LONDON Dec 18 Europe will buy more Russian
crude as North Sea oil output drops, prompting heavier
investment in high tech refineries that can turn the higher
sulphur content crude into greener, ultra-low sulphur fuels,
That may also make Russia's Urals crude more expensive for
North Sea oil output, mostly from Britain and Norway, will
fall from 4.88 million barrels per day in 2007 to 3.66 million
bpd in 2012, according to the International Energy Agency.
Damian Kennaby, analyst with energy consultancy Purvin and
Gertz, forecasts North Sea production will have fallen even
further to about 2.7 million bpd by 2020.
"The main alternative crude sources in Northern Europe are
Russian and African," he said. "As North Sea production declines
we expect that demand will be met by more Russian exports."
High sulphur crude, such as Urals and most grades from the
Middle East, is dubbed "sour". Low sulphur crude, such as most
of North Sea oil, is "sweet".
"We are already seeing investments in refineries, such as
upgrading and desulphurisation units so they can run more heavy
sour crude," said Laurence Eagles, the head of the IEA's Oil
Industry and Markets division.
Sour barrels will increase their long term share of global
supply. Russian output will rise from 9.95 million bpd in 2007
to 10.53 million bpd 2012, according to the IEA.
Finland's Neste Oil NES1V.HE, running two refiners with
combined capacity of 260,000 bpd, epitomises the trend -- buying
more Russian crude and building new plant to deal with it.
It is increasing its intake of Urals crude to 82 percent of
its total crude purchase volumes from 36 percent previously with
a new hydrocracker at its Porvoo plant.
Neste's intake of North Sea and other grades have dropped to
18 percent of its total. North Sea crude used to account for 47
percent and the other grades 17 percent, its report shows. Total
crude intake is unchanged.
Austrian refiner OMV (OMVV.VI) plants to build a thermal
cracker at its 210,000 bpd Schwechat refinery by 2009.
"The aim is to use more heavy crude and at the same time to
reduce the amount of heavy fuel oil in the product slate. We are
always optimising our crude supply sources," an OMV spokesman
Royal Dutch Shell (RDSa.L) is looking to invest 1 billion
euros ($1.43 billion) in its Dutch Pernis plant, the largest
refinery and one of the most complex in Europe, including the
potential construction of a desulphurisation unit.
Urals crude is usually cheaper than North Sea benchmark
Brent and the price gap between the two has been seen as a tool
to drive profitability for complex European refiners.
However, Goldman Sachs said in a research note the
Urals-Brent differential will narrow, making the Russian grade
Goldman narrowed the average discount of Urals against Brent
to $3.30 a barrel for 2007 from its previous estimate of $3.50.
That would hold for 2008-2010, compared with its previous
estimates of $4.50-discounts for the three year period.
Russia's quarterly export schedule, obtained by Reuters on
Tuesday, showed the first exports via pipeline to China
China, the world's second largest energy user, has boosted
its 2008 term oil purchase from Saudi Arabia and Iran and that
will tighten global sour crude market, crude oil traders said.
(Reporting by Ikuko Kao, editing by William Hardy)