The Soviet pipeline that keeps Europe hooked on Moscow’s oil

Europe’s dependence on a 58-year-old Soviet pipeline and millions of barrels a day of Russian crude oil has pushed regional leaders to oppose an oil embargo as France’s Shell and TotalEnergies refineries seek alternative supplies.

While Europe’s reliance on Russian natural gas has become a source of growing anxiety, the continent also depends on Russia for 30% of its oil, which was allowed to continue flowing despite the invasion of Ukraine.

Most oil and related petroleum products come by sea, but the single largest flow of Russian crude oil to Europe – almost a million barrels a day – comes through a 5,000 km Druzhev (friendship) pipeline from Almatyevsk in central Russia to refineries in Belarus, Poland, Germany, Slovakia , Czech Republic and Hungary.

It has benefited from the fact that Western sanctions have so far been designed to allow for continued European payments for oil and gas imports from Russia. The crude oil in the pipeline will also be the most difficult to replace.

The Friendship Tube called by Soviet leaders in 1958 to supply allies in the Communist bloc, and opened in 1964, has been a key feature of the European energy system ever since, providing direct feed to more than a dozen European refineries.

Two key facilities are Germany’s Schwedt and Leuna refineries – and the country’s dependence on them makes it more exposed than other EU companies to additional sanctions blocking or restricting imports of Russian oil, said Alex Booth, head of research at Kpler, a commodity research firm. Group

“It’s one thing to keep the water-carrying supply network away for alternative crude oil, but when you have refineries on the pipeline, as you do in Germany, reorganizing your supply is much more difficult.”

While offshore refineries often take a mixture of crude oil transported through the sea from different destinations, those sitting on a pipeline tend to be designed for specific fuels.

The Russian state-owned Transnet, which operates Druzeba, aims to supply about 914,000 b / d to Europe in the pipeline by 2022, of which 261,000 b / d will flow to Poland and 388,000 b / d to Germany, according to S&P Global. Transneft said the flows through the pipeline continue. In total, it supplies a quarter of Germany’s crude oil.

US and UK last week Prohibited future oil imports from Russia But German Chancellor Olaf Schultz said he would prefer to exert “sustainable” pressure on Moscow that would not impose too great a cost on German consumers. Developing alternatives to Russian energy, he said, “can not be done overnight.”

Another complication for Berlin is that the Schwedt refinery not only processes Russian oil but also owns Rosneft. The Kremlin-supported oil producer owns 54% of PCK Raffinerie GmbH, which operates the facility, alongside Italian Shell and Eni. Rosenft’s response could not be obtained.

Rosenft is set to further increase its ownership in the refinery by acquiring 37.5% of Shell’s shares after last year the UK-listed energy center announced its intention to sell and the Russian group exercised its first right of refusal. The deal remains subject to approval by German authorities. Shell declined to comment.

Rosneft and Transneft have both been under EU banking restrictions since 2014 when Russia annexed Crimea. The EU imposed last month Freezing of assets and travel bans On Bosnian boss Igor Sachin and Transnational CEO Nikolai Tokarev, along with 24 other Russian oligarchs, businessmen and government officials.

Eni, which owns 8.33% of PCK, said refining activity was not affected by the sanctions. She added that she intends to sell her shares in accordance with her strategy to withdraw from the traditional refinery, a decision made before Russia’s invasion of Ukraine.

Sweden processes 12 million tonnes of crude oil a year – about 220,000 a day – and supplies 90% of gasoline, jet fuel, diesel and fuel oil in Berlin and the surrounding state of Brandenburg, according to PCK.

The German Ministry of Economy has put questions to the government of the state of Brandenburg, which said that although there may be “temporary and regional bottlenecks”, it expects supplies to be maintained. “The refinery has also taken precautions and is storing oil for heating, for example, or could fall on a replacement pipe,” it read.

Patrick Poiana, CEO of Total, which operates the 240,000 b / d Leuna refinery west of Leipzig, told a conference in Houston last week that of all the company’s European refineries, Leona would face the biggest “difficulties” if its Russian oil supply was cut.

The company is exploring alternative supply options for pigeons, including a route through Gdansk in Poland, said a person familiar with the matter. Total declined to comment.

Although many banks, insurance companies and shipments began to shake off all of Russia’s business, oil continued to flow along the Druze, partly because no further transportation was required. In addition, oil is usually supplied under long-term contracts, meaning there was a limited need for refineries to do “new” business with trans oil, Kepler’s Booth said.

Traders and refineries with long-term oil-lowering contracts from Russian producers also continued to receive marine cargo on ships chartered mostly before the conflict. Between the beginning of the invasion of Russia on February 24 and March 6, Europe imported 5.1 million per day of oil and petroleum products from Russia by sea, according to Kepler, with the largest share going to refineries in the Netherlands for further distribution.

At current prices, Standard Chartered Investment Bank estimates that EU countries pay Russia about $ 550 million a day for oil, equivalent to $ 200 billion a year.

But as pressure builds on the EU to take stronger action, it is likely to become increasingly controversial to accept Russian oil of any kind.

After being criticized for profiting from a load of cheap Russian oil, Shell announced last week Stop buying all Russian oil and gasWhich she says will lead to a reduction in output at some of its refineries while it has purchased alternatives.

Sana Martin, Prime Minister of Finland, said outside a meeting of EU leaders last week: “On the one hand we have these very severe financial sanctions but on the other hand we support Russia’s war by purchasing oil, gas and other fossil fuels… We must get rid of fossil fuels Russians as soon as possible. “

Another report by Erica Solomon in Berlin and Sarah White in Paris.
Data Simulation by Chris Campbell.

The Soviet pipeline that keeps Europe hooked on Moscow’s oil Source link The Soviet pipeline that keeps Europe hooked on Moscow’s oil

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