Page 5 - FSUOGM Week 02 2021

FSUOGM COMMENTARY FSUOGM

The Gdansk refinery
receives Russian oil via
the Druzhba pipeline
system. Source: IEA.

Quality concerns OPEC+ talks
PKN Orlen still depends on Russia for 70% of Russia and Saudi Arabia, together with their
its crude supplies, although having Aramco as OPEC+ allies, have made unprecedented cuts
a partner in Gdansk would surely lead to more to oil production, raising concerns in Moscow
Saudi supplies entering Poland. Beyond pricing about Russian producers losing market share
and politics, Polish and other European refiners as a long-term consequence. However, OPEC+
have had another reason to reduce Russian pur- talks ended with a surprise concession by Saudi
chases: recurring issues with quality. Arabia, which agreed voluntarily to remove a
Russia’s flagship Urals blend is a mixture of further 1mn barrels per day of oil supply from
various heavy sour crude grades produced in the market in February and March. Russia and
the Volga-Urals Basin and lighter grades from Kazakhstan in contrast will be able to bring an
Siberia. But since the launch of Russia’s Eastern extra 75,000 bpd of production back on stream
Siberia-Pacific Ocean (ESPO) pipeline in 2009, next month.
Russian producers have sold an increasing share “Part of the reason this decision was so sur-
of their lighter, higher-quality oil grades to China prising is the harsh rhetoric of Riyadh towards
and the Asia-Pacific region, attracted by higher sub-compliers [in OPEC+],” Bjornar Touhaugen
prices. This has affected the quality of supplies at Norwegian energy consultancy Rystad Energy
to Europe, with Urals reporting a steady rise in said in a note on January 6. “One can only won-
sulphur content and higher gravity over the past der what exact back-door deals have been made,
decade. but it is no surprise that Russia would not be
Russia’s reputation as a supplier was then cutting or even keeping production steady into
severely undermined in 2019, when millions the winter months, as cuts to operations of the
of barrels of oil in the Druzhba pipeline sys- country’s old mature wells and fields create last-
tem were contaminated with organic chlorides. ing damage to its production capacity.”
These organic chlorides are used at oilfields to The Saudi reduction should create an oil mar-
boost recovery but can damage refining equip- ket deficit in February and March, according to
ment if left in the oil. Rystad, which is good news for producers. But
The so-called “dirty oil” crisis brought the the resulting strength in oil prices spells even
bulk of Russian oil supplies to Europe to a stand- weaker margins for refiners, which will have to
still. Refiners had to reach out to alternative sup- pay more for crude supplies at a time when fuel
pliers, giving them an opening to lock in market demand is sapped by renewed COVID-19 lock-
share. downs. ™

Week 02 13•January•2021 www. NEWSBASE .com P5