.

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At least two cargoes of CPC Blend have been scheduled to load and sail for South Korea between January and February, trading and shipping sources said, in an arbitrage route that has, until now, been characterized as "weird."

"The cost [to send CPC East] is astronomical, and you already have condensate [in Asia] that matches it," a crude trader said of the conditions that have hitherto prevented a clear arbitrage from opening to South Korea.

Market sources said that the move to send CPC to Korea for the first time is likely tied to a need to expand into new markets with flows out of the CPC terminal near Novorossiisk in the Black Sea expected to increase moving forward.

The giant Kashagan crude field in the Caspian Sea -- which has yet to start exporting -- is expected to flow, at least in part, in to the CPC Blend stream, increasing overall volume through the export pipeline even as crude oil demand in Europe continues to fade.

"I think that TCO [the primary holders of CPC] are discounting to sell there in order to open up new markets," a crude trader said.

TCO declined to comment on the crude cargoes in question and its marketing strategy in Asia.

Crude grades are often offered at discounts to what they would likely fetch in the broader market when entering new markets in order to entice refiners to test them out. Until a base-load of demand has been built up, a specific grade will be unlikely to sell at a premium in a new market, even if it is still possible for it to sell at a stronger premium in a more traditional market.

"It is part of a strategy for not being stuck between the hands of the usual buyers," another European trader said. "Kashagan is obviously a big part of it, even if no one knows what is happening as far as Kashagan production is concerned."

Traders in Europe have echoed the sentiment that the expansion of CPC production will require holders of CPC equity to look towards new markets, and those new markets are most likely to be found in Asia.

"CPC production has doubled, so they have to expand their outlets," an Asian trader said. "Asia is the natural home for those West African and Mediterranean crude grades."

The light, sweet and naphtha-rich nature of CPC is also likely to appeal to Asian refiners, some of whom have labeled the grade as a possible alternative to both North Sea's Forties and the more-local Murban.

CPC has an API of 45% and a sulfur content of 0.56%, making it both lighter and sweeter than Forties and Murban which have an API of 38.7% and 39% respectively and sulfur content of 0.79%.

Perhaps more importantly, CPC has a naphtha yield of approximately 45%, with heavier N+A naphtha accounting for nearly 33% of the grade's total yield, also making it a possible substitute for regional condensates.

Asia's petrochemical industry makes it a heavy consumer and net importer of naphtha from Europe.

"It's a matter of the price and what blending molecules we are short," an Asian refiner said.

--Paula VanLaningham,
--Gabriel Yip,
--Shubhlakshmi Shukla,
--Edited by Jonathan Loades-Carter,