Japan’s Crude Oil Imports From Russia on Track For Record in 2015

Posted: March 13, 2015 in Econ 101, Free Trade, Sanctions on Russia Meaningless, Technology and Energy

SOURCE: http://www.japantoday.com/category/business/view/japans-2015-crude-imports-from-russia-may-hit-record-high

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Japan’s 2015 crude imports from Russia may hit record high

TOKYO — Japan’s imports of Russian crude may set another record high this year as refiners scoop up spot cargoes to take advantage of strong refining margins, short shipping distances and multiple-year low prices for its neighbor’s oil, industry sources said.

Russian crude imports, which started on a solid footing this year with January imports up 63%, help reduce Japan’s nearly 95% reliance on Middle East crude as part of its goal for diversification of supply.

Russian crude output last year hit a post-Soviet record high of 10.58 million barrels per day (bpd), and Russia’s Energy Ministry expects crude exports to rise by 5 million tons (roughly 100,000 barrels per day) this year because of changes in taxation.

Russian oil, which can be delivered to Japan in a few days, gives the world’s fourth-biggest buyer a flexibility to make purchases closer to target delivery dates than for crude from other suppliers, sources said. Deliveries from the Middle East, for instance, typically take about three weeks.

The shorter distance also allows refiners to buy more crude quickly when refining margins are high – such as when oil prices are falling rapidly – as there’s no guarantee on how long the higher returns for refined fuels will last.

“Shorter travel time from Russia is an advantage when prices are declining,” said an executive with a Japanese oil refiner who declined to be named. “It’s an attractive crude for us and it constitutes something like 15 percent of our crude slate.”

Other Asian nations have also been increasing imports from Russia. China’s imports of Russian grades jumped 36% to a record of 662,000 bpd in 2014.

Russia last year eclipsed Kuwait to become the fourth-biggest supplier to Japan with 280,760 bpd, up 12% from a year earlier. That is the highest intake on records that go back to 1988, Ministry of Finance figures showed.

Russia’s exports to Japan surged from 2010 after the Eastern Siberia-Pacific Ocean (ESPO) pipeline was linked to the Russian Far East coast in 2009.

“The trend of popularity for ESPO crude in the Asia Pacific continues and hasn’t been affected by the Ukraine factor,” said Daisuke Harada, economist at Japan Oil, Gas and Metals National Corp (JOGMEC).

Harada was referring to Russia’s annexation of Ukraine’s Crimea peninsula in March. A pro-Moscow insurgency in eastern Ukraine has left 6,000 people dead, and Western countries and Japan have slapped sanctions on Russia over the crisis.

Russia is also the fourth-biggest supplier of liquefied natural gas to Japan, according to government figures.

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