Skip Navigation LinksMy Argus / News / News Story

China's North Sea appetite grows

06 May 2016 19:21 (+01:00 GMT)
China's North Sea appetite grows

North Sea crude is increasingly moving to China, as demand from the so-called teakettle sector draws in shipments

London, 6 May (Argus) — Rising Chinese demand is drawing more North Sea crude east and accounting for a growing share of the region's exports.

More than 80,000 b/d of light Forties was shipped to China in January-April, up from around 30,000 b/d over the same period a year earlier. This represented close to a fifth of Forties' 440,000 b/d output over the period, up from an 8pc share a year earlier, when production was 400,000 b/d. A further 15,000 b/d of North Sea light sweet Ekofisk crude was exported from the Teesport terminal to China in January-April, up from nothing over the same period a year earlier. And a further 1mn bl of Ekofisk set sail for China in early May. Forties and Ekofisk are components of Atlantic basin crude benchmark North Sea Dated.

Chinese demand for Forties has on occasion outstripped buying interest from South Korea, which was the largest export destination for the grade last year, taking 100,000 b/d (see graph). Forties exports to South Korea have been feasible partly because of a free-trade agreement between the EU and South Korea, which removes tariffs on imports from the region.

The rise in Chinese imports of North Sea crude can at least partly be explained by a rise in Chinese crude demand. Net crude imports to the country reached a record high of more than 8mn b/d in February, up by around 20pc compared with a year earlier. Firmer demand from China's so-called teakettle refiners has contributed to the growth in imports. Beijing last year began to allow teakettles — which until then had run on a diet of local grades and straight-run fuel oil — to import crude.

Teakettles imported 640,000 b/d of crude in February this year, a record high for the sector. Teakettle refiners have also been adjusting their crude import mix, loading less Russian light sweet ESPO Blend and taking more west African cargoes and even Forties. Forties and Ekofisk can be substituted for a variety of grades, including ESPO Blend, light sour Abu Dhabi Murban and light sweet grades from west Africa.

Only three of the five Forties-laden very large crude carriers (VLCCs) that have departed the Forties Hound Point terminal for China this year have already arrived at their destinations. Two of the vessels unloaded at terminals used by teakettle refiners based in Shandong province. The Shell-chartered Al Funtas arrived at Rizhao Lanshan on 3 March after leaving Hound Point on 12 January, while the Olympic Light — also chartered by Shell — arrived at Yingkou on 19 March after leaving the Forties terminal on 20 January. The three Ekofisk Suezmax cargoes that have departed for China have signalled for Yingkou — a port used by at least one Chinese teakettle refiner.

Olympic flagged

Two VLCCs carrying Forties chartered by Sinopec trading arm Unipec remain en route to China — the OlympicLoyalty II and the Shanghai — and it remains to be seen where the vessels unload, as neither has specified a final destination. A Vitol-fixed VLCC, the Maran Canopus, is also on its way to Asia-Pacific, having originally been fixed for South Korea before instead signalling for Singapore. Singapore is rarely the final destination, meaning that the cargoes could still be destined for China or South Korea.

Chinese demand for crude has been firm this year. And investments are being made in the teakettle sector — including new crude pipelines and storage tanks — raising the possibility that teakettle crude demand will rise further. Oil firms and trading companies are expected to try to meet the growing demand, sometimes with North Sea grades.


Forties destinations