Black Sea Attacks Put Russian Oil Shipments At Risk - Energy Intelligence

Black Sea Attacks Put Russian Oil Shipments At Risk | Energy Intelligence
aappp/Shutterstock Save for later Print Download Share LinkedIn Twitter Russia oil exports are facing a growing risk as the war in Ukraine enters a new phase. Drone attacks on the port of Novorossiysk and the Russian oil tanker SIG in the Kerch Strait at the end of last week demonstrated the increased vulnerability of shipping in the Black Sea, a key route for Russia crude oil and oil products to reach global markets.While attacks on energy infrastructure — including oil and gas pipelines, refineries, storage facilities and oil pumping stations — have become commonplace in the course of the war, it was the first time that Russian tanker exports have been hit. Ukraine warned late last week that all Russian Black Sea ports — including Novorossiysk, Tuapse, Taman, Anapa, Sochi and Gelendzhik — should now be considered subject to “military threat.” Kyiv at the same time said all ships going to the Russian ports could be considered as carrying military cargo and therefore would become military targets — mirroring an earlier warning by Russia to ships using Ukrainian ports.Growing threats could lead to a reduction of Russian oil shipments from the Black Sea and/or require tankers' escort by military vessels. This could put additional pressure on prices, analysts say, together with growing freight and insurance costs.Russia has already agreed to extend its voluntary export cuts for another month in a synchronized move with Saudi Arabia. Their efforts together with production cuts by the Opec-plus group are helping to keep oil prices high with Brent crude trading at above $85 per barrel. Caspian CautionThe Caspian Pipeline Consortium (CPC) pipeline, which ships some 1.4 million barrels per day of mostly Kazakh and Russian crude oil to world markets via the Yuzhnaya Ozereevka terminal near Novorossiysk, said on Aug. 4 that the movement of ships in and out of the Black Sea port was suspended for four hours as a precautionary measure after a maritime drone launched by Ukraine struck and damaged a Russian naval vessel stationed outside the port. The accident didn’t impact CPC shipments, according to the consortium which groups Russia, Kazakhstan and a Chevron-led group of companies including Exxon Mobil, Shell, Eni, Rosneft and Lukoil.But later the same day, the tanker SIG — under US sanctions for supplying jet fuel to Russian forces in Syria — was damaged by a sea drone near the Kerch Strait bridge that connects Russia to the Crimean Peninsula."The SIG tanker ... received a hole in the engine room near the waterline on the starboard side, as a result of a sea drone attack," Russia's Federal Marine and River Transport agency said in a statement on Telegram. The tanker was on its way from Syria and was empty, according to Russian officials.High StakesAlthough the attacks on shipping could escalate, analysts believe that the West would play a role in keeping Russian crude oil and petroleum products flowing to global markets to avoid shortages and price spikes. Novorossiysk is Russia’s largest port on the Black Sea, which ships some 450,000–600,000 b/d of Russian crude and another 150,000-250,000 b/d of Kazakh crude to world markets, on top of exports from CPC's Yuzhnaya Ozereevka terminal. Novorossiysk also exports some 400,000–450,000 b/d of petroleum products, mainly diesel and fuel oil.To make sure its exports via CPC remain secure, Kazakhstan will initiate talks via diplomatic channels on the issue, Kazakh Energy Minister Almasad Satkaliyev was quoted as saying this week. He pointed to the fact that beneficiaries of CPC exports include "big oil consumers, also from the European Union." He said that Kazakh Prime Minister Alikhan Smailov had already given instructions to start such an intergovernmental dialogue. Market ManagementRussian oil exports are already restrained under Moscow's decision to reduce supplies to help keep markets in balance. It said it would cut it exports by 500,000 b/d this month, and by 300,000 b/d in September.Russian crude oil exports to non-FSU markets fell by roughly 400,000 b/d in July compared to June to some 4.3 million b/d, including some 3 million b/d of seaborne exports, according to sources close to official data. Sources say that in August, exports are expected to decline further mainly from the Baltic Sea ports of Primorsk and Ust-Luga. Exports to the east from the Pacific port of Kozmino should remain flat on the month.Smaller export cut commitments next month as compared to August could be explained by companies' efforts to send more to global markets following the major subsidy cut for the country’s refineries starting from September. The beginning of autumn is also traditionally a maintenance season for refineries, which frees more barrels for export.The attacks on Novorossiysk and SIG coincided with talks in Jeddah, Saudi Arabia, over the weekend on a framework for peace in Ukraine. The meeting hosted officials from about 40 countries excluding Russia and failed to bear any tangible results.For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact