In Freight News 14/04/2015
Iraq’s plan to split a heavier crude being produced in its southern oilfields from its flagship grade should reduce quality issues dogging its exports, though there will be challenges getting the price it wants and setting up infrastructure.
OPEC’s No. 2 producer has little choice, since its drive to boost production — which hit a record 3.15 million barrels per day last year — has led to it drilling more heavier crude to mix with its Basra Light.
But Iraqi officials have indicated they will move to price their heavier crude competitively and secure a port facility from May in a bid to make the split production approach work.
“Splitting into Basra Heavy makes sense in the long-term as the production is expected to increase and the newer production will be the heavy stuff,” said Victor Shum, managing director for downstream energy consulting at IHS.
An official at the state-run South Oil Company (SOC) said that Iraq was planning to ship an average of 350,000 bpd of Basra Heavy oil, meaning it could account for about 13 percent of the current export volume at 2.6-2.7 million bpd.
Most would come from Iraq’s Missan oilfields, said the official, who declined to be named due to company policy.
The pricing was still being discussed, but it would be competitive with other Gulf exporters and a lower API gravity would mean a bigger discount, said the official.
A system by the American Petroleum Institute (API), known as gravity, is used to compare the oil density. Crude with gravity below 27 degrees is considered heavy,
Iraq’s State Oil Marketing Organisation (SOMO) is expected to announce an official selling price (OSP) for Basra Heavy on Sunday when it releases May prices, said a trade source familiar with the matter.
SOMO has said that it would allocate one of its export facilities for Basra Heavy from May onwards.
SOMO has said that it could supply 450,000-800,000 bpd of the grade which will have an API lower than 24 degrees. SOMO did not respond to requests for further comment by e-mail and phone.
A separation of Basra Heavy from Light will increase buyers’ confidence in quality, traders said. It could also cut time spent waiting for different crudes to arrive at terminals for blending which has caused expensive ship loading delays.
SOMO wants to stop having to offer extra discounts to buyers for Basra Light if the specifications are off, said Tushar Bansal, who heads east of Suez research at consultancy FGE.
“There is strong demand for the segregation from the buyers so that they can plan their LPs (crude processing plans) properly accordingly to expected APIs.”
With a high sulphur content at almost 4 percent and a low API, the pool of buyers for Basra Heavy may be limited to the United States, India and China, traders said.
This would put it in competition with Iranian Sorush and other grades from Ecuador and Columbia, a Chinese trader said, adding that price would be key.
Volume could be another issue as some buyers were unlikely to buy 2 million barrels (one supertanker) in one go, meaning sellers may incur costs and delays breaking up a cargo or co-loading with other grades, traders said.
Some Asian buyers are also worried demand for Basra Light could clog up Iraqi ports and push up prices.
But with production growing SOMO was unlikely to hold back on its plans and “the real question is how far can we push the export facilities,” said a source from an Asian company with operations in Iraq.
He estimated that Basra Heavy’s output could rise by 2 million bpd in the long run. The record for oil exported from Iraq’s southern terminals was 2.76 million bpd in December.
