Where Russia Friendship, European oil | Latest news The Moscow Post
04 October 2022

Where Russia "Friendship," European oil

By abandoning Russian resources, Europe is making its citizens "hostages."

You get used to good things quickly

Europe has not yet agreed on an embargo on Russian oil. The foreign ministers of the 27 EU countries could not agree on the sixth package of sanctions against Russia. This was stated on Monday by the head of EU diplomacy Josep Borrell at a press conference following a meeting of the EU Council in Brussels. The foreign ministers of the EU countries could not resolve the issue of an oil embargo against Russia, which provides 20% of world gas exports and 11% of oil exports, according to The Moscow Post.

As it happens, they get used to good things quickly. With a united Europe, that's exactly what happened. Everyone can "sit on the well," Brussels said and decided on a "green turn." In particular, in order to cut Moscow's revenues from oil and natural gas exports. According to King's College London, since the beginning of this century, the oil business has brought about $3.5 trillion to the Russian treasury, and Europe received from Russia a third of its oil imports and almost 40% of imports of petroleum products.

Talk that it was time to cover this "krantik" has been going on for a long time.

"Hatching" a life-giving well

The sixth package of sanctions includes an embargo on the import of Russian oil and petroleum products. The European Commission proposed to introduce a ban on the import of crude oil six months after the package comes into force, on the import of petroleum products - from 2023. Brussels eased a number of restrictions, offering Hungary and Slovakia to continue to purchase oil, as before, until the end of 2024. Slovakia said this that it needs a three-year transition period in order to rebuild the refinery for other types of oil. Hungary, which receives 65% of oil from the Russian Federation, said that the EU is obliged to help modernize its infrastructure.

Germany plans to abandon oil supplies from Russia by the end of the year in any case, even without an embargo. The authorities are confident that by 2023 they will solve logistics issues.

An oil refinery (refinery) in the eastern town of Schwedt provides fuel to the international airport, most of the filling stations in Berlin and the surrounding state of Brandenburg, could potentially lean on the port of Rostock using the Rostock-Schwedt pipeline, whose capacity needs to be built up.

Today, this refinery practically "sits on the well," that is, it receives raw materials from the Druzhba pipeline, a giant system that connects Western Siberia with Europe. At first, the project supported the Warsaw Pact countries with cheap oil. For more than three decades, it has nourished NATO countries. Fortunately, it became possible to sell oil to the same customers at market prices, without a discount on "fraternal" relations.

Sanctions don't work

In 2021, oil production in Russia reached 524 million tons, of which 230 million tons (43%) were exported. Export of petroleum products according to the Federal Customs Service last year amounted to 144.3 million tons

According to JP Morgan, 26 European refineries and large companies have either stopped spot purchases of Russian oil or intend to reduce the share of such purchases.

According to some reports, in the first two weeks of May, oil exports fell by a third. But plans to limit the Kremlin's oil and gas revenues at the expense of Europe's hydrocarbon "diet" are not yet working. The decline in the physical volume of European imports of Russian fuel is offset by increased prices.

According to the German Federal Statistical Office, in March 2022, imports of oil and natural gas of Russian origin decreased in physical volumes by 27.8% compared to the same period in 2021, but Russia's revenues from these supplies increased, and by 56.5%. Germany's spending on the import of all Russian goods in March increased by 77.7% compared to the same period last year and reached 4.4 billion euros with a trade deficit in favor of the Russian Federation of 3.4 billion euros.

Take away and share?

The problems of Russian oil companies that serve Europe do not end there. Some of the Russian exports go to refineries owned by Russian companies. LUKOIL owns refineries in Romania, Bulgaria, Italy, Rosneft has three large refineries in Germany, Gazprom Neft has refineries in Serbia.

PCK Raffinerie GmbH in northeast Germany receives raw materials exclusively through the Druzhba pipeline. It is the largest refinery in Europe. Shell and Rosneft own 37.5% of the shares, another 25% - AET Raffineriebeteiligungs-Gesellschaft, a joint venture between Rosneft and Italian Eni.

