China state refiners shun new Russian oil trades, teapots fly under radar -sources

Perpetual Energy

06/04/2022 11:45

* Sinopec, CNOOC, PetroChina, Sinochem refrain from new
purchases
    * Worries about sanctions keep state firms at bay
    * Some independent refiners continue ESPO crude imports

    By Chen Aizhu and Florence Tan
    SINGAPORE, April 6 (Reuters) - China's state refiners are
honouring existing Russian oil contracts but avoiding new ones
despite steep discounts, heeding Beijing's call for caution as
western sanctions mount against Russia over its invasion of
Ukraine, six people told Reuters.
    State-run Sinopec  600028.SS , Asia's largest refiner,
CNOOC, PetroChina  601857.SS  and Sinochem have stayed on the
sidelines in trading fresh Russian cargoes for May loadings,
said the people, who all have knowledge of the matter but spoke
on condition of anonymity given the sensitivity of the subject.
    Chinese state-owned firms do not wish to be seen as openly
supporting Moscow by buying extra volumes of oil, said two of
the people, after Washington banned Russian oil last month and
the European Union slapped sanctions on top Russian exporter
Rosneft  ROSN.MM  and Gazprom Neft  SIBN.MM .  urn:newsml:reuters.com:*:nL2N2VV0SF 
    "SOEs are cautious as their actions could be seen as
representing the Chinese government and none of them wants to be
singled out as a buyer of Russian oil," said one of the people.
    Sinopec and Petrochina declined comment. CNOOC and Sinochem
did not immediately respond to a request for comment. 
    China and Russia have developed increasingly close ties in
recent years, and as recently as February announced a "no
limits" partnership, and China has refused to condemn Russia's
action in Ukraine or call it an invasion.  urn:newsml:reuters.com:*:nL2N2W003B
    China has repeatedly criticised western sanctions against
Russia, although a senior diplomat said on Saturday that Beijing
is not deliberately circumventing sanctions on Russia.
    China, the world's largest oil importer, is the top buyer of
Russian crude at 1.6 million barrels per day, half of which is
supplied via pipelines under government-to-government contracts.
    Sources expect China's state firms to honour its long-term
and existing contracts for Russian oil but steer clear of new
spot deals.
    A drop in China's imports of Russian oil could prompt its
giant state refiners to turn to alternative sources, adding to
global supply concerns that had driven benchmark Brent oil
prices  LCOc1  to 14-year highs near $140 per barrel in early
March after Russia invaded Ukraine on Feb. 24.  urn:newsml:reuters.com:*:nL2N2VS13M
    Brent futures have since eased, to below $110, after the
United States and allies announced plans to release stocks from
strategic reserves.  O/R  urn:newsml:reuters.com:*:nL2N2VY1RT urn:newsml:reuters.com:*:nL2N2W30FV
    
    'RISK CONTROL AND COMPLIANCE FIRST'
    Before the Ukraine crisis, Russia supplied 15% of China's
oil imports - half of that via the East Siberian and
Atasu-Alashankou pipelines and the rest by tankers from its
Black Sea, Baltic Sea and Far East ports.
    Unipec, the trading arm of Sinopec and a leading Russian oil
buyer, has warned its global teams at regular internal meetings
in recent weeks against the risks of dealing with Russian oil.
    "The message and tone are clear - risk control and
compliance comes before profits," said one of the sources who
was briefed on the meetings. 
    "Although Russian oil is hugely discounted, there are many
issues like securing shipping insurance and payment snags."
    Another of the sources, with a refinery that regularly
processes Russian crude, said his plant was told by Unipec to
find replacement to maintain normal operations. 
    "Beyond shipments that have arrived in March and due to
arrive in April, there will be no more Russian oil going
forward," said this source.
    Unipec loaded 500,000 tonnes of Urals from Russia's Baltic
ports in March, the highest volume in months, supplied by
Surgutneftegaz on spot and under a Rosneft export tender that
Unipec won for loadings between September 2021 and March 2022,
according to traders and shipping data.
    Its latest Urals deals will be two April-loading shipments
totalling 200,000 tonnes from Russian producer Surgutneftegaz
 SNGS.MM , said two traders with knowledge of the deals.
    In contrast, India has so far booked at least 14 million
barrels, or about 2 million tonnes, of Russian oil since Feb.
24, versus nearly 16 million barrels in all of 2021, according
to Reuters calculations. urn:newsml:reuters.com:*:nL3N2W21DY
    Other state buyers - PetroChina, CNOOC and Sinochem - have
shunned Russia's ESPO blend for May loading, sources said. 
    Sinopec is facing payment problems even for deals agreed
earlier as risk-averse state banks look to scale down financing
Russian oil-related deals, the second source said.
    
    TEAPOTS KEEP DEALS 'UNDER WRAPS'
    Sanction worries have driven some independent refiners known
as teapots, once a dynamic group of customers consuming about a
third of China's Russian oil imports, to fly under the radar.
    "ESPO trading was really slow and secretive. Some deals are
being done, but details are kept under wraps. No one wants to be
seen buying Russian oil in public," a regular ESPO dealer said.
    To keep oil flowing, these nimble refiners are deploying
alternative payment mechanisms such as cash transfer, paying
after cargo is delivered and using Chinese currency.
 urn:newsml:reuters.com:*:nL2N2VA03D urn:newsml:reuters.com:*:nL2N2VE131
    Russian suppliers - Rosneft, Surgutneftegaz and Gazprom
Neft, and independent producers represented by Swiss trader
Paramount Energy - are expected to ship a record 3.3 million
tonnes of ESPO from Kozmino port in May. urn:newsml:reuters.com:*:nL2N2VW1F3 urn:newsml:reuters.com:*:nL2N2VQ01N

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FACTBOX-Who is buying Russian crude oil and who has stopped   
 urn:newsml:reuters.com:*:nL5N2VO3PE
China crude oil imports by origin in 2021    https://tmsnrt.rs/3fEH4nA
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 (Reporting by Reuters, Chen Aizhu and Florence Tan in
Singapore; Editing by Himani Sarkar)
 ((aizhu.chen@thomsonreuters.com; Reuters Messaging:
aizhu.chen.reuters.com@reuters.net))