News
09/09/26
Asian refiners prioritise crude supply security: APPEC
Singapore, 9 September (Argus) — Asian refiners are shifting crude procurement
strategies from margin optimisation towards supply security and flexibility, as
geopolitical disruptions expose the risks of relying heavily on a single supply
region, industry executives said at the S&P Global Energy APPEC 2026 conference
in Singapore today. The shift is changing how refiners value crude. Buyers are
increasingly considering whether a cargo can be delivered reliably, processed
efficiently, and remain economic after freight, insurance, and other risks,
rather than assessing it solely on purchase price. "The best crude is not always
the cheapest crude," said Taejin Kim, vice-president and head of the crude oil
business office at SK Trading International. What matters is which crude can
reach the firm more reliably, and whether those shipments will still be economic
after considering freight and market risk, Kim said. Supply diversification has
also consequently shifted from a competitive advantage to a procurement
necessity, said Alejandro P. Gonzalez, commercial leader for supply trading and
logistics at Vietnam's Nghi Son Refinery and Petrochemical. "Six months ago,
crude procurement was to improve margins," Gonzalez said. "Now supply security
is the main driver, with a bit of optimisation of margins taking second place."
The shift has been particularly pronounced among Asian alternative crude
refiners, which are seeking sources to reduce their exposure to individual
supply regions, he said. Asian refining economics have historically centred on
securing mainly medium-sour crude from the Middle East which aid in maximising
margins. The Middle East will remain the region's core supplier, but refiners
are increasingly turning to the Atlantic basin to reduce supply risks. "The
Middle East remains the base, but Asian refineries are counting more on Atlantic
basin barrels," said Norway's state-owned refiner Equinor vice-president and
head of Asia-Pacific Desikan Sundararajan. US, Latin American and West African
grades are becoming more regular components of Asian crude slates rather than
remaining purely opportunistic arbitrage shipments. Canadian heavy crude is also
attracting strong interest, supported by the Trans Mountain pipeline expansion
and declining US west coast demand as regional refining capacity closes.
Japanese refiners, for example, now source more than half of their crude from
the US, while Taiyo Oil has increased its own US crude procurement by 20pc since
the start of the war, the company's chief executive Takahiro Yamamoto said.
Grade mismatch, margins But alternative grades can differ substantially from the
medium-sour Middle Eastern crude around which many Asian refineries were
designed. Lighter US crude and heavier Latin American or Canadian grades cannot
necessarily provide direct replacements, potentially requiring refiners to blend
multiple crudes while protecting yields and operational stability. Refining
margins are also changing how buyers calculate the cost of supply disruptions.
With strong double digit refinery margins observed for most oil products, the
opportunity cost of a delayed or missed cargo can outweigh the premium paid for
more reliable supply. A failure to secure replacement feedstock could force
refiners to reduce runs and forgo substantial margins. Crude diversification
also depends on whether a refinery has experience processing alternative grades.
Processing compatibility is therefore also becoming a more important component
of crude value. Grades that can be readily blended with other supplies provide
greater operational flexibility when regular flows are disrupted. Strategic
petroleum reserves can provide one to three months of supply during a
disruption, but genuine diversification requires experience processing
alternative grades under normal operating conditions, Yamamoto said. Refiners
must understand how unfamiliar grades affect equipment, yields and plant
operations before they are required during a crisis. Failure to test alternative
supplies could leave plants exposed to operational problems or unplanned
shutdowns if regular crude flows are disrupted. Refiners are also placing
greater value on flexible delivery terms, transport arrangements, and
destination clauses. A nominally more expensive cargo could become competitive
if it avoids a high-risk route, arrives sooner, or can be redirected to other
destinations as market conditions change. Executives said resilient procurement
would require a combination of long-term contracts and spot purchases. Term
agreements provide supply certainty, while spot purchases preserve flexibility
when crude prices, freight costs and refining economics change. Asian refiners
are increasingly considering multi-year agreements, although these must be
balanced against spot-market flexibility and a wider range of supply origins,
Sundararajan said. A growing number of bilateral trade agreements are also
opening unconventional supply routes. Equinor's recent delivery of a Norwegian
LNG cargo to India shows how new trade frameworks can support flows that were
previously commercially uncompetitive, Sundararajan said. Regional governments
must meanwhile decide whether to direct funding towards expanding strategic
petroleum reserves, which provide an immediate buffer against disruptions, or
supporting domestic upstream production to reduce longer-term import dependence.
For Asian refiners, the value of a crude cargo increasingly depends on whether
it can be delivered safely, processed efficiently, redirected if necessary and
replaced when disrupted, the panel said. By Asill Bardh Send comments and
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