SPR or not, Russian oil sales to U.S. already on the way out
NEW YORK, March 13
NEW YORK, March 13 (Reuters) - A test sale from the U.S. emergency oil reserve on Friday may or may not be a subtle warning to Russia, but it will have little effect on U.S. imports from the world's biggest producer, which will likely slow to a trickle this year.
The Department of Energy will take bids later on Friday to sell 5 million barrels of sour crude from the nation's Strategic Petroleum Reserves, to be released from salt dome caverns in Texas and Louisiana.
But the sale is unlikely to displace already shrinking Russian crude imports, which have significantly changed in variety and geography over the past few years.
Four years ago, Gulf Coast refiners imported as much as 177,000 barrels-per-day (bpd) of Urals sour blend crude from Russia's Black Sea or Baltic ports. Now, however, most Russian barrels are light sweet ESPO or Sokol grades that cross the Pacific Ocean from Siberia to West Coast refineries.
Even those are quickly losing ground as cheap crude from U.S. shale plays, such as North Dakota's Bakken, squeeze out more foreign oil.
Imports from Russia stood at 16.3 million barrels in 2013, making it the 13th largest supplier, according to data from the U.S. Energy Information Administration (EIA). That was equivalent to 2 percent of the volumes imported from Canada, the largest oil exporter to the United States.
The Bakken shipments "will keep imports to a minimum" although the threat of rising rail costs due to tougher regulations may still keep some barrels flowing, said Al Troner, president of Asia Pacific Energy Consulting (APEC).
"I don't think they will abandon Russian imports altogether - no refiner wants to completely cut off slate alternatives."
Russia remains the world's top oil-producing nation with 10.58 million barrels-per-day of output in February, according to BP Statistics. But a growing share of that is now headed to China and other countries in Asia, where demand is rising.
There is yet no indication that Russia may seek to use its oil exports as a lever in the intensifying dispute with Europe and the United States over Crimea. Yet, the SPR release can serve as a reminder that shale oil fields are changing the balance of global petro-power.
"The U.S. is there to dampen any effects via SPR releases," a trader with a Western firm said. "There's no way they would fight. It's all sabre-rattling."
FROM BAKKEN WITH LOVE
The two biggest importers of Russian crude, Tesoro Corp. and BP Plc., have been weaning themselves off by sourcing more oil from the prolific Bakken shale of North Dakota. Those flows are only set to grow.
Tesoro, which accounted for nearly half of all Russian crude imports last year, is working with Savage Services to develop a 360,000 bpd rail offloading terminal at the U.S. Port of Vancouver, the largest of a handful of projects designed to deliver North Dakota oil up and down the coast.
Tesoro imported about 20,000 bpd of Russian oil last year, half of that to its refineries near Los Angeles, California, the EIA data show. That's just one-third as much as it bought in 2012, when it shipped a large bulk of its imports, some 20,000 bpd, to its refinery in Anacortes, Washington. That refinery is now taking in some 50,000 bpd of Bakken by rail.
Even with the $7-a-barrel cost to ship North Dakota crude by rail to Washington, Bakken still costs just under $100 a barrel at Thursday's prices. ESPO Blend, by contrast, runs nearly $110 a barrel before shipping costs.
"As a matter of longstanding policy, we do not discuss specific details related to our crude movements or crude slates," Tesoro spokeswoman Elizabeth Watters said in an email.
Some of the decline was likely caused by Tesoro's sale of its 94,000 bpd Ewa Beach (Kapolei) refinery in Hawaii to Par Petroleum, which is supplied through a deal with UK bank Barclays. The bank bought 1.45 million barrels of Russian light sweet and sour oil for the refinery in the last two months of 2013, the EIA data show.
Barclays declined to comment on its supply deal.
BP Plc, the second largest importer of Russian oil in 2013, received a total of 3.2 million barrels last year, more than half of which went to its Cherry Point, Washington refinery. That may fall further since BP began receiving nearly 60,000 railed Bakken crude at the plant in December.
Sources close to BP's operations said the company's Russian imports declined after it sold its California plant to Tesoro in 2013. Tesoro integrated the 266,000 bpd Carson, California, refinery with its adjacent Wilmington plant.
The third largest importer of Russian crude last year, Citgo Petroleum , stands out because it does not have a West Coast refinery. Citgo imported 1.6 million barrels of mostly light sour Russian crude to its Gulf Coast refineries in Texas and Louisiana, EIA data shows.
The company did not respond to repeated requests for comment.
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