Adds comment from Platts as well as analysis
Price reporting agency (PRA) Platts is to add Norwegian Troll crude to its Dated Brent benchmark assessment, although without the addition of a quality premium the change is likely to be cosmetic.
Platts will reflect Troll cargoes loading from 1 January 2018 in Dated Brent — Platts' equivalent of the Argus North Sea Dated assessment. It will publish assessments for the January 2018 cash BFOE forward contract from 1 September 2017 and in Dated Brent from 1 December 2017, reflecting the potential delivery of Troll along with existing Brent, Forties, Oseberg and Ekofisk (BFOE) grades, it said.
The change was flagged in December and is largely in line with expectations. One uncertainty was the possible addition of a quality premium to the Troll assessment, to closer align its price with the other grades underpinning the benchmark. But Platts is deferring this, meaning Troll is unlikely to set the benchmark as the lowest priced of the five grades as it typically trades at a significant premium to all four.
Quality premiums were introduced for Oseberg and Ekofisk in May 2013. Prior to that, these grades had set the benchmark as the lowest-priced crude only a handful of times. Troll is therefore unlikely to affect the benchmark until its own quality premium is applied.
Platts editorial director Jonty Rushforth said there is no timeframe for the introduction of quality premiums, with a wait of at least a year likely. Until then Troll would act as a "floating cap" for Dated Brent.
The approach of Norway's state-controlled Statoil will be key to the success of the Troll inclusion. Statoil will overtake Shell as the largest holder of benchmark equity after Troll's introduction, with almost a quarter of the combined production of Brent, Forties, Oseberg, Ekofisk and Troll.
Statoil typically loads around 80pc of Troll production and keeps much of it in its own refining system, notably feeding its 200,000 b/d Mongstad plant in Norway. Any sales it does conduct are not done publicly. Without transparency of trade, and without a quality premium, Troll's inclusion in the benchmark will have little practical impact.
Troll is light sweet crude — with a gravity of 35.9°API, a sulphur content of 0.14pc and a total acid number (Tan) of 0.7mg KOH/g — and loads on a fob basis at the Mongstad terminal. It has typical production of 10-15 cargoes of 600,000 bl a month. Platts says six or seven of those trade each month on a spot basis. These could occur more publicly on the Platts e-window once Troll joins the Dated Brent grades, said Rushforth.
Even with the expansion of the Brent Dated basket, the production of North Sea benchmark crude grades is likely to decline below 1mn b/d within three years. Rushforth said the addition of Troll was a measure for the next five years rather than the next 10.
"In 10 years' time Brent will look very different," said Rushforth, with around two thirds of the North Sea's production consisting of grades that are not light sweet. Dated Brent will need to include some far heavier grades, such as Norway's John Sverdrup, to stay an fob assessment.
Johan Sverdrup — which is scheduled to start up in 2019 — is a far heavier grade than the existing benchmark crudes and is therefore "quality-inconsistent", said Rushforth. No decision on Johan Sverdrup's possible inclusion will be taken until it has started production and its trading patterns have been observed.
Platts still sees its Dated Brent cif Rotterdam assessment as a potential long-term solution. It has yet to show any Brent Dated cif Rotterdam bids or offers in the afternoon trading window since its launch in March 2016, but it will continue to look at how the Platts market-on-close process will work with a cif assessment. A cargo's inclusion in the assessment process will likely be based on its delivery dates rather than its loading dates in order to allow grades to be delivered from outside of the region.
Argus competes with Platts and other PRAs to provide price assessments and other information on energy markets.
