Array

SINGAPORE, July 3 (Reuters) - Russia's Sakhalin-1, the biggest new source of Pacific basin crude in over a decade, will redraw the oil trading map in Asia, displacing Abu Dhabi crude in Japan and briefly freeing extra West African oil for U.S. buyers.

But the flow of 250,000 barrels per day (bpd) of light gasoline-rich Sokol crude, due to begin exports in August and expected to plateau in the first half of 2007, will provide a marginal dip in Japan's reliance on the Middle East and temporary relief for China's growing import needs.

"Proximity is a multiplier of force. You are talking about large volumes of crude literally on the doorstep of five major importers -- it can have a huge impact," said Al Troner, managing director of Asia Pacific Energy Consulting (APEC).

The brunt of the impact could be borne by Abu Dhabi's Murban crude, the most similar grade to Sokol, which may have to seek new buyers as Japanese refiners with limited growth prospects cut imports to make room for two-thirds of the new Russian grade.

Murban -- coveted for its high yield of distillates such as jet-kerosene used for heating in winter -- is valued at about $3.60 higher than benchmark Dubai, but traders say that premium could easily fall when Sokol comes out.

Japan is the biggest buyer of Murban, one of the most actively traded Middle East grades, and buys about 40 percent of the UAE's total output. A demand drop would send sellers such as oil majors Total, Shell and BP seeking new markets.

"It will put pressure on the Murban OSP," a Singapore-based trader said, referring to the official selling price.

Lower premiums could prompt China, which buys limited volumes of the Abu Dhabi grades, to increase its purchases, temporarily tempering demand for more distant oil from West Africa. China's crude imports have surged by nearly a fifth so far this year, but supplies from the UAE are up only 1.4 percent to 70,000 bpd.

Sokol has an API gravity of 37.9 and a sulphur content of 0.23 percent, a quality assay seen by Reuters shows, making it a light sweet crude with a high yield of middle distillates and gasoline. It is very similar to Sakhalin-2 Vityaz crude, but slightly lighter, the data show.

It is not yet clear whether the grade will be priced off Oman quotes, as Russian rival Vityaz crude is. Vityaz has regularly traded at premiums of between $4 and $7 a barrel to Oman quotes, usually above Murban's value.

JAPAN IS TOP MARKET The first Sokol cargo is heading to Sakhalin-1 operator ExxonMobil's joint-venture Tonen General refinery in Japan. Most traders expect all of the conservative major's 30 percent share, or about 75,000 bpd, to follow the same route.

Japanese consortium Sodeco -- a group of trading houses and energy firms -- holds another 30 percent share, with those supplies also expected to head directly to Japan, which already imports over 90 percent of nearby Vityaz crude.

Not only proximity, but an ageing refining industry in Japan will make the easy-to-process grade attractive, analysts say.

"Because of weak overall demand -- for fuel oil but also light products -- Japanese refiners hesitate to make the kinds of investments that would solve the fuel oil problem," said John Vautrain, vice-president of consultants Purvin and Gertz in Singapore.

"One way to rebalance product slates is to use lighter crude oil of which there are not too many. Having a nice big field show up next door is quite serendipitous." Even if 150,000 bpd of Sokol heads to Japan, it would relieve less than 4 percent of its reliance on the Middle East, a growing concern amid its geopolitical instability.

Sakhalin-1 will help push Russian output above its post-Soviet highs of 9.69 million bpd reached in June. Still, the country's oil output growth has slowed to about 2.7 percent this year, off the record 11 percent growth in 2003.

LONG-DISTANCE HURDLES For the remaining 100,000 bpd, shipping restrictions weigh against long-haul sales, with the DeKastri terminal in Khabarovsk only able to accommodate Aframax vessels of up to 110,000 tonnes.

But government-owned Indian oil major ONGC, which has a one-fifth share of the project and may get marketing rights to Russian state-owned Rosneft's 20 percent under a loan deal, may still face political pressure to bring equity oil back home.

"We'll be getting 50,000 bpd and initially cargoes will go to the refinery. But we may also sell it," an ONGC company source told Reuters. The company has also explored storage options in South Korea, sources have said.

ONGC regularly sells about a quarter of the crude from its equity in Sudan's Nile Blend on the market through tenders.

Diverting flows into India could also displace some of the 250,000 bpd of mainly Nigerian crude imported there, supplies that may instead find eager buyers in the United States.

Any let-up in demand for African crude will be short-lived, however, as China and India soak up any new production. Overall, Asia still imports three-quarters of its needs.

China will expand its refining capacity by up to 580,000 bpd this year, more than enough to absorb all of Sakhalin-1 plus additional volumes of Vityaz, which is set to double production to some 130,000 bpd when it begins year-round exports next year.

While China has shunned Vityaz for now, with car sales growing at double-digit rates, it may quickly find an appetite for the lighter Russian grades.

"China is not a gasoline market yet but it will soon be an importer," said APEC's Troner.

REUTERS SBA KN1304