As the United States leans into sanctions against Venezuelan oil and the administration of contested president Nicolas Maduro, longtime PDVSA buyers have had to look to other Latin American countries with heavier crude to fill the gaps. This has meant a lot of new demand for Brazil’s Petrobras, which is now seeing countries buyers from the U.S. as well as Europe compete for purchase of their Lula crude cargoes as the next best alternative to the heavier Venezuelan grades of fuel.
With all of the Lula oil being snapped up, however, some countries have been pushed toward Brazil’s new grade of medium heavy Buzios crude oil, despite problems with the oil’s quality. The most notable of these countries is China, which despite a preference for Lula crude, are now buying Buzios in higher numbers as Lula becomes harder to secure.
China’s independent refiners are responsible for a huge portion of Petrobras’ crude exports. According to year-end statements by Petrobras, in 2018 almost 66 percent of the company’s crude went to China, a whopping 37 percent year-on-year increase. That impressive rate continues to rise under the pressure of continued U.S. sanctions on Venezuela, with a 56 percent increase in January-February of this year compared to the same time period in 2018.
According to reporting by S&P Global Platts, this April the Chinese independent refining companies Haike Petrochemical and Wudi Xinyue Petrochemical will receive their first and second shipments of Buzios crude, respectively. Wudi Xinyue’s first shipment of Buzios arrived early last month, consisting of 1 million barrels of crude.
It’s unusual for such a new grade of crude to be able to penetrate the market as quickly as Buzios seems to be doing. Petrobras only just started producing the new medium heavy grade Buzios in April of 2018, with exports not beginning until the last quarter of that year. Typically, new grades of crude are not widely adopted until refiners have had ample time to conduct tests to gauge the quality of the product and assess the refined product yield in order to evaluate the economics of refining the oil. Related: Did Aramco Just Open Pandora’s Box?
Not all Chinese refiners are sold on buying Buzios, however. As one source from an independent refinery located in the Shandong province was quoted, “The [Buzios] grade contains higher calcium, which needs pre-treatment to lower the calcium content [...]It is a new grade and takes time to be accepted by the market.” For this reason the refiner in question has made no plans to buy Buzios in the immediate future. Other refiners have similarly dismissed Buzios crude citing higher salt content and chlorides, attributes which would raise the cost of maintenance and negatively impact anti-corrosion plant units.
Meanwhile, Brazil’s Petrobras is ramping up production in its Buzios oil field, located off the coast of the state of Rio de Janeiro in the offshore pre-salt of Santos Basin. The Buzios field, formerly known as the Franco field, is 416km² in size, and Petrobras, the owner-in-full of the field since it was discovered in 2010, has set a total extraction target of 3.058 billion barrels of oil equivalent from the site.
Just last month the company began production of oil and gas from the newly installed fourth platform in the Buzios field. This newest platform, a P-77 floating unit, can process up to 150,000 barrels of oil per day, as well as compress up to six million cubic meters of natural gas per day, when running at full capacity. This puts it in league with the other three platform in the Buzios field, which each are capable of producing 150,000 barrels of oil and six million cubic meters of natural gas per day. The fourth and newest platform is interconnected to nine production wells and eight injection wells.
By Haley Zaremba for Oilprice.com
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