Crude Summit: Asian buyers eye supplies: Clarification

Clarifies the source of economic growth forecasts in paragraph 8

North American crude exports to Asia have undergone a "paradigm shift" in recent years as buyers ramp up purchases and turn to heavier grades, executives at Asia-Pacific refiners said at the Argus Americas Crude Summit in Houston, Texas.

India was importing 425,000-450,000 b/d of crude from US and Canada at the end of 2021, up from just 33,000 b/d in 2017, said Kashinath Shanbhag, head of crude oil and LNG trading at Indian refiner Nayara Energy.

Within that figure, the percentage of ultra-heavy crudes — below 25°API — has increased to 27pc of the total from 16pc in 2017, Shanbhag said. The share of light crudes has almost doubled to 67pc from 34pc, at the expense of medium grades such as US' Mars and Poseidon.

"That shows a paradigm shift in the way Indian refiners are focusing on the US Gulf coast," Shanbhag said.

Part of the increase in buying heavier grades has been to compensate for the drop in availability of Venezuelan crudes because of US sanctions, as well as lower exports from Mexico. Indian imports of ultra-heavy crude from Latin America have fallen to 350,000 b/d from around 600,000 b/d in 2017, he said. Nayara, which is majority owned by Russia's Rosneft, was one of the major buyers of Venezuelan crude before US sanctions cut flows.

Japanese refiners are also paying close attention to exports from the Americas, said Mitsuyasu Kawaguchi, general manager for crude and tankers at Japan's Cosmo Oil.

"Our company is actively buying crude from the US and Mexico, mainly medium grade Mexican Isthmus and some Latin American heavy grades," he said.

Kawaguchi also said he was "very encouraged" by the recent recovery of up to 1mn b/d per year in US shale production. "We see recent structural changes in ownership and continuous improvement in productivity, while the sector is returning more profit to investors," he said. "So these are all good signs that the shale industry seems to be growing in a more sustainable way than it used to be."

Cost concerns

Overall, Indian oil demand is poised for strong growth, with the IMF expecting the country's GDP to increase by 9.5pc this year — higher than other agencies' forecasts. Domestic demand had returned to pre-pandemic levels at the end of 2021, although Shanbhag said the emergence of the Covid-19 Omicron variant had started to affect consumption from the second half of December.

But cost remains a key focus. "One caveat to the growth story for US or Canadian exports into India is that the Indian refining system as a whole is very, very sensitive to price," Shanbhag said. For example, Indian buyers switched to medium rather than ultra-heavy grades last year in line with changes to arbitrage economics, he said.

Infrastructure investments, such as new pipelines that can bring more Canadian crude to the US Gulf coast and planned single-point mooring systems to load 2mn bl very large crude carriers (VLCCs) are important to buyers, Shanbhag said.

"All those dynamics have to work in sync to bring down logistics costs. That will be key for the growth in these barrels flowing into India," he said.

Cosmo is also paying close attention to exports from Canada's Pacific coast as pipeline expansion projects finally move ahead, Kawaguchi said.

By Kevin Foster