China’s Russian crude import may fall in the wake of Ukraine conflict

Patricia Tao

03-Mar-2022

SINGAPORE (ICIS)–China’s crude import volumes from Russia are expected to fall in the coming months as shipment delays and payment problems associated with Russian cargoes have started to surface following the sanctions imposed after Russia invaded Ukraine.

The recently announced Western sanctions on Russia have primarily focused on individuals and Russian banks, and Russian energy exports have been excluded from the sanctions so far.

However, some privately-owned refiners in China have reported difficulties in booking Russian crude cargoes because Chinese banks have stopped issuing letters of credit for Russian crude.

A privately-owned refiner said it has brought forward its refinery maintenance from April to early March as its shipment of Eastern Siberia Pacific Ocean (ESPO) – a type of crude oil supplied from Russia to the Asian Pacific markets of Japan, China and Korea – originally scheduled to arrive in April has been delayed.

The refiner said it was not clear what caused the delay but soaring oil tanker freights could have disrupted shipments from Russia.

Approximately 50% of China’s crude imports from Russia are delivered by sea.

The freight rate of a 100,000-dwt crude oil tanker from Kozmino to China rose to $900,000-950,000 on 2 March, up by 86% compared with 23 February before the Russia-Ukraine conflict broke out, according to SSY Consultancy & Research.

And the freight rates out of Black Sea to other countries have tripled during the period.

Some teapot refiners in Shandong said Russian crude Ural is currently offered at historical-high discounts but that it is very difficult to find vessels because shipowners are unwilling to take the risk of shipping Russian cargoes.

With API at 31.78 and sulphur content at 1.56%, Ural is closer to Oman crude in terms of specifications, and the low prices may attract interests from some teapot refiners in Shandong, domestic traders who supply feedstocks to teapot refiners said.

Russian crude exports to China via pipelines have not been affected by the Russian-Ukraine conflict.

Sources at PetroChina’s refiners in northeast China, Dushanzi Petrochemical in Xinjiang Autonomous Region in northwest China, and Sichuan Petrochemical in southwest China said their crude supplies from Russia via pipelines have not been affected.

China receives Russian crude via two pipelines stretching from east Russia to northeast China.

The China-Russia Crude Oil Pipeline No 1, which delivers ESPO crude, links Skovorodino in Russia to Mohe, a border city in Heilongjiang province in northeast China.

The China-Russia Crude Oil Pipeline No 2, a sub-line of the Pipeline No 1, is also linked from Skovorodino in Russia to Mohe City.

The No 1 and 2 pipelines have a combined capacity of 30m tonnes/year.

Russian crude is also delivered via the Kazakhstan-China pipeline which is linked to the Xinjiang Autonomous Region in southwest China.

Russian crude accounted for 15.50% of China crude import in 2021, 4.6% lower year-on-year.

China and Russia renewed their a 10 year agreement on 4 February this year for 100m tonnes to be delivered via the Kazakhstan-China pipeline.

According to Chinese sources, this pipeline has a design capacity of 20m tonnes/year but it is currently transporting over 10m tonnes/year of crude, of which about 70% is Russian crude delivered to China.

Analysis by Patricia Tao, Jean Zou, Yu Yunfeng

Click here to read the Ukraine topic page, which examines the impact of the conflict on oil, gas, fertilizer and chemical markets.

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