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Analysis: Light sweet Malaysian crude may face new Australian rival

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Analysis: Light sweet Malaysian crude may face new Australian rival

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Montara crude could be offered after Jadestone buys field from PTTEP

Jadestone's light sweet Stag crude output surpasses 3,600 b/d

Could put pressure on Malaysian Kimanis, Kikeh spot differentials

Singapore — Two light sweet Australian crude grades could regularly appear in the Asian spot market later this year following independent upstream company Jadestone Energy's acquisition of the Montara oil field and rising output from its Stag field, posing a serious competition to various Malaysian grades.

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Jadestone Energy said in a statement last week that it has acquired a 100% stake in Australia's Montara oil project from Thailand's PTT Exploration and Production.

Montara crude is rarely seen offered in the spot market as output is reserved for Thailand's domestic refineries. PTT typically ships an Aframax-sized cargo of Montara crude to Thailand every one to two months.

However, Asian sweet crude traders noted that Jadestone's latest acquisition from the Thai upstream company could mean that Montara crude will be made available in the Asian spot market on a regular basis once it wraps up all the regulatory and financial procedures.

"Operatorship transfer requires Australian regulatory approval, which we expect should happen at about the end of 2018/early 2019. As an approved operator in Australia already, we don't foresee any hiccups with that process," Robin James Martin, investor relations manager at Jadestone Energy, said in an email.

The Montara oil project consists of three oil producing fields -- Montara, Skua and Swift/Swallow.

Combined crude oil output from the three fields is around 10,300 b/d, which could mean that at least 300,000 barrels of the light sweet grade will likely be offered into the Asian spot market every month.

In addition, around 100,000 barrels of light sweet Stag crude could also be offered for co-loading every trading cycle in the Asian sweet crude market after Jadestone's announcement late last year that average production rate from the oil field exceeded 3,600 b/d.

Price differentials for flagship Malaysian export grades including Labuan, Kikeh, Kimanis and Miri could face some downside pressure when the two light sweet Australian grades start to make regular appearances in the regional spot market, Southeast Asian crude traders said.

"Rough calculation is that around 400,000 barrels of the two grades can hit the market every cycle, not huge but enough to entice some of the regular Malaysian crude buyers," a Singapore-based sweet crude trader said.

COMPETITION

Many of the regular buyers of light sweet Malaysian crude could take Montara and Stag as alternative feedstocks as the two Australian grades share similar qualities with Kimanis and Kikeh which are coveted for their high yield of distillates such as gasoil and jet fuel/kerosene.

Montara has a gravity of around 35 API with a sulfur content of less than 0.05%. Kimanis is a middle distillate-rich grade with a gravity of 38.61 API and 0.06% sulfur.

Major consumers of Malaysian grades include Australia's Kwinana and Lytton refineries, Indonesia's Pertamina, Philippines' Petron Corp., Thailand's PTT and Bangchak refinery and India's Bharat Petroleum Corp. Ltd. just to name a few.

The regional refiners would not hesitate to pick up the Australian grades if Southeast Asian spot crude premiums rise sharply, market participants said.

Kimanis -- the most actively traded sweet crude in the Southeast Asian spot market -- for one, has consistently commanded lofty premiums in the regional spot market, with S&P Global Platts assessing the grade in the range of Dated Brent plus $3-$4.2/b so far this year.

"Benchmark Malaysian grades are among the most expensive grades [in the Asia Pacific sweet crude market] ... any cheaper light sweet alternatives in the region are always welcome," a source at a Southeast Asian refiner said.

Price spread between Kimanis and Australia's Cossack crude for one, showed that the Malaysian grade consistently commanded a premium over the light sweet Oceania crude so far this year, Platts data showed. Kimanis was assessed at an average premium of $2.35/b to Cossack in the second quarter and $2.60/b in Q1.

-- Gawoon Philip Vahn, philip.vahn@spglobal.com

-- Andrew Toh, andrew.toh@spglobal.com

-- Edited by Irene Tang, irene.tang@spglobal.com