Vessel With Russian Fossil Fuel-Based Product Parked Off Virginia

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--The arrival on the U.S. East Coast of a Liberian-flagged vessel carrying fossil fuel-based products directly from Russia is evidence of the concern about the strength of Western-backed sanctions.

U.S. President Joe Biden signed an executive order in March that banned the import of Russian crude oil, natural gas and refined products.

"That means Russian oil will no longer be acceptable in U.S. ports, and the American people will deal another powerful blow to (Russian President Vladimir) Putin's war machine," he said.

Raw oil and natural gas are one thing, but the end-use products derived from those fossil fuels are notoriously difficult to trace. Global Witness, an advocacy group seeking to expose some of the corrupt practices behind the world's natural resource producers, reported last month that a loophole in Western sanctions allows for refined products to easily make their way to the U.S. and other markets.

The situation works like this: An upstream operator loads crude oil, for example, from a field somewhere in Russia and sends it off to a processing facility. For Global Witness, that processing facility is a refinery in India. That refinery churns out refined fuels such as gasoline or fuel oil, which has been processed to such a degree that determining its feedstock is difficult.

A case in point is loadings at the port of Jamnagar in western India. It's the country's main refining center and in June, Russian crude oil and fuel oil imports accounted for a fifth of total deliveries. That month, India exported 2.7 million barrels of refined petroleum products to the U.S. on seven different vessels, five of which came from Jamnagar.

According to Global Witness, there is "no feasible way" to determine the origin of these processed products, which means that "any shipment" of something derived from Jamnagar may have Russian origins.

So it was curious to see the Liberian-flagged chemical and oil-products tanker Ladybug parked at the IMTT Chesapeake terminal off Virginia, near the state's inlet to the Atlantic Ocean.

Ladybug left the Russian port of Novorossiysk, a major shipping hub near the Russian-controlled Crimean Peninsula of Ukraine, on July 25 with a load of urea-based product from Russia. Urea is derived from natural gas, though there too, feedstocks are difficult to determine.

After the ship left Novorossiysk, it travelled through the Mediterranean to arrive in Virginia on August 15, where it continues to sit without penalty.

"We continue to see small shipments of Russian fertilizer flow into PADD 1," said Reid I'Anson, a senior commodities economist at energy data firm Kpler (Houston, Texas).

Click on the image at right to view a Kpler map showing the voyage of the Ladybug.

Kpler adds that the Malta-flagged products tanker Eurosailor carried out similar operations in June, offloading Russian-based products up and down the U.S. East Coast.

So is this a violation and/or a loophole, as Global Witness pointed out, or something else? To the advocacy group's point, it is difficult to determine the source of feedstock.

But records are kept. The U.S. Energy Department has an exhaustive list of product imports, showing that Russia sits in the No. 2 spot behind Canada in terms of total product imports so far in 2022.

Ladybug was carrying urea ammonium nitrate (UAN) solutions, a class of nitrogen fertilizer. And UAN is primarily based on natural gas, though that too is a concern for Western powers working to starve the Kremlin of the revenue it needs to keep fighting the war in Ukraine. Natural gas also was one of the products mentioned in the Biden administration's ban in March.

Manwhile, the U.S. Department of Commerce in June said it was concerned that Russian UAN was being dumped on the domestic market at a low cost. But a month later, the U.S. International Trade Commission voted against any sort of restrictions on UAN, a decision praised by the U.S. National Corn Growers Association.

To be fair, there are other exemptions. When the Biden administration in March introduced a ban on refined products coming from Russia, it allowed for a grace period to wind up existing obligations.

Elsewhere, the administration made certain caveats for products tied to the agricultural sector, such as Russian UAN. And in July, the administration clarified that it did not impose sanctions on agricultural commodities, including fertilizers.

"Agricultural and medical trade are not targets of the sanctions imposed by the United States on Russia for its atrocities in Ukraine," it said.

The voyage of Ladybug certainly raised eyebrows, particularly given its direct passage from Russia to the U.S. East Coast. And while the cargo was exempt from sanctions, it exposes the difficulty in breaking the complex, interdependent relationship that Western economies have with Russia.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).