The Crude Report: ESPO Blend exports on the rise

Author Argus

The production volume of light sweet ESPO Blend is expected to grow this year, partly due to Russia unwinding its Opec+ output cut agreement.

In this episode of The Crude Report, Argus Asian crude oil editor Nur Azlin Ahmad and crude oil editor Diana Mukhametzyanova discuss the near-term export outlook of ESPO Blend and how the fluctuating Chinese demand is affecting its pricing.

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Azlin Ahmad: Hello and welcome to The Crude Report, a podcast series from Argus on global crude markets. I'm Azlin Ahmad, the Asia crude oil editor at Argus based in Singapore, and joining me today is Diana Mukhametzyanova, crude oil editor at the Argus Moscow office, and she will discuss with us ESPO Blend crude and the export outlook.

Diana? Can you tell us a little bit about ESPO Blend and the companies that are currently involved in exporting the crude?

Diana Mukhametzyanova: Hello Azlin. Light sweet ESPO Blend is exported through East Siberia Pacific Ocean pipeline system from Russia's far east port of Kozmino. Some volumes also flow directly through China through ESPO from the ESPO system, and most of the ESPO blend volume that load from Kozmino go to Chinese independent refiners in the Shandong province.

Only 5 companies export ESPO Blend from Kozmino, as there are strict quality requirements for exporting this top-grade crude, and the biggest producers are state-owned Rosneft and private sector Surgutneftegas, while state-owned Gazprom and private sector Lukoil are also producers. And the fifth company is Concept Oils, which accumulates volumes mainly from independent producers and puts together cargoes for export.

Azlin: So how much ESPO Blend is Russia expected to export from Kozmino in the fourth quarter of this year?

Seaborne ESPO Blend loadings

Source: Argus Russian Crude Exports

Diana: Well, exports of ESPO Blend in the fourth quarter are projected to dip by 1% from the third quarter, to 8.7mn tonnes, but actually, exports might be higher, as October to November loadings have already totaled 6.2mn tonnes.

Azlin: And for the whole year of 2021, what are the planned export volumes from Kozmino and how would this compare with previous years' exports?

Diana: ESPO blend loadings from Kozmino are expected to rise by 4% to at least 34.3mn tons this year. This will exceed the system-operated Transneft revised forecast of 32.7mn tonnes. Transneft initially projected this year's exports at 30.9mn tons.

Azlin: The higher ESPO Blend exports - are they just because of the Opec agreement to increase production from August, or are there other factors that have led to the higher volumes?

Diana: Good question. Besides rising crude production, the higher ESPO Blend exports are also the results of large-scale maintenance at refineries in Eastern Russia, and the producers' attempt to maximize exports of ESPO Blend, which are more profitable than Urals.

Azlin: Apart from the waterborne ESPO Blend volumes that are exported from the Kozmino terminal, you mentioned earlier that Russia also sells the crude directly to China via pipeline, which I understand is on a long-term contract between Rosneft and China's CNPC. Can you tell us a bit more about how large those pipeline volumes to China are, and have they changed much in recent years? Do you expect much changes over the coming year?

Diana: Well, Rosneft in 2019 finally increased supplies to China's state-owned CNPC to the maximum 30mn tonnes per year, as it was agreed in long-term contracts through their spur from the ESPO system. So as far as we know, no significant changes are actually expected over the coming years, based on the current contracts.

Azlin: Also with the higher exports out of Kozmino this year, how do you think it will impact the individual exporter's share? Could there be any changes in the amount of crude or what...the amount of ESPO Blend that the exporters have this year compared to last year?

Diana: Key ESPO Blend supplier Rosneft will slightly reduce its Kozmino loadings this year by 1% only compared with the previous year, to 9.94mn tonnes, but this is according to the fourth quarter schedule. The company has diverted crude directly to China through this pipeline to ensure contractual commitments are met despite of their plus production limitations. And reduced Rosneft exports have freed up lower capacity for other producers who each have diverted crude to Kozmino from west-bound export routes. Surgutneftegas, Lukoil and Gazprom have all increased ESPO Blend supply significantly this year. Surgutneftegas could replace Rosneft as the top exporter of the grade in 2021. Meanwhile trading company Concept Oils is expected to cut exports by 6% due to reduced production.

Azlin: We have talked about China as the key buyer of ESPO Blend. Has there been much change, do you see the volumes that China has taken so far this year compared with last year? Do you see new buyers or new outlets beyond China that ESPO has gone to so far this year?

ESPO Blend destinations

Source: Argus Russian Crude Exports

Diana: Well, China, remained the key main destination for seaborne Kozmino exports in January - September, although supplies fell by 6% on the year to 74% of full ESPO blend exports, or it's 19mn tonnes. The drop reflected large scale maintenance at Chinese refineries in the first half of this year as well as lower import allocations for independent refiners and reduced demand because of tighter Covid lockdown restrictions.

Some volumes also went to traditional outliers such as South Korea and Japan. In addition, there were Singapore and US West coast refiners that bought ESPO Blend for the first time in two years.

Azlin: And what about the ESPO Blend price itself, has there been a significant change that you see?

Diana: Spot ESPO Blend cargoes loading in October and November average $2.89/bl premium to Dubai on...for Kozmino basis. This is down from $3.9/bl premium in the third quarter, but still higher than a year earlier when premiums were 52 cents. Tepid demand from China due to Covid restrictions and refiners' lower import allocations likely weighed on ESPO Blend premiums in October and November, but premiums for December cargoes may rise as refiners are expected to get more crude in the first quarter.

Azlin: So we have come to the end of our podcast on ESPO Blend. And thank you so much Diana, for talking us through what's been happening on the markets this year, and what different exporters are expected to export for the crude in the coming year.

For more information on Argus global crude pricing, news, and analysis, you can always subscribe to our Argus Crude service. For those looking more closely at the Russian markets, our Argus Russian Crude Exports and Argus FSU Energy services comprehensively covers the oil and gas markets in the former Soviet Union and Central and Eastern Europe. You can find more information at the services at Thank you so much for tuning in, and we look forward to you joining us on the next episode of The Crude Report.

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