Argentina's light sweet Medanito crude is poised to increase its volumes into the European market in 2023 as production in the Vaca Muerta shale ramps higher and the grade remains heavily discounted.
Medanito pushed to an unseasonable low in 2022 after maintenance work at the 110,000 b/d Raizen refinery in Argentina reduced domestic consumption, resulting in ample supplies for the international market. The grade fell to a discount to Ice Brent of $8.25/bl on 19 September, making it more appealing to European refiners ahead of the EU ban on seaborne crude imports from Russia that started 5 December.
Although not a stranger to the European market, tankers loaded with Medanito crude arrived in the UK and Italy in the last quarter of 2022 for the first time since at least 2016, according to ship tracking firm Vortexa.
In October about 14,000 b/d departed Medanito's home port of Puerto Rosales in Argentina and arrived in Pembroke, UK. A month later roughly the same volume arrived in the UK at the port of Immingham, while Italian refiner Saras received more than 15,000 b/d at its 300,000 b/d Sarroch refinery on Sardinia.
Italy and the UK joined the Netherlands as takers of Medanito, which received around 2,800 b/d and 2,600 b/d in 2020 and 2021, respectively. About 1,300 b/d of the light sweet grade arrived in the Netherlands from January to November this year, Vortexa data shows.
Europe is also becoming a more frequent destination for sweet crude from Guyana, satisfying a growing demand for Latin American sweet grades. From January to early December, 58 vessels unloaded Guyanese crude at ports across Europe, up from seven vessels that made the journey during the same time a year earlier.
Medanito crude also managed to find a new home in South America, as cargoes of Medanito arrived in La Pampilla, Peru, for the first time in at least 20 years, according to Argentina government data. Vortexa data shows two Medanito crude-ladden tankers departed Puerto Rosales and arrived at the Peruvian port in December. La Pampilla is home to a 117,000 b/d refinery operated by Spain's Repsol.
Production growth has limits
In the shale-rich Neuquen province, the heartland of Argentina's Vaca Muerta shale formation, crude production in October topped 300,000 b/d, a 32pc increase from the same month a year before, making it the highest volume in the last 23 years, according to Argentina government data. Provincial governor Omar Gutierrez previously forecast oil production in Neuquen would reach 420,000 b/d in 2023.
But the existing pipeline network servicing Vaca Muerta could become a bottleneck with increased production, likely curbing the volume available for export. The Oldelval pipeline that connects the shale region to Puerto Rosales has a capacity of just 260,000 b/d.
A second pipeline, the 100,000 b/d Trans-Andean system, previously moved crude from Argentina to Chile. That pipeline, also known as Otasa, is expected to increase capacity to 115,000 b/d. From Chile, Argentinian crude could be transported to the port of Concepcion where it can be shipped to other countries across the Pacific.
Medanito crude values have not bounced back since falling in September 2022 and remain below seller expectations at a $10/bl discount, its widest discount to Ice Brent since Argus first began assessing the grade in August 2021. If the grade lingers around that value next year and European refiners' appetite for sweet crude persists, flows of the Argentinian grade to the region may become more frequent.
