Rare and risky move to move oil from Russia to China

Rare and risky move to move oil from Russia to China

China is ready to load almost all ESPO, a kind of Russian oil, this month. (File)

A logically risky and costly crude transfer of tankers at sea highlights the steps that at least one Chinese buyer is willing to take to ensure smooth flow of oil from East Russia to Asia.

According to shipbrokers, buyers are using creative ways to keep buyers afloat as more shipowners stay away from Russian oil due to the possible fall from financial sanctions. Smaller ships are being used for shuttles between the Russian port of Kozmino and the waters of Yeshur in South Korea, where cargoes are transferred from ship to ship in supertankers at the next stage of the voyage to China.

This process is unusual for ESPO crude, a type of Russian oil that is usually loaded into small tankers for a direct, five-day voyage to China. Although this adds up to the overall sailing time and cost, brokers say the practice is becoming more common as shipowners and buyers prioritize the ready supply of small vessels for ferrying oil from Kozmino in the short term.

Interested buyers of Russian crude will benefit from steep discounts compared to global benchmark prices as others avoid a deal with Moscow over the war in Ukraine. Despite international condemnation and logistical and financial constraints, cheap oil has made it attractive for top consumers like China and India to continue importing from OPEC + producers.

China is ready to take on almost all ESPO loading this month, a grade that often flows to other countries, such as South Korea and Japan, due to its proximity and easy logistics. Cargoes are usually transported directly to the receiving port from loading in Aframax and Long Range-2 tankers.

Compressed fleet

The number of shipowners and insurers willing to handle loading from eastern and western Russia is declining, ship brokers say. This has created a logistical challenge for producers and buyers as they work with fewer tankers and have to consider how to deploy the available ship types.

Yang Li Hu and Yang Mei Hu – both LR-2 tankers – loaded the ESPO between May 16 and May 18, to transfer oil to the supertanker Yuan Qiu Hu before heading to Yesu, according to ship-tracking data. The huge crude carrier was only three-quarters full when it left for China.

The ships are owned by China’s Cosco Shipping Holdings Company, and according to shipbrokers, UNIPEC has chartered the tankers. No one responded to the call at the spokesperson’s office in Cosco, while an email was not immediately responded to. A Beijing-based official with the China Petrochemical Corporation’s press office – the head of UNIPEC – declined to comment.

A Kovid-19 resurgence in China has dampened some demand and curtailed its long-term crude imports, resulting in a substantial supply of VLCC. The abundance of large vessels means that ship transfers from rare ESPO vessels can be replicated more often because smaller ships make smaller voyages.

Shipbrokers say there is now a high demand for small tankers that are capable of efficiently shutting off cargoes from Cosmino. Since the recent transfer, Yang Li Hu has picked up another ESPO cargo on May 23 and is on his way to Yesu, while Yang Mei Hu is scheduled to arrive in Kozmino for the next loading on May 26.

Although ship-to-ship shipping from small to large tankers is common for long-distance shipments of crude goods such as Russian Urals, which are increasingly flowing from the Baltic Sea to Asia, this is almost unheard of for ESPO. This is due to the short voyage required to deliver cargo to major customers in Asia.

Shipowners such as Cosco Shipping and Russia’s Sovkamflot handle large quantities of Russian crude oil from ports such as Kozmino and Ust Lugar in the Baltic Sea. In recent weeks, others, such as Maersk, have stopped their Russian transactions, while more companies wait and see concerns about stricter rules and possible oil sanctions by the European Union.

(Assisted by Sharon Cho and Sarah Chen)

(Except for the title, this story was not edited by NDTV staff and was published from a syndicated feed.)

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