LONDON – Russian base oil exports by sea dropped by 10% in 2023 to 260,000 metric tons, as the European Union imposed an embargo on Russian petroleum product imports and the country’s base oil marketers scrambled to find alternative outlets, a market analyst said at an industry event here.
Gabriela Twining, global editor at Argus Media, said that rising competition is squeezing base oil margins, impacted by refinery maintenance and closures, such as the announced closure of Eni’s 700,000 tons per year API Group I base oil plant in Livorno and at least six more similar facilities closed between 2021 and 2023.
Feedstock shortages are also widespread, as Europe has lost a key feedstock and diesel fuel provider in Russia amid sanctions and the war in Ukraine, so the continent’s refiners will have to look to the spot market for supplies, according to Argus.
The EU was the biggest foreign market for Russian base oils before the war.
“The country shipped 260,000 tons of base oil through the five main seaports last year — Kaliningrad, Liepaja, Riga, and St. Petersburg on the Baltic Sea, and Novorossiysk on the Black Sea,” Twining told the Argus Global Base Oils conference held here Feb. 20. This represents a 10% decrease compared to the 290,000 tons shipped in 2022.”
In the pre-war year of 2021, these ports handled about 360,000 tons of Russian base oil shipments, she added.
After the imposition of the Western sanctions, Russian supplies were diverted from the European Baltic Sea ports to the port of St. Petersburg. Lukoil, the main Russian base oil marketer, “targeted United Arab Emirates, Turkey, and Singapore.”
Argus found that while in 2022 Riga and Kaliningrad handled 80,000 tons and almost 100,000 tons of base oils, respectively, in 2023, the shipments were diverted to St. Petersburg, which handled almost 200,000 tons of base oils, while Kaliningrad handled around 25,000 tons.
The firm also found that European spot supplies were curtailed in 2022 due to heavy EU maintenance. That was the reason why Russia maintained its supplies throughout the year, despite the political pressure and the announcement of new sanctions amid the Russian invasion of Ukraine. Meanwhile, the large international oil companies such as Shell, Total, or ExxonMobil all departed from the market.
“Rising shipments of semi-approved cargoes from April 2023 weighed on prices, widening the spread,” Twining said. “Finally, the Russian Group III volumes were displaced by abundant spot volumes from the Middle East and Asia.”
European refinery utilization rates recovered in 2023 from 2021, operating at a maximum capacity of 84%, according to Argus.
“Refineries were prioritizing competing fuel production to make up for the loss of Russian [vacuum gas oil] and diesel,” she said, adding that by the third quarter of 2023, Russian VGO and diesel shipments to Europe dropped to virtually zero.
The firm said that rising competition squeezed base oil margins, impacted by refinery maintenance and closures, such as that of Eni’s 700,000 t/y Group I base oil plant in Livorno, as the most prominent to happen in 2024. Industry observers recorded six refinery closures that occurred in the 2021-2023 period: the Petrogal unit in Porto, Portugal; the TotalEnergies plant in Gonfreville, France; an Eneos unit in Negishi and a second one in Wakayama, Japan; and the Sapref and Engen units in Durban, South Africa.
Twining also said that more limited Russian VGO and diesel imports in 2023 spurred price increases.