As a response to Russia’s ongoing war in Ukraine, the EU has imposed bans on Russian oil and oil-product exports, set to be enforced in 2023. These bans present an opportunity for emerging market producers to secure larger shares in an evolving market. In February 2023 the EU implemented bans on Russian oil products like diesel, following previous bans on Russian seaborne crude oil exports that started in December of the previous year.
Meeting European Demand
The EU has had little difficulty in sourcing crude oil since it announced the ban in May 2022, as the market had time to prepare for the December implementation. The largest incremental increase in crude imports in 2022 came from Norway’s Sverdrup field, which added 340,000 barrels per day (bpd) of medium sour grade that is similar to the sour Urals crude that was banned.
Another large increase came from the US, which saw its export volumes increase by 52.2% in the January-September 2022 period and nearly 1.7m bpd in December, the highest level in over two years. US shale production is also set to rise by 41,000 bpd to 9.3m bpd in June 2023, according to the International Energy Agency (IEA). US domestic demand declined in 2022 freeing up supply for export.
Among emerging markets, Saudi Arabia made the largest contribution by increasing its direct seaborne exports to EU by 126%, from 4.6m tonnes in 2021 to 10.3m tonnes in 2022. The growth can be attributed to the country’s diesel-rich, low-sulphur crude that meets the EU’s demand and grade requirements for both crude oil and oil products. Saudi Arabia has long been the largest exporter of seaborne crude oil. Its outgoing seaborne exports rose by 17.2% in 2022 to 362.8m tonnes, with total exports from the Gulf that year growing 12.7% to 879.3m tonnes, accounting for 42.9% of global seaborne crude oil trade. However, Europe only accounted for 10.7% of total Saudi exports. The bulk of Saudi cargoes that year went to Asia – with the country notching export increases of 35% to members of the Association of South-East Asian Nations, 19.2% to India, 17% to South Korea, 14.2% to Japan.
In 2022 Russia’s seaborne exports increased 10.3% to 218.5m tonnes. The country shipped record volumes to countries such as China, India and Turkey at discounted prices. Seaborne exports from the US, meanwhile, rose by 22.3% to 164.3m tonnes.
Latin America’s Potential
Brazil and Guyana are also expanding exports to Europe and – along with Canada, Norway and the US – are expected to reach record production levels in 2023 and expand global oil supply by 1.2m bpd, according to the IEA. Of these emerging markets, Brazil was redirecting flows from China and India, to the Americas and Europe as of 2022. The country has plans for four new offshore production units to come online in latter part of 2023, adding 480,000 bpd of new capacity.
By the end of 2022 Brazil’s annual exports of ethanol to Europe reached 600m litres, eclipsing its previous export record of 477m litres in 2010, as European demand for the biofuel grew amid high natural gas prices and EU’s commitment to expedite its energy transition while reducing dependence on Russian hydrocarbons. Considering Brazil’s plans to scale up and export green hydrogen to Europe, these new export relationships in oil and ethanol can lay a foundation for clean energy ambitions in the future.
The Latin American country of Guyana continues to increase oil production, freeing up volumes for Europe. The country grew its oil exports by 164% to 265,693 bpd in 2022, up from 100,645 bpd in 2021, with Europe receiving 49% of these outbound cargoes. Guyana’s long-term prospects are bullish, with Norway-based consultancy Rystad Energy predicting the country is likely to increase its production from 360,000 bpd in 2022 to 1.7m bpd in 2035. Its proximity to Europe offers demand security for the future.
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