In a change of market strategy with geopolitical implications, Russia is increasing exports of crude oil to China at the expense of other Pacific Basin importers.
Andrew Reed, a principal at ESAI Energy LLC, notes the shift in a report distributed recently by the consulting firm based near Boston.
Until recently, Reed writes, Russia had resisted Chinese requests for more than the 300,000 b/d now flowing through a spur of the East Siberia-Pacific Ocean pipeline.
Now, however, state-owned Rosneft indicates it will boost deliveries to China by 325,000 b/d by 2018.
"Rosneft's own announcements suggest that exports to China could even rise to 1 million b/d," Reed says.
Because the Russian giant needs to finance aggressive expansion, it's entering a new loans-for-exports arrangement that will boost shipments to China. A similar deal financed the spur carrying crude from Scovorodino, terminus of the first phase of ESPO line, into China.
Exports to China can increase via pipeline and short tanker haul from the port at Kozmino, terminus of ESPO's second phase.
More Russian crude to China means less moving elsewhere. It means Russian sales to China outrun spot sales to other buyers in a few years—a reversal of earlier hopes in Russia. And it means ESPO Blend might never become the price marker Russia once hoped it would be.
The change diminishes but doesn't eliminate China as a market for other exporters—notably those in the Middle East, according to Reed.
Between 2012 and 2018, he estimates, the Chinese need for imported crude will grow by about 2 million b/d. Russia and Kazakhstan will fill about one fourth of the increment, leaving 1.5 million b/d for other exporters.
For Russia, the change might have to do with more than Rosneft finance.
"It may reflect a sensible shift of Kremlin thinking in response to changes in the energy markets it confronts—securing markets for its energy exports and forgoing 'energy superpower' aspirations," Reed suggests.
