Some Asian refiners mull non-Red Sea routes to bring in North African, Mediterranean crude

A few Mediterranean and North African crude grades that regularly feed several East Asian refiners could take the Cape of Good Hope shipping lane for delivery instead of the regular Suez Canal route, with Thai, Indonesian and South Korean refiners looking to avoid Red Sea shipping risks and safely bring CPC Blend, El Sharara, Saharan Blend and Azeri Light crude home.

Asian refiners' dependency on the Red Sea shipping route for their overall crude imports is miniscule as almost all of the US, Latin American and West African crude cargoes typically travel to the Far East via the southern tip of South Africa, while Persian Gulf sour crude supplies heading towards India and East Asia are out of the harms way, feedstock managers at Thai, South Korean, Japanese, Indonesian, Japanese and Indian refiners, as well as traders based in Singapore said.

However, several Southeast Asian and South Korean refiners indicated that repeated attacks on ships sailing through Bab al-Mandeb chokepoint by Yemen's Houthi militants have raised alarm bells as they often buy small volumes of low sulfur crudes from Libya, Algeria, Kazakhstan and Azerbaijan.

The vast majority of crude oil sourced from the west of Suez typically comes in VLCCs and they travel via the Cape of Good Hope shipping route. Still, Libya's El Sharara, Mesla Blend and Mellitah condensate, as well as Algeria's Saharan Blend, Kazakhstan's CPC Blend and Azerbaijan's Azeri Light are delivered in Suezmax or smaller tankers that pass through the Suez Canal and the Red Sea route before reaching the Far East destination, feedstock management sources at South Korean, Thai and Indonesian refiners told S&P Global Commodity Insights.

In an attempt to remove logistical risks for Mediterranean and North African crude procurement, some or all of the CPC Blend, Saharan Blend and Libyan crudes may be directed to West African ports where the barrels could be co-loaded in VLCC tankers with Nigerian, Angolan and the US crude already purchased, sources at Thai and South Korean refiners said.

Most or all of the US and West African barrels get delivered to Thailand in VLCCs taking the Cape of Good Hope route. It's possible to consider making room in the large tankers for co-loading light sweet Libyan barrels, a feedstock management source at a state-run Thai refiner said.

In the first 10 months, Thailand imported 108,064 b/d of US crude, up 56% from 69,359 b/d purchased a year earlier, while Libyan crude shipments over January-October fell 13% year on year to 34,774 b/d, latest data from Thai customs showed.

"We regularly buy large volumes of US crude and many VLCCs have been fixed for that anyway... so perhaps we could make best use of that to bring in other minor supplies from the Mediterranean market," said a feedstock manager at a South Korean refiner who declined to be identified due to the sensitive nature of the company's international trading strategies.

Other supply options

Apart from looking for other shipping and logistics options to bring in Mediterranean and North African crude, Thai, Indonesian, South Korean refiners indicated that they have an option to simply slash light sweet Libyan, Kazakh, Algerian and Azerbaijan crude purchases.

"Mediterranean grades make up a small portion of our crude slate and they can easily be replaced by other suppliers," said a market analyst at Indonesia's state-run Pertamina.

Meanwhile, South Korea's top refiner SK Innovation and its shipping subsidiary SK Shipping said the sharp increase in logistical costs for Kazakh CPC Blend crude shipments is its biggest concern and the company would closely monitor the uptrend in shipping insurance war risk premium to assess refining economics for cracking CPC Blend crude going forward.

"We typically buy around 2 million barrels of Kazkah CPC Blend crude on a monthly basis... higher shipping costs can seriously damage refining economics [for cracking CPC Blend] so we will have to closely monitor Houthi militants' impact on shipping costs," a source at SK Innovation said.

Meanwhile, traders and analysts in Seoul indicated that South Korea's light sweet Algerian crude could also be replaced by the US crude as refiners have no reason to take risks to bring in a small volume of the North African supply.

"South Korea typically buys around 600,000 barrels/month of Algerian crude... but when you consider [South Korea's] monthly average purchase of 10-12 million barrels of light sweet US crude, it's simply not worth taking any risks trying to keep buying Algerian barrels," said a market and trade flow analyst a Korea Petroleum Association.

Refiners in Thailand, Taiwan and Japan also indicated that Asia doesn't necessarily need to depend on North African and European supplies as there is plentiful light sweet US crude being offered at an attractive price amid a narrowing Brent-Dubai price spread.

China's little interest

Two refinery sources with state-run Sinopec in East and South China said that the situation in Red Sea has not had much impact on their crude procurement for the time being, as they have hardly imported Mediterranean or North African crude passing through that area this year.

Meanwhile, China's independent refineries seldom import Mediterranean crude, though some CPC Blend cargoes arrive via the Red Sea route. China's private refining sector imported about 1 million mt of CPC blend crude in the first 11 months of the year, mostly purchased by ChemChina and Dongming Petrochemical.