• Analysis: India’s ONGC picks right time to offer Brazilian crude to Asia

    India’s ONGC Videsh Ltd could not have picked a better time to offer multi-month supply of Brazilian Ostra crude oil to the Asian market as Australia was set to halt production and exports of its heavy sweet crude grades during the second-half of this year. The Indian upstream company’s subsidiary ONGC Campos Ltda., issued a tender earlier this month, offering heavy sweet Ostra crude for loading directly from Espirito Santo FPSO in Brazil’s Campos Basin between June 1 and November 30, the official tender notice showed.

    The tender notice indicated that the quantity of crude offered would be OCL’s entire Ostra crude oil entitlement over the period of contract. The sell tender was issued at a right time as many regional refiners that often require a regular dose of heavy sweet crude oil, have been fretting about the potential shortage of Australian supplies during the latter half of this year, market participants said.

    A slew of upcoming maintenance at Australia’s Exmouth sub-basin oil fields would wipe out most of heavy sweet Enfield, Vincent and Pyrenees crude supplies for the next couple of quarters, but ONGC’s offer of fuel oil-rich Brazilian grade may help fill that supply gap, Asian trade sources said. “Australian heavy grades are niche items that often feed big refiners in China, India, South Korea and even the US west coast … Ostra should draw plenty of Asian interest [because heavy] Australian grades will be missing [during the second half of 2018],” a South Asian crude oil trader said.

    The tender closes Tuesday, 9:30 am India Standard Time (0400 GMT), with validity until Thursday, 8 pm IST (1430 GMT). The Espirito Santo FPSO had 39,311 b/d of oil production from 20 wells in March, which included the grades Argonauta and Ostra, Brazil’s Agencia Nacional do Petroleo, Gas Natural e Biocombustiveis (ANP) said.

    AUSTRALIAN SUPPLY GAP

    At least two floating production, storage and offloading vessels that contribute heavily to the production of heavy sweet crude oil from Australia are expected to undergo maintenance in the coming months. The production of Pyrenees crude oil offshore Western Australia is set to be suspended for a number of months after July, with the FPSO Pyrenees Venture at the grade to undergo maintenance at a dry-dock, industry sources with knowledge of the matter had said.

    The grade typically sees one 500,000-barrel cargo load each month. Previously, Australia’s Woodside Petroleum had also said that it planned to suspend shipment of heavy sweet Vincent crude for around 12 months because of modification works on the Ngujima-Yin FPSO. Following the loading of a cargo in July, the FPSO will sail to a dry-dock for maintenance, a market source said.
    Ostra is a heavy sweet crude produced in Brazil’s offshore Campos Basin. A January 2015 assay showed the crude having 17.97 API and 0.38% sulfur.

    Australia’s Vincent is also a heavy sweet crude with a gravity of around 17.4 API and sulfur content of 0.37%. Pyrenees has a gravity of 19.3 API with 0.19% sulfur, the latest assay reports showed.
    The price differentials for Vincent and Pyrenees have been falling sharply in recent weeks as buyers shied away from the heavy sweet Australian crude complex ahead of the H2 maintenance. Vincent was assessed at a discount of $1.85/b to Dated Brent last Friday, the lowest differential since October 19, 2015, when it stood at minus $1.90/b to Dated Brent, Platts data showed.

    OSTRA MAY BE COSTLY

    Not all Asian refiners may consider Ostra as a suitable substitute to fill the Australian supply gap as quality differences still remain, market sources said. The longer delivery distance may also push the final cost significantly higher, they added. “Say if the outlet is China … freight costs would be at least two times higher from Brazil [compared to cargoes departing from northwest of Australia],” a shipping broker based in Singapore said.

    One regional crude trader said that with the cargo size of the crude expected to total about 750,000 barrels a month, ONGC’s Ostra crude cargoes could end up in the hands of a buyer in Europe or the Americas. “There is no economic [benefit] for Asian buyers [to buy this],” a north Asian crude trader said. “[Also in terms of quality] it is similar to [Indonesia’s] Duri [crude].” “Both have high acid [content] so people cannot pay high [cash differentials] for this,” the trader added.

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