Europe and India: New Destinations for Colombian Oil
From Business Standard
By Marianna Parraga and Peter Murphy
HOUSTON/BOGOTA (Reuters) – Colombia, which in recent years stole market share from other Latin American countries exporting crude to the United States, is now finding itself diverting oil to distant markets like India and Europe as U.S. imports slide.
After tripling its oil sales to the United States between 2007 and 2012 to 403,000 barrels per day (bpd) and displacing Ecuador and Brazil, Colombia’s shipments to the North slid 6.5 percent last year, the first drop in six years, according to the Energy Information Administration (EIA).
At the same time, Colombian oil sales in 2013 to China rose 73 percent to $3.84 billion. Exports to India more than doubled to $2.71 billion and shipments to Italy, Switzerland and United Kingdom climbed, Colombia’s statistics office said.
“U.S. demand for all Latin American crudes has declined and they are being replaced by cheaper Canadian ones. But Colombian ones have lost market share much faster because of quality issues,” a trader who places Latin American grades told Reuters.
Colombia’s move to diversify its oil exports away from North America comes relatively late. Well before the U.S. onshore production boom started eroding demand for imports, leftist leaders in Venezuela and Ecuador started sending ships to China for ideological reasons in credit-for-oil deals.
But Colombia’s export blends were tailored for the U.S. market. Offering them to far-off consumers makes logistics more challenging and could lower the price Colombia can command.
Colombian oil companies blend a big portion of their heavy crudes with naphtha, a lightening agent, to produce grades such as heavy Castilla and medium Vasconia that once were highly popular among U.S. refiners.
But the U.S. shale revolution reconfigured the diet for refiners by flooding them with light crudes and condensates – which refineries prefer to mix with well-known heavy crudes, like Canadian or Latin American benchmark Mexican Maya.
“Traditional heavy crudes are better to combine with lighter crudes, instead of blends,” a source from a U.S. refiner said.
Venezuela also produces blends by mixing the Orinoco Belt’s extra-heavy crudes with heavy naphtha, though its refining branch in the United States, Citgo, is taking most of them, so it does not have to resort to offering them on the open market.
PRICING AND INDIA
Colombia has also fetched less revenue from selling to the United States. From January to November, receipts fell 14 percent to $11.9 billion, Colombia’s statistics department said.
After years of internal conflict, Colombia managed to lure foreign investment to the oil sector over the past decade and reverse a fall in reserves through clear taxes and regulations.
But output growth has slowed, affecting exports, and its refinery network has struggled to meet rising domestic demand, causing imports of fuels to surge 57 percent last year to 118,000 bpd. Colombia is now Latin America’s fourth largest importer of U.S. fuels, ahead of Venezuela.
Colombia has mostly offset its weakening crude and fuels trade position by selling more to Asia and Europe.
But in Asia, in the midst of exporters’ fierce battle to capture new markets, Colombian Castilla heavy crude was offered late January to Indian companies on a FOB basis as cheap as $14-16 per barrel below Brent, an Indian trader said.
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