A growing number of Asian refiners are keen to regularly buy European and Australian crude oil regardless of the arbitrage economics, as the end-users aim to fill a certain portion of their monthly feedstock baskets with crude and condensate certified as carbon neutral.
Asian refiners' appetite for non-Middle Eastern crude grades are often determined by benchmark price spreads and related arbitrage trading margins. The Brent-Dubai price spread typically plays a crucial role as a key arbitrage feasibility indicator for many refinery feedstock trading managers in Asia looking to buy crude from west of the Suez or low sulfur grades from other regions.
However, South Korean refiners may disregard the arbitrage pricing mechanism to some extent and regularly purchase Johan Sverdrup crude from Norway, as the companies strive to minimize their carbon footprint by embracing the European oil.
The Brent-Dubai spread rallied to a 25-month high in the week ended July 9, making various crude grades produced in the North Sea, Africa, the Mediterranean and Oceania that are linked to the European benchmark less economical than Dubai-linked high sulfur Persian Gulf grades.
Despite the narrow arbitrage window, South Korea's second biggest refiner GS Caltex purchased 2 million barrels of Johan Sverdrup crude certified as carbon neutral at the point of production, the company said in a statement. The cargo will load in the third week of July and the shipment is expected to arrive in September, according to a trading source with direct knowledge of the deal.
Sweden's Lundin Energy, a partner in Norway's giant Johan Sverdrup oil field, said June 16 that all future net production from Johan Sverdrup will be certified as carbon neutrally produced by Intertek, under its CarbonZero standard.
"Residual emissions from net production at Johan Sverdrup have been neutralized using high quality, natural carbon capture projects, certified by the Verified Carbon Standard," according to Lundin.
"We are very proud to purchase the first Johan Sverdrup cargo certified as carbon neutrally produced. At GS Caltex, we are striving to reduce our carbon footprint as part of our commitment to good environmental, social and governance practices," GS Caltex President and CEO Hur Sae-hong said.
Other major South Korean refiners and petrochemical makers, including SK Innovation and Hyundai Oilbank, are also considering picking up a few low carbon crude cargoes, including Johan Sverdrup, on a more regular basis, according to the refinery sources.
South Korea is expected to import more than 11 million barrels of crude from Norway in 2021, compared with 8.5 million barrels received in 2020, 1 million barrels in 2019 and 5 million barrels in 2018, according to multiple South Korean refinery sources and market analysts in Seoul surveyed by S&P Global Platts.
Low carbon Australian oil, LNG
Apart from the European oil, Australia's low carbon oil and gas cargoes are rapidly gaining popularity among Asian end-users looking to enhance and incorporate their ESG considerations, with Thailand and Japan actively picking up Ichthys condensate and LNG spot cargoes.
Project operator INPEX said the Ichthys project is one of the world's largest and most complex operations of its type, featuring high energy efficiency technologies to minimize GHG emissions over its 40-year operational life.
Australia's long-term strategy and domestic actions are underpinned by rigorous emissions monitoring and accountability systems, according to the Department of Industry, Science, Energy and Resources.
In recent trading cycles, Thailand's PTT bought two 650,000-barrel cargoes of Ichthys condensate for loading over July 17-21 and Aug. 16-17, respectively, according to Asian spot trade information collected by Platts. PTT was said to have paid a premium of around 65 cents/b to Dated Brent on a FOB basis for the July cargo and a premium of around $1.15/b for the August-loading condensate, according to traders in Singapore with knowledge of regional sweet crude spot deals.
PTT said it has been actively conducting Greenhouse Gas Accounting to track its GHG inventory, in emissions, absorption and storage over the past several years.
"This mechanism tracks and reports direct GHG emissions, indirect GHG emissions and other GHG emissions. GHG data is externally verified by an independent third-party organization on an annual basis," it added.
INPEX recently received its maiden carbon neutral LNG cargo at its Naoetsu LNG Terminal in Niigata prefecture from its operated Ichthys LNG project in Australia, using carbon credits in the arrangement with major Ichthys partner TotalEnergies SE.
INPEX said credits were applied to greenhouse gas emissions across the Ichthys project's entire natural gas supply chain, including upstream production, liquefaction, transportation, regasification, marketing and combustion by customers in Japan.