Energy News Today

Russian Energy Companies Halt Oil Supplies to Naftan Refinery in Belarus Because of US Sanctions

Naftan Oil Refinery, Novopolotsk, Belarus. (Source: belarus.by)
On June 24, Russia’s state-owned oil transit system operator Transneft announced that hydrocarbon producers Rosneft and Surgutneftgaz had not reserved any pipeline volumes for transporting oil to the Belarusian refinery Naftan for the third quarter of 2021 (TASS, June 24). Transneft’s announcement did not come as a surprise. Following the United States’ decision to revoke its moratorium on implementing sanctions against Belarus’s state-owned refinery enterprises within 45 days, media sources had reported that Russian companies planned to comply with the reapplied restrictions (Neftegaz.ru, June 1; see EDM, May 18).

Transneft informed that it would still transport 2.36 million tons of crude from its suppliers, including Rosneft, Surgutneftegaz, Tatneft and Lukoil, to Belarus’s second large refinery, Mozyr, which the US sanctions had not targeted. Unlike Naftan, a 100 percent state-owned company, Belarus co-owns the Mozyr refinery with Russia’s Slavneft, a 50-50 joint venture between Rosneft and Gazpromneft. Naftan’s management, in return, claimed that Russian companies would continue to supply oil to the refinery (TASS, June 24).

Both Belarusian refineries have historically been overwhelmingly dependent on Russian oil imports—normally, around 24 million tons annually. However, after the contamination of the Druzhba oil pipeline in the first half of 2019, and because of Russia and Belarus’s failure to reach an agreement to extend their already-expired supply agreement at the end of that year, Minsk sought to diversify its import options. In particular, Belarus purchased oil from third suppliers such as Azerbaijan, Saudi Arabia and even the United States (Belta.by, July 16, 2020). Yet Russian companies eventually surpassed these new supplies again, after Moscow and Minsk finally agreed on a new deal. Still, the long-lasting feud with Moscow obliged the Belarusian government to redouble its efforts to seek potential short-to-medium-term solutions to decrease the country’s dependence on Russian supplies.

In 2019, Minsk signed one-year supply agreements with Azerbaijan and Kazakhstan. And in December 2020, the Belarus National Oil Company renewed its contract with the State Oil Company of Azerbaijan (SOCAR), although the contract terms (volume and period) were not revealed. Public records reveal that SOCAR supplied one million tons of crude to Belarus in 2020. The full amount of these shipments reportedly went to the (unsanctioned) Mozyr refinery, via the Odessa–Brody pipeline (Belta.by, December 31, 2020). SOCAR also reportedly accounted for 10 percent of all oil volumes imported by Belarus in the first quarter of 2021 (Haqqin.az, June 28). Belarus will most likely be able to receive the remaining contracted volumes from SOCAR as the contract predates the revocation of the moratorium. However, Azerbaijan’s state-owned oil company announced that it too will avoid supplying oil to Naftan.

In November 2020, Kazakhstan finally ratified the deal negotiated with Belarus in 2019. The draft of the bill raised concerns among Kazakhstani policymakers as the two countries are actually competitors in the petroleum products market of the Eurasian Economic Union (Egov.kz, November 10, 2020). Nevertheless, Kazakhstan agreed to export around 3.2 million tons of crude oil and heavy petroleum products to the Naftan and Mozyr refineries. The petroleum products (except fuel oil and petroleum coke) produced at these two refineries from Kazakhstani oil were, apparently, for domestic consumption only. Notably, Belarusian Prime Minister Roman Golovchenko visited Kazakhstan at the end of June, where he signed a new contract on importing oil and petroleum products from the Central Asian republic (Belarus Segodnya, June 28). The details of the agreement are unknown.

Rosneft and the other Russian energy companies’ decision to comply with the US sanctions against Belarus was not particularly exceptional. Last March, for instance, Rosneft fully adhered to the US sanctions targeting Venezuela: namely, the Russian oil giant withdrew from the exploration and development projects it had planned to pursue in the South American country (Rosneft.ru, March 28, 2020).

Moreover, Rosneft’s motivation to avoid falling afoul of US sanctions does have a clear business sense. Although majority-owned by the Russian state, Rosneft also has international stakeholders such as BP and Qatar’s QH Oil Investments LLC. Moreover, while deprived of a significant buyer of their crude exports, Russian oil companies actually stand to benefit from the US sanctions on Naftan. They will enjoy less competition from Belarus in critical markets, including the European Union and Ukraine. These two destinations had accounted for almost all Belarusian petroleum product exports in the first two months of 2021 (Nangs.org, May 13).

The Belarusian economy heavily depends on the re-export of Russian oil and foreign sales of refined petroleum products. An inability to offset Russian supplies will, thus, mean a significant decrease in budget revenues as well as shortages in the domestic petroleum products market. This situation creates a conducive environment for Russian companies to establish themselves in Belarus by utilizing Moscow’s political clout. It will also facilitate some Russian companies’ efforts to carve out more economic assets in the neighboring country.

These financial difficulties look destined to further complicate Minsk’s efforts to diversify away from a dependence on imports of Russian hydrocarbons since Belarus will not be able to allocate sufficient financial resources into buying more expensive crude from third countries or in implementing needed pipeline projects such as Gomel–Gorki, aimed to connect the Naftan and Mozyr refineries (Belarus24, October 23, 2020). The predictable geo-economic and geopolitical outcomes of Washington’s sanctions on the Belarusian energy sector are thus becoming clearer with each passing month.

Read More: Russian Energy Companies Halt Oil Supplies to Naftan Refinery in Belarus Because of US Sanctions

2021-07-12 19:20:24

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More

Privacy & Cookies Policy
%d bloggers like this: