ANALYSIS-Russian Vityaz stiffens light crude mkt competition

* Vityaz API seen rising to up to 41, boosting gasoline
yield

* Lighter grade goes head-to-head with Sokol, Murban

By Maryelle Demongeot

SINGAPORE, May 27 (Reuters) - Russia's Vityaz crude will
begin to edge out more lighter Middle Eastern oil grades such
as the UAE's Murban from North Asian refiners as the injection
of more condensate gives it heightened gasoline-making appeal.

The Pacific grade may also make deeper in-roads into
Chinese and Southeast Asian refiners as volumes rise more than
a quarter to 150,000 barrels per day (bpd) next year, helping
meet transport fuel demand from a region expected to lead a
global recovery.

This could force Abu Dhabi to market more of its crude to
South Asia and Southeast Asia as the OPEC exporter faces more
competition in its traditional North Asian markets.

Sakhalin Energy, which operates the Sakhalin-2 project
where Vityaz is produced, said last week it aims to raise the
condensate ratio in the grade to 30 percent by end-year when
its second liquefied natural gas (LNG) train comes onstream.
The first train, Russia's first such facility, started in
February.

The move is expected to raise Vityaz's American Petroleum
Institute (API) density rating by up to 7 degrees to 41 API,
topping Russian peer Sokol's 37.9 and Murban's 39.8.

The blending of condensate into Vityaz has already boosted
the crude's gravity to at least 38-39 degrees from 34.3 when it
came onstream in 1999, aiding its light fuel yield for refiners
mainly in Japan and South Korea, its nearest and natural
markets.

"It is an improvement of this crude in terms of volume for
gasoline yield. Japanese and Korean buyers tend to value Vityaz
mainly on its gasoline output," said Al Troner, managing
director of Asia Pacific Energy Consulting.

For a list of crudes run by Asian refiners by API gravity:
here

EYES ON WIDER MARKETS

Vityaz's lighter characteristics may support values, as
will lessened competition from Sakhalin competition Sokol.

Output of the light, low-sulphur crude, will rise from
around 100,000 bpd now to 150,000 bpd in 2010-2011 once oil and
condensate production plateaus, says Sakhalin Energy,
controlled by Russian gas export monopoly Gazprom (GAZP.MM).
The Sakhalin-2 group also includes Shell (RDSa.L), Mitsui
(8031.T) and Mitsubishi Corp (8058.T).

Production has already risen from 60,000-80,000 bpd last
year as operators have ended the practice of suspending sales
during the winter freeze, thanks to the use of a new oil
terminal that remains open year round.

Output of Sokol crude from the ExxonMobil (XOM.N) -operated
Sakhalin-1 is expected to fall by about a quarter to 165,000
bpd or lower this year, from a peak of 225,000 bpd briefly
touched in 2007. [ID:nL3347378]

"Vityaz's main competitors are Sokol and Murban. Of course
each of these grades yields differently, but my expectation is
that Vityaz is backing out some of the Middle East grades
rather than Sokol," said an Asia-Pacific crude oil trader.

Four to five 730,000-barrel cargoes are now available
monthly.

For the moment its premium on the physical market has
suffered as a result of greater availability and fluctuating
quality, as the operators adjust the injection of condensate
since the first LNG train came onstream.

Vityaz's premium to Dubai quotes has more than halved from
the past years when it traded at differentials equivalent to
$5.00-6.00 a barrel to Dubai, even rising well above $10.00
last summer on surging middle and light distillate prices.

A trader with a refinery which buys the grade said the
condensate ratio in the blend is estimated at 20 percent in
June and set to rise to 26-27 percent in July.

Despite becoming much lighter, Vityaz still trades at
premiums that are $1.00-$2.00 a barrel lower than Sokol crude.
This is partly because Vityaz contains higher levels of
nitrogen than Sokol, one of the refiners said, adding that
nitrogen can have an adverse effect on catalytic crackers and
desulphurisers.

Once its quality stabilises, traders expect Vityaz to fetch
stronger premiums nearer parity to Sokol and Murban, and to
reach a wider market as more buyers join the likes of Thai
refiner PTT PTT.BK and the Philippine's Petron Corp
(PCOR.PS), which emerged earlier this year to buy the grade for
the first time.

China has also become a more regular purchaser.

UNCERTAIN DEMAND

The lighter Vityaz crude is timely as Asian refiners
prepare to ramp up gasoline production ahead of the summer
driving season in North Asia and the United States, even as
demand for the rest of the year may be limited by the uncertain
economic outlook.

Naphtha has recovered from late last year's low prices as
the petrochemicals sector emerged from its worst slump ever,
and prospects for 2009 look steady as crackers are still
running at high rates.

The broader view is bleaker, however. The International
Energy Agency forecasts demand in Japan, the world's
second-largest oil importer, to fall nearly 14 percent this
year to 4.09 million bpd, while China's consumption would drop
by 60,000 bpd and South Korea's by 20,000 bpd.

The combined impact of lower demand and higher Vityaz
supply is already felt by the United Arab Emirates, whose
exports to North Asia fell 457,000 bpd in the first quarter
versus a year ago, though Saudi Arabia is now confident overall
demand is picking up along with the global economy.
[ID:nSP62444]

The drop in UAE exports is much deeper than the 380,000-bpd
overall cut expected of the OPEC producer to comply with the
cartel's curbs. [ID:nLR631756]

Japanese data shows first-quarter crude imports from
Russia, mainly Vityaz and Sokol, rose 18 percent to 181,351 bpd
versus a year ago. Imports of Abu Dhabi grades have fallen 27
percent over the same period, significantly more than the 12
percent drop in overall crude imports. C-JPIMPRU
(Editing by Ramthan Hussain and Jonathan Leff)