LUKOIL supplied its oil to refineries in the UAE

Against the backdrop of sanctions restrictions, Russian oil companies have increasingly begun to test deliveries to Middle Eastern refineries that seek to take advantage of discounts on oil from the Russian Federation. According to Kpler, for the first time this year, LUKOIL shipped low-sulfur oil from its Caspian fields to the Emirati ADNOC refinery in Ruwais. This is the second such delivery to the refineries of the Emirati company, the largest consumers of Russian oil are still plants in China and India. According to experts, the question remains whether they will compete for Russian supplies.

Emirati ADNOC purchased a spot batch of CPC Blend oil for 861,000 barrels (about 110,000 tons) from LUKOIL for its refinery in Ruwaisa, Kpler told Kommersant. We are talking about the supply from the Filanovsky field in the Caspian Sea, from which oil is shipped to the system of the Caspian Pipeline Consortium (CPC; LUKOIL’s share in the project is 12.5%). This is the second delivery of LUKOIL oil to the UAE refinery: last year the company supplied Varandey grade oil to the UAE. LUKOIL did not answer “Kommersant”.

Since last year, Russian oil companies have begun to actively send oil and oil products to the Emirati trade hub in Fujairah, including for blending and subsequent re-export. There were practically no such operations until the moment when the EU and the US imposed sanctions against the Russian Federation for the outbreak of hostilities in Ukraine, which made it difficult to export Russian raw materials. Before the sanctions, Europe was the largest market for Russian oil. The UAE, along with Saudi Arabia, is a partner of the Russian Federation in a deal to limit oil production.

After the imposition of sanctions against the Russian Federation, Chinese and Indian refineries became the largest consumers of Russian oil, which benefited from the fact that Russian oil began to be traded at a significant discount to Brent. After the introduction of the EU and G7 ceiling in December 2022, Urals discounts reached $40 per barrel, which led to a significant decrease in budget oil and gas revenues. To rectify the situation, the Ministry of Finance introduced a fixed discount for calculating taxes in the oil industry, which will amount to $20 per barrel from September. In addition, the government resorted to reducing Russian oil exports, which fell to 3.1 million barrels per day in July. According to official data from the Ministry of Finance, as a result, Urals’ discount to Brent decreased to $15 per barrel in July.

LUKOIL has cooperated with ADNOC before. Thus, LUKOIL announced in May last year that the Emirati company was ready to use Russian-made “energy-efficient equipment” at its fields. In addition, in 2019, LUKOIL received a 5% stake in the Ghasha project to develop nine shallow water fields in the Persian Gulf, together with ADNOC (55%), Eni (25%), Wintershall (10%) and OMV (5%). The project involves annual production of 40 million cubic meters of gas and 120,000 barrels of oil and condensate per day.

While the question arises whether ADNOC will stand on a par with Chinese and Indian companies, the largest buyers of oil from the Russian Federation, Victor Katona from Kpler argues. According to him, ADNOC will mix Upper Zakum heavy oil produced in the UAE with CPC Blend. As a result, ADNOC will be able to release volumes of Murban light oil, which has traditionally been used at the Ruwais refinery, for the export market. CPC Blend trades at a small premium to Urals and is classified as a low-sulphur and light oil grade. The UAE took advantage of the fact that Russian oil is now trading at a discount, the expert notes. This refinery has been undergoing modernization over the past few years, which also explains the choice of CPC as the lightest grade of oil available. According to Victor Katona, the Emirati refinery can save about $5-7 on the purchase of Russian CPC oil compared to Murban.

Dmitry Kozlov