• 2021 October 20

    Black gold: oil and coal rush off to ports

    The third quarter of 2021 was marked by an energy crisis both in Europe and in China. No wonder it boosted exports of crude oil, oil products and coal from Russian ports.

    In the third quarter of 2021, handling of crude oil in Russian ports rose by almost 11%, oil products – by almost 16%, year-on-year. Exports of coal rose by 2.4%.

    The increase of exports of crude oil and oil products was registered in all major oil ports, especially those in the Baltic Basin. Coal handling also rose in all basins excluding the Far East.

    The surge of the demand for crude oil and oil products was driven by the lack of supply. OPEC+ compliance with oil production cuts rose to 116% in August and to 115% in September. The situation is aggravated by the increase of gas prices in the beginning of the winter season in Europe. According to RF Government, crude oil production in Russia may exceed 522 million tonnes in 2021 with the next year expected to see the output of up to 560 million tonnes.

    Meanwhile, stevedoring companies announce their plans on modernization of oil terminals. As Aleksey Steklyannikov, General Director of Transneft-Service, told at the Black Sea Export Logistics Conference held in Sochi, Transneft-Terminal in the port of Novorossiysk is to see the construction of new tanks, reconstruction of the loading rack for light oil products as well as facilitation of tanker loading process. That will let increase the shipload and, consequently, reduce the cost of exports to Asia. From 2025, the terminal is to start handling commercial petrol. IPP terminal will also get additional tanks and ensure handling of all basic types of lubes including their imports as well as handling of mineral fertilizers. Novorossiysk Fuel Oil Terminal is supposed to handle bitumen and build up handling of light oil products. Implementation of those plans is to be finalized by 2025. KazKontrakt, in its turn, is set to arrange  transshipment of bitumen at the port of Azov.

    At the same time, Mikhail Skigin, Chairman of POT BoD, says this year has seen a reduction in the segment of light oil products due to the growing demand of Russian refineries. “From the beginning of the year the oil market has seen a high demand for oil products with a positive refinery margin while crude oil goes directly to refineries, not to the storage facilities. Therefore, exports of dark oil products is higher while light oil products do not leave the country, – says Mikhail Skigin. – We do not expect any crucial changes but it is really hard to make any long-term forecasts in the oil market which is of high volatility”.

    Although the current situation in the global market is favorable for boosting oil exports indeed the coronavirus pandemic with its new waves and lockdowns can drastically change the situation which can lead to production shutdown and consequent reduction of demand for energy resources.

    According to Pavel Sorokin, Deputy Minister of Energy of the Russian Federation, “we can keep the production level as it is today. However, with the price of $45-50 half of our resources bring no profit, almost all recognized discoveries – small deposits – get less and less efficient. Therefore, it is important to understand how we are going to deal with hard-to-recover reserves. Yet, I emphasize that we are not going to lose our market share, we are still an efficient producer with production costs of about $10-20 excluding taxes”.

    An interesting situation is seen in the segment of coal handling. A year ago, the decrease of coal demand in Europe entailed a redirection of coal exports flow eastwards and that situation reversed in the second half of this year. Amid the energy crisis, coal prices increased and the Far East transport infrastructure  found it partially loaded with other cargoes. Coal returned to the Baltic region: in the third quarter, coal exports via the port of Ust-Luga rose by 20%, year-on-year.

    In the Southern basin, dry bulk cargo terminal in Taman is building up its capacity which is reflected by the statistics: coal handling in the basin rose by almost 50%, year-on-year. From there, coal is mainly exported to the Middle East, Africa and Asia. Operator of OTEKO terminal is considering the expansion to 100 million tonnes of dry bulk cargo per year if there is a demand.

    Nevertheless, in view of hard to predict market situation of the pandemic period we can only forecast high volatility with sharp changes in demand/supply balance, freight rates and availability of fleet. That suggests the necessity to continue active development of the entire transport infrastructure, from the capacity of BAM and Transsib to the development of the Northern Sea Route.

    By Vitaly Chernov


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