First Saudi ULSD Heading for Europe Reveals Likely Arab Gulf Netback Price
Saudi Arabia's SATORP refinery may finally be ready to send its first cargoes of ultra-low-sulfur diesel to Europe, with two tankers seen chartered by joint venture partner Total to load within the next two weeks, both destined for the continent.
The Pink Star will load 90,000 metric tons (about 670,500 barrels) of ULSD for the French oil company on Aug. 30 at the port of Jubail according to the OPIS Tanker Tracker on FleetMon.com. The Iasonas is due to sail on Aug. 20, also from Jubail, with a 90,000-ton cargo. The voyage rate for the latter vessel is said to be $2.8 million, representing a freight cost of $31.11 per ton.
Previous cargoes destined for northwest Europe from SATORP, commissioned at the end of 2013, were off-spec for the market and instead went to Brazil or Africa. At least four tankers were seen bypassing Europe by the OPIS Tanker Tracker over the past seven months, after originally being chartered to make the voyage to the continent with SATORP-supplied ULSD.
Teething problems at the SATORP refinery led to speculation the diesel wasn't meeting Europe standard criteria, forcing sales elsewhere, Energy Aspects, a London-based energy consultancy, said in an April report.
The reason SATORP's diesel cargo destinations are being so closely watched is because these shipments will be Saudi Arabia's first to directly compete with Russia, the U.S. and India, the biggest suppliers of ULSD to Europe.
The charters also reveal how the arbitrage economics may stack up. If freight is deducted from Aug.14’s Europe diesel cargo outright price, the ULSD would have to sell for less than $855 per metric ton on an fob basis in the Middle East, based on that date's figures.
That's is calculated by working out the ULSD northwest cargo assessed premium to front-month gasoil at $19.25, making an outright cif price of $886 per ton. The netback price for the Middle East once the freight rate of $31.11 per ton is subtracted is just under $855. Front-month ULSD futures settled at $887.75 per ton on London's ICE Futures Europe Exchange.
The SATORP refinery is designed to refine 400,000 b/d of crude, according to Total, which holds at 37.5% stake, alongside Saudi Aramco. The joint venture is said to have 216,000 b/d of capacity for ultra-low-sulfur diesel and jet fuel, and around 55,000 b/d for gasoline.
Some 32 million tons of gasoil of 0.01% sulfur content, or ULSD, was imported into the EU 28-member countries in 2013, according to European Commission trade data.
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