ANALYSIS: China, Japan scramble for oil as Sudan shuts fields
Mon Jan 30, 2012 12:50pm GMT
By Florence Tan
SINGAPORE (Reuters) - The shutdown in Sudanese oil supply could drive up
already record premiums on spot crude markets as top Sudan customers China
and Japan scramble for alternatives even as they weigh the impact on oil
flows of international sanctions on Iran.
South Sudan has shut down its oil output, estimated at around 350,000
barrels per day (bpd), as it and neighbour Sudan row over how to disentangle
their oil industries, borders and debt.
Before the shutdown, China imported most of that volume, bringing in around
260,000 bpd in 2011, according to Chinese customs data. That loss, in
addition to cuts China has made in imports from Iran as Beijing and Tehran
bicker over contract terms, has left China looking for alternatives
equivalent to around 10 percent of its imports, or around 545,000 bpd.
"It will be a challenge to try to meet the shortfall in supply due to this
sudden disruption as the overall quantity is not really that small," said
Victor Shum, senior partner at oil consultancy Purvin & Gertz said.
"Overall this is a tighter supply situation for Asian refiners."
The regional spot market is unlikely to provide much relief because of
limited availability due to a spurt in demand from Japan for power
generation after a devastating earthquake crippled nuclear facilities last
year.
The supply disruption has added to the rally, boosting spot premiums for
March to a record. It could drive prices even higher -- although any rise
may be tempered by refinery maintenance in the second quarter.
Sudan on Sunday released vessels loaded with South Sudanese oil, but has yet
to agree to more exports from the terminal.
The shutdown by South Sudan in protest has cut off supplies to equity
holders China National Petroleum Corp (CNPC), Malaysia's Petronas and
India's Oil & Natural Gas Corp.
"We expect some disruption in loading schedules with the production
shutdown," an official with one of the equity holders said. "We hope for a
resolution soon."
The heavy sweet grades -- Nile and Dar Blend -- produced in South Sudan are
preferred in Japan for power production and by Chinese refineries. They are
often blended to reduce sulphur content in fuel oil, a residue output from
refining crude and mostly used for running ships, for sale to power
utilities in markets such as Japan and Taiwan.
CHINA'S ALTERNATIVES
Overall, the Asia-Pacific region is net short of crude as output from aging
fields in Indonesia and Vietnam declines and as producers divert output to
meet rising domestic demand.
To make up for the loss from Iran, China has already been buying extra spot
crude from Russia, West Africa, Middle East and also Vietnam in January and
February.
"The disruption to crude imports from South Sudan has added to the reduction
China has made in Iranian imports early in this year," Roy Jordan,
London-based analyst from FACTS Global Energy said. "That means it will have
to look to other exporters in the Middle East and Atlantic Basin for
replacement crudes."
China has bought 10 percent more heavy sweet Angolan crude in March, pushing
spot premiums for the highly acidic and heavy sweet Dalia -- similar to
Sudan's Dar Blend in quality -- to a premium from a discount, a trader said.
Australian heavy sweet grades are a good substitute for Sudan, but exports
typically fall during the cyclone season every first quarter. Cyclone Iggy
disrupted output last week as producers shut several oil fields offshore
Western Australia.
China's imports from Australia rose 42 percent in 2011 to 81,939 bpd, and
gained 25 percent to 17,140 bpd from Vietnam.
China's Unipec has increased spot imports of Russia's ESPO to three cargoes
a month while it recently bought February Urals crude as the arbitrage
window opened.
Compounding problems for China is Japan's additional demand for crude. The
world's third-largest oil consumer has been regularly snapping up the bulk
of medium to heavy sweet crude from Vietnam and Indonesia, leaving little
for the spot market.
JAPANESE DEMAND
Alternatives Japan may be looking for include Gabon's Rabi Light crude and
low-sulphur fuel oil, oil economist Osamu Fujisawa said. It has already
started testing Rabi Blend, importing 600,000 to 1.2 million barrels a month
from July.
Japan imported 48,847 bpd of Sudanese crude in the first 11 months of last
year, up from 44,294 bpd in 2011. JX Nippon Oil & Energy and Mitsubishi Corp
are the key importers.
Sudan is the second-largest supplier of sweet crude to Japan after
Indonesia. Japan burns the oil at power plants.
FACTS Global Energy estimates Japanese crude purchases for use at power
plants will be 200,000 to 300,000 bpd in the second quarter, rising from
about 150,000 bpd now.
"Nile Blend is very popular for certain power plants in Japan as they form
the baseload for thermal power generation," a trader with a Japanese firm
said. "It would be tough to replace the crude as any change in quality could
affect the machinery," he said.
Asia is importing record volumes of West African oil this year, rebuilding
stocks after relatively low shipments in December, Reuters calculations
showed.
A drop in Brent's premium to Dubai to below $3 a barrel widened the
arbitrage window, allowing more crude to flow from the Atlantic Basin to
Asia.
"Overall, the Sudan volumes are not much in a global scale," said Natalie
Roberston, an analyst at ANZ. "But they are adding to the overall sentiment
in a market worried about supply disruptions."
Up to 500,000 new refugees could flee to S. Sudan: WFP
Mon Jan 30, 2012 3:46pm GMT
By Hereward Holland
JUBA (Reuters) - Conflict and food shortages could push up to half a million
Sudanese refugees to flee to South Sudan in the next couple months if
Khartoum does not allow aid agencies more access to its restive border
regions, the World Food Programme said.
South Sudan seceded in July under a 2005 peace deal that ended a
decades-long civil war with the north, but fighting has continued on both
sides of the poorly drawn border.
The United States has pressed Khartoum to allow more aid in the South
Kordofan and Blue Nile states, citing expert reports that said more than a
quarter of a million people could be on the brink of famine there by March.
Sudan's ambassador to the United Nations this month dismissed concerns of a
looming crisis in the two states, saying the situation there was "normal".
World Food Programme deputy executive director Ramiro Lopes Da Silva said
more than 1,000 people per day have crossed into South Sudan over the last
week, as many people as were crossing into Kenya from Somalia at the peak of
the famine in the Horn of Africa last year.
"In a couple of months it is what is typically the hunger season both in
Sudan and South Sudan and obviously the potential impact on those
populations is very serious," Da Silva told reporters.
"There is a sense of urgency that the window for an effective intervention
with the populations where they are is narrowing."
Fighting broke out in June between government forces and South Kordofan
rebels who sided with the southern army during the civil war. The conflict
spread to Blue Nile in September.
In South Sudan, aid agencies are already helping 83,000 Sudanese who have
fled aerial bombardment and ground attacks in the two states.
The Sudanese government accuses South Sudan of continuing to support the
rebel Sudan People's Liberation Army North (SPLM-N) in South Kordofan and
Blue Nile, charges Juba denies.
WFP says they are already planning to feed 2.7 million South Sudanese this
year, and are seeking donations to plug a cereal deficit which, according to
preliminary estimates, could amount up to 500,000 tonnes.
Da Silva said WFP is lobbying Khartoum to allow more humanitarian access to
Blue Nile and South Kordofan, but the government is worried the assistance
may fall into the hands of combatants.
C Thomson Reuters 2012 All rights reserved
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Received on Mon Jan 30 2012 - 12:53:24 EST
