Singapore — Australia's dwindling heavy sweet crude oil production and fluctuations in Venezuela's Merey crude exports could prompt China to source more heavy crude from Canada, with attractive price differentials for Cold Lake Blend further boosting Asian interest in Alberta's landlocked oil.
Three crude cargoes loading in November from Vancouver were bought by Chinese companies, with the first cargo for November 10 loading taken by China National Offshore Oil Corporation, or CNOOC, a shipping source with close knowledge of the matter said.
CNOOC had also chartered an Aframax tanker, the Nordtulip, to ship crude from Terasen Westridge Terminal in Vancouver to China that was loaded on October 13, at a lumpsum rate of $1.2 million, the shipping source said.
Chinese traders indicated that CNOOC could have taken either heavy sour Cold Lake Blend or Western Canadian Select crude into its latest shopping basket, but a company official declined to comment on the heavy sour Canadian grade it has purchased.
The latest round of Canadian crude purchases came on the heels of rapid decline in Australian heavy sweet crude output, coupled with a sharp slowdown in China's imports of heavy crude from Venezuela.
"ChemChina typically led the independent sector's heavy crude purchases from Australia but that's a dying trend now [due to limited availability] ... it's no surprise to see China's search for heavy crude oil stretching to Canada," said a sweet crude trader based in Beijing.
AUSTRALIAN, VENEZUELAN SUPPLY
Australia's heavy sweet grades including Enfield, Vincent, Pyrenees and Van Gogh that often feed into Chinese independent refinery systems saw their spot market supplies trending sharply lower over the past several years.
Woodside Petroleum's share of Enfield crude production in first-half 2018 decreased to just 400,000 barrels primarily due to natural reservoir decline. Cessation of production is scheduled for Q4 2018, the Australian oil and gas explorer said in its half yearly report.
Woodside's share of Vincent crude production decreased to 1.3 million barrels in H1 2018, from 2 million barrels in H1 2017 primarily due to production being suspended from May 1, 2018 to undertake floating production, storage and offloading vessel maintenance and modifications to enable additional production as part of the Greater Enfield project, the company said, indicating that Vincent crude production would only resume from mid-2019.
As for Venezuelan crude, Chinese independent refineries imported just 8.07 million mt over January-September, down 18.9% from a year earlier due to limited availability.
In July, Venezuelan state-owned PDVSA was committed to exporting 1.2 million b/d of Merey crude and 500,000 b/d of diluted crude oil, or DCO. But the company was only able to meet 44.1% of that commitment, delivering 593,000 b/d of Merey crude and 149,000 b/d of DCO, according to a monthly PDVSA crude plan seen by S&P Global Platts.
Cold Lake Blend has a gravity of around 21 API and sulfur content of around 3.75%, while WCS has a gravity of around 20 API and sulfur content of around 3.72%. Merey crude has a gravity of 16 API with 2.46% sulfur content.
Australia's Vincent is a heavy sweet crude with a gravity of around 17.4 API and sulfur content of 0.37%. Pyrenees has a gravity of 19.3 API with 0.19% sulfur, according to the grade's assay report dated September 16, 2011.
The higher sulfur content in Canadian heavy crude compared with Australian crude is not an issue for Chinese independent refiners as they have been primarily using heavy crude for asphalt production since early September, instead of for motor fuels production.
Autumn is the typical peak season for road construction, according to sources at independent refiners Dongming Petrochemical and Chambroad Petrochemicals.
In southern China, the construction season will last until end of the year, while the window for northern China will close in November, market sources said.
"Beijing has resumed massive infrastructure projects to stimulate domestic economy in H2, resulting to strong demand for asphalt," a Beijing-based analyst said.
STEEP CANADIAN DISCOUNTS
Purchases of Canadian crude had been extremely rare by Asian refiners before 2018.
Arbitrage economics to import Alberta's landlocked oil had often been difficult due to hefty transportation and logistics costs. Asian trade sources also noted that Vancouver was an expensive port to export oil from due to strict environmental regulations for tankers.
However, with cash differentials for heavy sour Canadian grades including Cold Lake Blend and WCS consistently remaining at steep discounts this year, various Northeast Asian end-users have stepped up their heavy Canadian crude imports so far this year.
Cold Lake at Hardisty was assessed at NYMEX light sweet crude calendar-month average (WTI CMA) minus $51.80/b earlier this month on October 11, the lowest level since minus $53.50/b on November 7, 2007, Platts data showed.
The differential averaged minus $26.84/b in Q1, minus $18.81/b in Q2 and minus $28.53/b in Q3. The discount has widened early in Q4 with the differential averaging minus $45.91/b so far in October.
Reflecting the attractive price differentials and the open arbitrage window, China's Hongrun Petrochemical took in its first Cold Lake Blend cargo of 100,000 mt in end-August.
Chambroad Petrochemicals has also taken delivery of a Cold Lake Blend cargo that arrived at Yantai port on September 22. The independent refiner will receive another 80,000 mt cargo of the crude later this month at Qingdao port.
Apart from Chinese end-users, South Korean refiners had also picked up a few Cold Lake Blend cargoes earlier this year.
In February, GS Caltex had received 274,000 barrels of Alberta's landlocked oil, a company source previously told Platts, while about 317,000 barrels reached a South Korean port in Q2, according to Korea Customs Service.
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