Exports of sanctioned Russian Arctic oil to China set to rise in April, sources say
Sanctioned barrels figure in ship-to-ship transfers around Singapore, Malaysia
Delivery route is longer and more costly
India has cut purchase due to sanctions
SINGAPORE/MOSCOW, April 17 (Reuters) - Russia's exports of Arctic oil to China are set to rise sharply in April after sellers offered wide discounts and shipment on non-sanctioned tankers to counter a U.S. embargo, analytics firm Vortexa and two Russian oil traders said.
A tenth of Russia's seaborne oil exports make up the Arctic oil business disrupted by Washington's sweeping sanctions levied in January on nearly all tankers carrying supplies of grades such as ARCO, Novy port and Varandey, and producer Gazprom Neft.
To evade the curbs, such cargoes go through international waters off Singapore and Malaysia to be transferred to Very Large Crude Carriers (VLCC) that have not been sanctioned, a process known as ship-to-ship (STS) transfers, before heading to China, said the traders and Vortexa senior analyst Emma Li.
Li estimated at least 4 million barrels of Arctic oil completed STS last week and 16 million more have arrived, or will arrive, in the South China Sea this month.
China's Arctic oil imports are set to rebound, given the ample supply, but the volume eventually discharged would vary, depending on logistics hurdles and buying interest from Chinese refiners, she added.
Lukoil and Gazprom Neft did not immediately respond to Reuters' requests for comments.
China imported 250,000 barrels per day of Arctic oil in March.
One of the traders said such transfers are used because many Chinese buyers require oil to be shipped on non-sanctioned vessels so as to avoid the risk of secondary sanctions and are willing to pay higher prices for these cargoes.
For example, non-sanctioned VLCC Atila loaded 2.07 million barrels of ARCO from two sanctioned tankers in March in Greater Singapore waters and discharged the cargo at the Dongying port at eastern Shandong province in April, Kpler data shows.
Atila previously engaged in STS transfers for Iranian oil.
Arctic grades are produced in Russia's northern regions, where harsh weather affects output and logistics, so that setting up an oil project requires gigantic investments.
Light Varandey oil is produced by Lukoil, while Gazprom Neft is a producer of light Novy port and heavy ARCO.
However, these shipments now take two months to reach China as the tankers are travelling via the Suez Canal, with the STS adding to shipping costs, while the shorter North Sea Route (NSR) to China is closed until July, traders said.
"It's a very long and expensive route," one trader said. "The only idea is to evacuate barrels."
Light Arctic oil is offered at discounts against Brent prices, down from premiums previously, the traders said.
India, previously the top buyer of Arctic oil, has cut purchases due to sanctions, traders said. Arctic oil going to India is mostly Varandey supplied by Litasco, they added.
This month, Indian authorities barred a tanker from transferring its Russian oil cargo to another vessel at sea.
Other Arctic oil buyers include Syria, with the first shipments taking place earlier this year, and Myanmar.
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