Competition to replace Russian oil in European refineries was intense, but Norway ‘s Johan Sverdrup crude emerged as the clear winner, according to data from Refinitiv Eikon and traders.
EU ban on Russian oil imports opens market for Johan Sverdrup
Johan Sverdrup Crude was launched in 2019 and was initially sold primarily in Asia. But a European Union ban on Russian oil imports by sea imposed in December has opened up the European market, where the medium grade has become the main feedstock for refineries in countries such as Germany, Poland and Finland.
Johan Sverdrup crude has become one of the most sought-after crudes in northwestern Europe and has effectively replaced Urals crude as the benchmark medium grade, according to Viktor Katona, senior crude analyst at Kpler. The high diesel yield and lower sulfur content make it comparable to its Russian competitor. European refineries import a wide variety of crudes from around the world, including sweet crude from Kazakhstan, Azerbaijan and Africa to produce naphtha and gasoline.
Johan Sverdrup’s imports by Poland via the port of Gdansk in March jumped to a record of more than 8 million barrels, according to data from Refinitiv Eikon. PKN Orlen’s Mazeikiu refinery in Lithuania is also increasing its purchases of Johan Sverdrup, taking at least two cargoes this month, totaling about 1.2 million barrels. Crude now accounts for at least half of Finland’s monthly oil imports.
Johan Sverdrup becomes the reference medium grade for European refineries
Demand for Johan Sverdrup supported differentials on a free on board (FOB) basis, which strengthened shortly after the European Union embargo on Urals oil by sea and reached a premium to dated Brent for some time in February, traders said. Norway’s Equinor can currently produce 720,000 barrels per day (bpd) from Johan Sverdrup, but said it would explore the possibility of increasing production to 755,000 bpd.
While Europe is stepping up its purchases, Johan Sverdrup’s shipments to Asia have dropped sharply. By 2021, Asian demand has surpassed 100 million barrels compared to only 2 million barrels shipped so far this year, according to data from Refinitiv Eikon. Urals crude is filling the void in Asia, with sales increasing tenfold by 2022 and again this year. Some Russian oil shipments also reach Europe. Bulgaria has received an exemption from the European Union to continue imports of Urals crude, while Slovakia, Hungary and the Czech Republic continue to import via the Druzhba pipeline.
Due to the European Union’s ban on Russian oil imports by sea, Norway’s Johan Sverdrup crude has managed to become the benchmark medium grade for European refineries, effectively replacing Urals crude. Imports of Johan Sverdrup increased in Poland, Lithuania and Finland, and demand for this crude supported differentials on an FOB basis. However, Asia has seen a sudden drop in shipments of Johan Sverdrup, while Urals crude has seen a significant increase in sales in Asia in 2022 and this year.
