HOUSTON/BOGOTA Colombia, which in recent years stole market share from other Latin American countries exporting crude to the United States, is now finding itself diverting oil to distant markets like India and Europe as U.S. imports slide.
After tripling its oil sales to the United States between 2007 and 2012 to 403,000 barrels per day (bpd) and displacing Ecuador and Brazil, Colombia's shipments to the North slid 6.5 percent last year, the first drop in six years, according to the Energy Information Administration (EIA).
At the same time, Colombian oil sales in 2013 to China rose 73 percent to $3.84 billion. Exports to India more than doubled to $2.71 billion and shipments to Italy, Switzerland and United Kingdom climbed, Colombia's statistics office said.
"U.S. demand for all Latin American crudes has declined and they are being replaced by cheaper Canadian ones. But Colombian ones have lost market share much faster because of quality issues," a trader who places Latin American grades told Reuters.
Colombia's move to diversify its oil exports away from North America comes relatively late. Well before the U.S. onshore production boom started eroding demand for imports, leftist leaders in Venezuela and Ecuador started sending ships to China for ideological reasons in credit-for-oil deals.
But Colombia's export blends were tailored for the U.S. market. Offering them to far-off consumers makes logistics more challenging and could lower the price Colombia can command.
Colombian oil companies blend a big portion of their heavy crudes with naphtha, a lightening agent, to produce grades such as heavy Castilla and medium Vasconia that once were highly popular among U.S. refiners.
But the U.S. shale revolution reconfigured the diet for refiners by flooding them with light crudes and condensates - which refineries prefer to mix with well-known heavy crudes, like Canadian or Latin American benchmark Mexican Maya.
"Traditional heavy crudes are better to combine with lighter crudes, instead of blends," a source from a U.S. refiner said.
Venezuela also produces blends by mixing the Orinoco Belt's extra-heavy crudes with heavy naphtha, though its refining branch in the United States, Citgo, is taking most of them, so it does not have to resort to offering them on the open market.
PRICING AND INDIA
Colombia has also fetched less revenue from selling to the United States. From January to November, receipts fell 14 percent to $11.9 billion, Colombia's statistics department said.
After years of internal conflict, Colombia managed to lure foreign investment to the oil sector over the past decade and reverse a fall in reserves through clear taxes and regulations.
But output growth has slowed, affecting exports, and its refinery network has struggled to meet rising domestic demand, causing imports of fuels to surge 57 percent last year to 118,000 bpd. Colombia is now Latin America's fourth largest importer of U.S. fuels, ahead of Venezuela.
Colombia has mostly offset its weakening crude and fuels trade position by selling more to Asia and Europe.
But in Asia, in the midst of exporters' fierce battle to capture new markets, Colombian Castilla heavy crude was offered late January to Indian companies on a FOB basis as cheap as $14-16 per barrel below Brent, an Indian trader said.
According to traders, that price was related to January's volatility in spreads, as well as increasing global freights and Colombia's oil storage tightness, which could deduct some $2-3 per barrel. Colombian oil companies do not commonly offer discounts related to destinations when selling FOB.
"This is really the cheapest crude (India can buy) and it is amply available. Colombia can ship in VLCCs," the source said, referring to very large crude carriers that cut freight costs.
"Ecopetrol has been diversifying markets and increasing the importance of Asia in its exports," Patricio Zuluaga, its international trade manager, told Reuters.
He said the company was negotiating "market prices" and denied it was offering preferential terms to Indian refiners.
While Ecopetrol seeks long-term supply contracts with India, the largest private oil company in Colombia, Canada's Pacific Rubiales PRE.TO, sells most of its crude through tenders and has increased open market offers since buying rival Petrominerales PMGC.CN last year.
When Pacific and other smaller Colombian producers that focus on Europe cannot place oil in tenders they store leftover crude on Caribbean islands and produce bunker oil, a cheap heavy fuel used by the maritime industry.
They later export it to Singapore, often a last resort for companies offering blends in an oversupplied global market.
But Pacific Rubiales' real target is Europe, where it sold a third of its exports last year, compared with 9 percent to Asia.
It plans to further increase sales to Europe but will face more entrenched Latin American exporters, such as Mexico.
"I wouldn't say the Atlantic Basin is saturated with Colombian crude, but there's too much competition from Canadian ones and shale crude. The tendency is to not depend on the United States," a Colombia-based oil executive said.
(Reporting by Marianna Parraga in Houston, Peter Murphy in Bogota and Nidhi Verma in New Delhi; Editing by Terry Wade and David Gregorio)