Brent -- Johan Sverdrup -- An Update -- July 2, 2021

Brent: a subject often discussed on the blog. Now, this from Gerald Jansen. A huge story; deserves a stand-alone post. 

I track the Johan Sverdrup here. It's pretty amazing. I first started tracking the Johan Sverdrup in early 2018 guessing it would be a huge deal; it was.

Deliberations on which benchmark presents the best opportunities to trade just never seem to stop. The gradual decline of all erstwhile champions of North Sea output champions has compelled pricing agencies to include newer and newer grades into the Brent basket to ensure the traded benchmark’s liquidity.

The recent maintenance of the Forties pipeline system, with the UK grade being the largest stream within the Brent price-setting barrel pool, has rekindled speculation that pricing transparency requires substantial volumes, which can only come about by physically extending the basket. Despite being Europe’s largest producing oilfield now, at some point assumed to amount to more than third of Norway’s total output, Johan Sverdrup has been an unlikely candidate to join the ranks of BFOET grades, yet it is indeed the Norwegian grade that is believed to be the prime candidate.  

The issue of Brent liquidity has haunted reporting agencies for quite some time already. All of the grades making up Dated Brent are either in terminal decline or currently plateauing, meaning that the immediate future of BFOET -- Brent, Forties, Oseberg, Ekofisk, and Troll – would be hover around 600kbpd before even dropping lower. Platts, the main source of market information for Dated Brent, has tried to add a delivered WTI quote to its Brent assessments, to little avail. This in and of itself is a deviation from the current Brent logic as all involved quotes are FOB bases, not delivered ones. Moreover, WTI is doubly problematic as it lacks the foreseeable character of North Sea grades whose loading programs are acted upon even before a cargo’s loading takes place.  

Thus, Johan Sverdrup emerged as Europe’s response to the concept of expanding the Brent basket. Its loadings are as trackable as those of Forties and it also loads on a North Sea FOB basis. What is more, its hedging variants are much reconcilable with the current set of Brent futures and CFDs. Simultaneously, it needs to be said that the new Norwegian flagship-grade for heavy sour barresl is nowhere near Brent in terms of quality.

Johan Sverdrup is heavy sour crude, having 28°API and 0.7-0.8% Sulphur, whilst the average Brent quality would be within the 37-39° API density interval with some 0.3-0.5% sulphur. One might argue that the previous inclusion of grades like Forties has also changed the way the Brent basket is gauged, e.g.: the addition of Forties has paved the way for a sulphur de-escalator, a phenomenon previously unknown to the UK Continental Shelf. 

Much more at the linked article. 

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