Heavier North Sea slate opens door for Norway’s Sverdrup as benchmark – Platts

19 Oct 2021

Quantum Commodity Intelligence – The quality of crude oil in the North Sea is getting heavier and more sulfurous with medium sour crude set to make up a third of the total volume by 2040, according to a report published by S&P Global Platts Tuesday, referencing data from Platts Analytics.

The report contrasted medium sour crude in the North Sea for 2010, which made up 2% of the overall volume, noting that Norway’s Johan Sverdrup was the primary reason for the sharp increase in medium sour crude.  

Johan Sverdrup is set to reach 755,000 barrels per day production by the end of 2022, which, according to the Platts data analysis, could mean Sverdrup comprises more than a quarter of all North Sea output by then.

The report, which comes as Platts consults with industry on how to amend its Dated Brent benchmark due to declining production volumes, also lauded Sverdrup’s broad appeal on a geographical level and its relative green credentials.

“With gravity of 28.7 API and a sulfur content of 0.8% it has already established itself as a firm favorite among Asian refiners and in China in particular,” noted the Platts report.

The ‘basket’ of Dated Brent grades is currently made up of Brent, Forties, Oseberg, Troll, and Ekofisk - but slumping production has accelerated the necessity to introduce additional crude into the benchmark.

Battle lines

Following several rounds of market consultation, Platts has said industry feedback shows views are consolidating around either including Johan Sverdrup barrels or US WTI Midland in its Dated Brent benchmark, which is used by many international and state-owned oil companies to price their oil.

The main objection to Johan Sverdrup is its quality, while WTI Midland opponents point to geographical problems with slotting in a European-delivered US Gulf crude into a European FOB North Sea benchmark.

An earlier proposal by Platts to switch the entire Dated Brent benchmark to CIF Rotterdam was roundly rejected by the industry, including the Intercontinental Exchange, which hosts the ICE Brent futures contract.

Both grades have their supporters, with trading houses such as Vitol and Trafigura firmly in the WTI Midland camp, while most North Sea incumbents are believed to be in favour of Sverdrup, if forced to make a choice.

The latest report from Platts would appear to sway the debate towards Johan Sverdrup, keeping the Dated benchmark rooted in the North Sea.

But as one veteran North Sea watcher told Quantum; “Both solutions presented here have diehard opponents. No compromise is available except status quo.”

However, one thing the market can agree on is status quo is not a long-term option – so any decision is set to leave one side sorely disappointed.