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Home / Issue Archive / 2010 / April #4 / Russia's ESPO Crude Oil Gains Acceptance as a Key Asia-Pacific Price Reference

№ 4 (April 2010)

Russia's ESPO Crude Oil Gains Acceptance as a Key Asia-Pacific Price Reference

Market acceptance of Russia’s Eastern Siberian Pacific Ocean (ESPO) crude oil as an important regional price reference has been growing steadily since the first exports of ESPO six months ago to the Pacific Basin via Russia’s Kozmino port, according to Platts, a leading global provider of energy and metals information and a division of The McGraw-Hill Companies (MHP). 

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ESPO oil exports have found willing buyers in a total of eight countries in the Pacific Rim, according to an updated special report by Platts detailing the background of the stream, the full breakdown of ESPO exports by destination, specifics on the ESPO loading program and assay information.
The Platts report notes that buyers of ESPO crude oil come from both sides of the Pacific Basin, eastward from Asia and westward from the United States, with Malaysia, in late May, becoming one of the latest countries to purchase the new oil stream. The largest importer of ESPO crude since December has been South Korea (39 percent of total ESPO crude exports), followed by Japan (20 percent) and the U.S. (14 percent), according to the Platts report.
“The wide acceptance of ESPO on both sides of the Pacific Ocean appears to have solidified the grade’s role as a key regional reference point,” said Jorge Montepeque, Platts global director of market reporting. “Because of this grade’s potential and the need by industry and the marketplace for timely information on its valuation, Platts since December has been gathering data on transactable values in the open market and publishing a daily price assessment for the East-bound crude twice a day — at the close of trading in the physical markets in Singapore and in London. We’re committed to helping bring transparency to the pricing of this oil stream to both producers and consumers.”  
As of May 11, ESPO exports via the Kozmino port reached 5.45 million metric tons (mt) or about 39.785 million barrels. This represents one-third of the total planned volume for 2010, according to Russia’s national pipeline operator Transneft.
“Malaysia’s purchase of the new crude stream is further evidence of the increasing popularity in Southeast Asia for the crude, coming behind buying interest by Thailand, Singapore and the Philippines,” said Dave Ernsberger, Platts global director of oil.
The Melaka II refinery, a joint venture between Malaysia’s state oil company PETRONAS (53 percent) and U.S.-based ConocoPhillips (47 percent), will be the first Malaysian refiner to process the crude in June or July, according to Platts. Prior to its May purchase of about 100,000 mt of ESPO, the refinery--with capacity of about 140,000 barrels per day (b/d)--historically processed mostly medium- and high-sulfur content crudes from the Middle East. ESPO is lighter and contains less sulfur than typical Middle East crudes and Urals, the most common Russian crude oil for export.  
The first exports of ESPO crude via Russia’s Kozmino port began on December 28, 2009, when a 100,000-mt Rosneft cargo departed for Hong Kong. The ESPO pipeline, which currently runs from East Siberia to Skovorodino in Far East Russia, has a capacity of 600,000 b/d. Capacity is slated to increase to one million b/d by the year 2013. The current export rate for ESPO crude is around 325,000 b/d.
The first ESPO price assessment by Platts was $74.01 per barrel (/b), compared with the Urals assessment at $72.93/b and Dated Brent at $73.32/b on December 16, 2009.
Platts’ decision to publish daily ESPO price assessments followed more than a year of consultation with major oil producers, consumers, Russian energy ministry officials, transportation and other petroleum industry experts. Prior to Platts beginning its daily ESPO price assessments, Russia’s Rosneft sold on November 23 the first ESPO cargo through a tender auction at a 50-cent premium to the average Platts Dubai prices published for December.
The Platts ESPO price assessment employs the time-tested Market-on-Close methodology that has been used in physical oil and product markets worldwide for nearly 20 years. Platts MOC is a highly transparent price assessment process based on the principle that price is a function of time. The MOC process identifies bid, offer and transaction data by company of origin and results in a time-sensitive end-of-trading-day daily price assessment.
To view the special report, visit this web link: https://www.platts.com/IM.Platts.Content/InsightAnalysis/IndustrySolutionPapers/espoupdate0510.pdf.
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