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7 Jul, 2010 13:37

ESPO crude output moves in on US market

The BP Gulf of Mexico drilling disaster is creating an opening for Russian crude exports to the United States, with the ESPO pipeline output coming into West Coast refiners range of options.

The Russian Eastern Siberia Pacific Ocean Pipeline system, or ESPO, was originally meant to export Russian crude to Asian Pacific.

But since BP’s catastrophe in the Gulf of Mexico, it's ramped up flows to the USA, which is buying 300,000 barrels a day by tanker.

Jason Feer, Senior Vice President of Argus Media says it’s a case of Russia getting a new customer and the US getting attractively priced, quality oil.

“It's a better quality crude than Dubai, Oman and some of the other competing crudes and that means that, over time, the market should resolve that issue. Right now it trades at a discount because it's new, because the demand for it is still soft. But those things should change over time.”

ESPO crude only accounts for only 4% of the US West Coast refining capacity – but that could grow, if conditions in the Gulf of Mexico worsen.

However, Vitaly Kryukov, analyst at IFD Capital says Siberian crude sells on price – and that if consistency and quality improve its price advantage could disappear.

“Probably when the quality of the ESPO grade is stabilized and supplies are stabilized, they are delivered at a normal rate the discount can go away and this will lessen the attractiveness of the ESPO blend.”

The government's decision to levy an export tax on ESPO crude from July 1 is also a cause for concern. But with Washington regulators in the mood to restrict exploration in US waters, oil from Siberia could carve itself a new niche.