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24 Aug, 2006 05:54

Sakhalin on stream as Sokol starts to flow

Sakhalin on stream as Sokol starts to flow

Russia launched a new type of oil on the international markets on Wednesday. It comes from the country's Sakhalin-1 project, a $13 billion endeavour which should pump about 250,000 barrels a day by the year end.

Japan's Nippon Oil was first to make a spot purchase from the far-east field.

Russia’s new oil is called Sokol, attractive to the markets for being cheaper to refine into end products like petrol. This is good news for oil refiners, increasing their supplies, and for Russia. It raises Russia's profile on the petroleum exchanges alongside increasing its importance as a supplier to far east customers seeking to reduce Middle East dependence.  Nippon’s spot purchase of 700,000 barrels, due for October delivery, is historic. It marks Sakhalin’s launch, a project developed by U.S. giant Exxon with a consortium of Chinese and Indian companies.

Though still too early to say which benchmark should be used for Sakhalin Sokol, it is clearly of the light sweet variety. Analysts say directing this type of oil eastwards to China and Japan might have unexpected consequences for European consumers. Diversification eastwards is a controversial issue because Siberian crude, initially fueling new pipelines going east, is light sweet crude. Greater volumes of this crude diverted to the Far East markets could lead to worsening quality of the Urals brand, primarily going to European destinations.