Refineries in the Czech Republic and Poland, Lithuania are also connected to the Druzhba system. Today these plants are owned by the Polish company Orlen.

Vice-Chancellor of Germany, Minister of Economy and Climate Protection Robert Habek noted that Germany has reduced the share of Russian oil in imports from 35% to 12% and the Rosneft PCK refinery in the city of Shvedt remained the only consumer of oil from Russia.

The minister said that Germany is preparing for a possible change of ownership, without excluding the option of expropriation of the enterprise.

This refinery supplies products to Berlin, other surrounding areas, as well as western Poland and may become a victim of the Ukrainian crisis, Sabina Rennefanz said in a column for Der Spiegel. Nine out of ten cars in Berlin run on the fuel of this refinery, kerosene is provided by the international airport.

Lukoil in Europe

Lukoil's oil production is mainly based in Russia - 55% falls on Western Siberia. Some of this oil is processed at refineries in Bulgaria, Romania, Italy. Lukoil owns a 45% stake in the Seeland refinery in the Netherlands.

The largest shareholder of Lukoil, Vagit Alekperov, resigned as a member of the board of directors and president, deciding that such a decision would help the business. Prior to that, the UK imposed sanctions against him.

Even before this step, Alekperov warned Deputy Prime Minister Alexander Novak about the risks of stopping factories due to problems with fuel shipment. Against the backdrop of Western sanctions, the company faced a sharp decline in fuel oil shipments and, as a result, an excess of fuel oil in storage facilities. It was reported that Italy discussed the possibility of temporary nationalization of the ISAB refinery in Sicily in the event of sanctions against the Russian energy sector. The newspaper Corriere della Sera reported on the threat of job loss for 3.5 thousand employees.

The good news is that Lukoil is buying Shell Neft, a Shell subsidiary in Russia that owns a network of gas stations and a lubricant plant in the Tver region. The deal will be completed after approval from the Federal Antimonopoly Service. In addition to the lubricants plant, the company's assets include 411 gas stations in the Central and North-Western Federal Districts.

Lukoil is present in the motor fuel market in Finland (25%), Bulgaria (24%), Moldova (20%), Romania (17%). In Switzerland, Lukoil registered the trading company LITASCO, which has branches in Hong Kong, Kazakhstan, Singapore, the Netherlands, the UAE, the USA, as well as representative offices in India. If the sanctions hit LITASCO, the losses would rise.

Comfort fatigue

"When there is no agreement in the comrades, their business will not go wrong, and it will not come out of it...," the famous fable says. One of the problems of the bureaucratic elite of the European Union is the elementary lack of education of ignorant political appointees. Their dubious successes in the construction of wind parks and solar farms have taken away from understanding the realities of energy security and the importance of basic energy infrastructure in this matter.

According to Jonathan Stern from the Oxford Institute for Energy Research, many infrastructure construction projects, which are now being reanimated in Europe, were planned earlier, but in comparison with the supply of Russian gas and oil, they looked inappropriate. Now "there has been a revolution in governments" view of infrastructure. Energy security is at the forefront, "says Massimo Di Odoardo, vice president of gas and LNG at Wood Mackenzie.

The perceptions of many that electricity is taken "from an outlet" or from a windmill lead to the fact that some houses in Europe will indeed have to be heated with wood, as Vladimir Putin jokingly suggested 12 years ago at a forum in Berlin. Transport and mobility will depend on gasoline and diesel for a long time to come. Pipeline infrastructure can be abandoned by replacing it with LNG and tankers, but the laws of physics remain.

Simple calculations show the advantages and reliability of pipeline transport for the movement of oil compared to sea transportation, as well as the gain in energy costs for the transportation of natural gas through pipelines compared to "multi-storey" LNG transshipment. The intention of the European Commission to abandon the Druzhba pipeline system is a vivid example of engineering and economic illiteracy and suicidal inclinations of europolitics. You can't break it!

Photo: Virginia Mayo/POOL/EPA

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