As one of the largest oil consumers in Europe, Germany has typically relied heavily on imports of Russian crude and products in the past. Even though German crude imports from Russia have dropped strongly so far this year, amid a decline in both seaborne and pipeline flows, crude volumes entering the country via the Druzhba pipeline have remained robust and just shy of 300 kbd in September, representing only a marginal decrease y/y. For context, this compares to pre-war pipeline volumes of around 400 kbd in early 2022, which had been rising steadily at the time. Nevertheless, with German refiners set to phase out these volumes by year-end, we expect new trade routes to emerge, which should help support and lift already elevated seaborne imports to the country further. This is particularly true when we consider that the German government recently announced that it will be placing under a government trusteeship the three refineries operated or co-owned by Rosneft, including the 230 kbd Schwedt refinery, which has typically relied strongly on pipeline imports.
Indeed, seaborne flows to Germany have been rising steadily over the last months, with imports of crude and condensate averaging well above 500 kbd since June and remaining 100 kbd above year-ago levels, according to our books. What is more, seaborne imports to the country settled just shy of 600 kbd in September, representing an increase of about 150 kbd m/m and equivalent to the highest level on record. The uptick comes amid a higher availability of regional grades, with a wider Brent vs Dubai EFS, as well as heavily discounted Russian barrels and COVID-19 related demand loss in China keeping buying interest for these grades in Asia below average. This has helped support flows of Norwegian grades, with German buying interest for Johan Sverdrup (API gravity: 28.0°, Sulphur content of 0.8%) and Grane blend (API gravity: 27.5°, Sulphur content of 0.6%), slightly heavier and sweeter than Urals (API gravity: 31.0°, Sulphur content of 2.0%), remaining strong and around 100 kbd since February. Whilst the quality of these grades is not identical to that of Urals, they can still be used as a partial replacement, which should keep demand supported over the coming months, as we approach the deadline of the Russian crude embargo. Consider these grades also yield a higher fuel oil yield than other oft-mooted Urals replacements, be it Nigerian medium sweets or the light sweet WTI, this would allow German refiners to maximize their end diesel output. This is of particular interest to the German market as diesel stocks remain tight and well below previous years at the time of writing
On a similar note, with the Johan Sverdrup field expected to launch phase 2 production by November, this should free up additional volumes and keep availability higher in the months ahead, given that the field is expected to reach 750 kbd by December, equivalent to an increase of about 200 kbd vs current levels (Kpler estimates). Besides consistently elevated crude and condensate flows from the US and parts of Africa, we have seen an uptick in buying interest for barrels from Saudi Arabia as well, with German imports of Arab light (API gravity: 33.2°, Sulphur content of 2.0%) picking up over the last months. Whilst the latest OPEC+ decision should see a decline in crude output from a number of Middle Eastern producers, with production from the kingdom easing by around 400 kbd m/m in November, according to our estimates, we expect the impact on German seaborne imports from the region to remain minimal.