23 Aug 2024 | 07:19 UTC

Canada's Kearl Lake Blend crude set to hit Chinese shores for first time since 2018

Highlights

Marks ZPC's first Kearl Lake Blend cargo

Consistent inflows into China via TMX

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Arbitrage inflows of Canadian heavy crude cargoes into China continue, with the Kearl Lake Blend making its return after six years and marking the first time the grade is being transported via the Trans Mountain Expansion pipeline.

China's Rongsheng Petrochemical has purchased one Aframax-sized cargo of Canadian Kearl Lake Blend from ExxonMobil for delivery in November, at a discount of around $5-$6/b to the January ICE Brent futures contract, DES Zhoushan, market sources said Aug. 23.

Sources at Rongsheng Petrochemical and ExxonMobil were not available to comment.

The Canadian oil sands crude Kearl Lake Blend -- a heavy sour crude with a gravity of 19.8 API and 3.83% sulfur content -- was last delivered to Aoshan, China in October 2018, according to sources.

Rongsheng Petrochemical, the parent company of the 800,000-b/d Zhejiang Petrochemical & Chemical, has bought the barrels for China's top private integrated mega refinery located in the eastern city of Zhoushan.

Zhejiang Petrochemical & Chemical was commissioned at the end of 2019 and began crude procurement in May 2019. This marks the first Kearl Lake Blend cargo the plant will receive.

"Kearl Lake is in the same category as Venezuelan heavy crudes, Iraqi Basrah Heavy and Western Canadian Select in [terms of] specification for feeding coking units," a Beijing-based refining engineer said.

The Kearl Lake Blend crude, sourced from the Kearl Oil Sands Project in Alberta, Canada, is owned by leading Canadian oil sands producer Imperial Oil.

The company said its Kearl Lake Blend production rose 38,000 b/d in the second quarter to 255,000 b/d, on the back of its annual turnaround last quarter.

"Compared with Venezuelan heavy crudes, the oil sands are not able to produce asphalt as they are loose and not sticky, [which means] the heavy crude needs to be blended to be refined, resulting in more light crudes needed for the rest of the year and less heavy crudes from elsewhere," the engineer said.

The Venezuelan Merey crude -- a heavy sour crude with a gravity of 16 API and 2.7% sulfur content -- is typically imported by China's independent refineries as a feedstock for producing asphalt used in road paving.

However, due to US sanctions on Venezuelan barrels, the cargoes are mostly imported by Shandong's independent refineries as bitumen blends originating from Malaysia, market sources said. State-owned refineries and private mega refineries generally avoid these cargoes.

The cargoes were traded at a discount of around $12-$12.50/b against the ICE Brent futures on a DES Shandong basis, which has been largely stable for weeks.

In addition to the purchase of Kearl Lake Blend, Rongsheng Petrochemical was also heard to have purchased two Aframax-sized cargoes of Access Western Blend crude from TotalEnergies for delivery in November, at a discount of around $5-$6/b to the January ICE Brent futures contract, DES Zhoushan.

This brings Rongsheng Petrochemical's total purchases of AWB crude for delivery in November to six Aframax-sized cargoes.

"Kearl Lake is similar in quality to AWB. Both have high TAN [total acid number], so the price will be around the same," a trader said. "Cold Lake will be slightly more expensive."

Since the commencement of the TMX pipeline, China, particularly east China, has seen a surge in procurement of AWB cargoes, as the grade remains competitive compared with its closest competitor, the Middle Eastern Basrah Heavy crude.

Rongsheng Petrochemical leads the pack with at least 10 Aframax-sized cargoes, totaling 5.5 million barrels, since late May, for delivery over August-November.