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Analysis: Russia's new Sabetta condensate may flow regularly to South Korea

Singapore — Russia's new Sabetta condensate, also known as Yamal condensate, could flow regularly to South Korea in the coming months as major refiners in Asia's biggest ultra-light crude importer assess the grade as a potential replacement to Iran's South Pars condensate, with SK Innovation recently making its first ever purchase for delivery in the fourth quarter.

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An official at SK Incheon Petrochem, which operates a 100,000 b/d condensate splitter at its Incheon complex, said it purchased a cargo of Sabetta condensate for delivery in November. SK Incheon Petrochem is a wholly owned subsidiary of South Korea's biggest oil refiner SK Innovation.

The seller of the cargo is not known, but sources said Sabetta condensate sellers typically vary between Yamal LNG project's majority shareholder operator Novatek and trading houses that buy cargoes from Novatek before selling it on to end-users in Asia or the Middle East.

However, Yamal LNG could not be immediately reached to confirm if Novatek has the sole condensate marketing right.

Other equity holders in the Yamal LNG project include Total and CNPC.

Two other South Korean end-users that had yet to purchase the grade reported receiving offers for Sabetta condensate, though they were still studying its viability as a feedstock.

"We got proposal from some companies, but we are still studying the quality," a source at one of the end-users said.

The source added that compared to Asia's most liquid condensate grade Australia's North West Shelf Condensate, Sabetta was a heavier condensate with lower yields of N+A naphtha.

NEW GRADE IN ASIAN MARKET

Sabetta condensate is a new entrant in the ultra-light crude market.

Production of LNG and condensate from the Yamal LNG project, located in Russia's Arctic, started in late 2017.

The first condensate cargo from the project was sold by Novatek to western trader Vitol in a 18,000 mt clip, according to media reports.

The flow of cargoes from the project has been incremental so far. Sources said Sabetta condensate is usually sold in MR-sized parcels of 30,000-40,000 mt, instead of the usual Aframax size that condensate cargoes in Asia are loaded in.

"They will usually co-load with another condensate before shipping it here [Asia]," a source said.

Apart from South Korea, Emirates National Oil Company was also earlier heard to have bought a cargo for delivery this month.

Condensate production from the Yamal LNG project is expected to reach around 1.2 million mt/year at its peak.

SOUTH PARS REPLACEMENT

The Russian condensate will join a growing list of exotic condensate grades that South Korean end-users have sampled as the re-imposition of US sanctions and the startup of the Persian Gulf Star refinery lead to a sharp cutback in exports of Iran's sole condensate grade.

Norway's Ormen Lange and Snohvit condensate grades, Nigeria's Escravos condensate, and US' Eagle Ford condensate have been heard among the new grades that South Korean refiners have processed.

The SK Incheon Petrochem official said the company had also imported 200,000 barrels of Malaysia's Kimanis condensate and 100,000 barrels of Senoro condensate last month.

"We are still seeking alternative sources through small volumes to help make up for the loss of Iranian condensate," the official said.

SK Incheon Petrochem took no cargoes of Iran's South Pars condensate in August, the official added.

Over May-July, the company imported around 750,000 barrels a month of South Pars condensate, down from 1.5 million barrels a month prior to that.

Sources at Hanwha Total, South Korea's biggest importer of Iranian condensate, also said they imported no cargoes of South Pars condensate in August.

South Korea has been paring back crude shipments from Iran in a bid to secure an exemption from US sanctions on Tehran, according to an official at state-run Korea National Oil Corp.

Asia's fourth-biggest energy consumer imported 6.2 million barrels of crude from Iran in July, down 46% from 11.44 million barrels a year ago, data from KNOC showed.

This marked the ninth consecutive decline since November last year when imports from Iran fell 26.8% year on year to 10.37 million barrels.

For the first seven months of this year, Iranian imports fell 36% year on year to 56.20 million barrels, compared with 87.81 million barrels in the year-ago period.

About 70% of Iranian crude brought into South Korea is condensate, and more than half of the condensate which South Korea imports are from Iran.

South Korea has held two rounds of consultations with the US in June and July, and the two sides are in talks for a third meeting soon, according to an official at the Ministry of Trade, Industry and Energy.

-- Andrew Toh, Charles Lee and Gawoon Philip Vahn, newsdesk@spglobal.com

-- Edited by Irene Tang, newsdesk@spglobal.com