The Convoluted Voyages of Russian Crude, states Bloomberg.
Shipping Russian crude
War has turned what was once a simple trade into a complex, costly and much more risky process.
Shipping Russian crude to buyers used to be a simple job. Not any more.
Before Moscow’s troops piled into Ukraine, you loaded a tanker with oil at one of Russia’s western ports, sailed through the Baltic and passed the coasts of Denmark and Germany to Rotterdam in the Netherlands. Here the cargo was pumped into storage for onward delivery to refineries across Europe. The voyage typically took about a week.
With the loss of its European markets, Russia is now forced to ship its oil over much longer distances — to India and China, the only two major markets that Moscow has left for its crude. That’s making journeys much longer — typically a month from the Baltic to India; at least six weeks to China.
Russia is also using a huge fleet of older ships to get around a price cap on its exports imposed by the Group of Seven nations. With many of those vessels pushing 20 years of active service, previous owners would have expected to sell them for scrap. Instead, they passed them on to newly emerged companies that continue to use them.
The relentless pounding and flexing that hulls undergo inevitably weaken ships over time and can lead to catastrophic failure — as happened when the tanker Prestige broke in two off northern Spain in 2002.
Ship-to-ship transfer
Oil is also being moved from one vessel to another at sea in a process known as ship-to-ship transfer. This can improve the economics of long-haul shipments by consolidating as many as three small cargoes into one huge vessel for a voyage from, say, Europe to China.
The procedure is necessary because the biggest crude carriers can’t load directly from Russian ports.
These transfers typically take place in sheltered waters, where swells are small and emergency service close at hand in case of a spill.
But tankers carrying Russian oil have begun moving such operations into the deep waters of the Atlantic Ocean, with the most recent transfer taking place north of the Cape Verde islands. The risks are multiplied by potentially heavy swells and their impact increased by the remote location.
On Asian routes, from ports in the far east of Russia to buyers in India, cargoes are being transshipped not once, but twice. The first switch takes place off Yeosu in South Korea to free up specialist shuttle tankers needed at some Russian terminals.
The second has started to occur near Singapore in an area that’s long been used by both Iran and Venezuela to store and blend cargoes to disguise their origin. Russia’s motives are less clear, with no attempt yet to hide what’s happening.
War has turned what was once a simple trade into a complex, costly and much more risky process of shipping crude to market.
–Julian Lee, Bloomberg Oil Strategist
Chart of the day
Europe, scarred by last year’s energy crisis that saw prices soar, is filling up natural gas storage sites well ahead of normal. Across the European Union, stockpiles were 55% full by mid-April — a level reached 11 weeks earlier than in 2021. Many countries are even further ahead, with Austria replenishing its own storage to two-thirds of capacity almost five months sooner than in 2021 — and that’s with almost no piped gas from Russia. Even Ukraine has begun filling underground storage ahead of a winter that’s still eight months away. But it’s no time to get complacent. Shortages are “not impossible,” Germany’s Federal Network Agency said last week.
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Source: Bloomberg
