Energy 8 November, 2017 12:00 pm   

Poland’s oil hub? A strong hit to Russia with light oil of Arabia  

Russia will sulfurate our oil, resulting in the increase of the costs for PKN Orlen and the Lotos Group. This is another argument for diversification. We have an ally in the yard who can also help and attack the Russians in the back of their traditional market – writes Wojciech Jakóbik, editor-in-chief of

Impact on Poland

Gazeta Wyborcza reports that Russia intends to increase the sulphur content of crude oil sent by “Friendship” oil pipeline and tankers to Poland, in order to improve the quality of raw materials to the East, i.e. to the Middle Kingdom. This will increase the cost of desulphurisation by Polish importers.

With an import of 9.5 billion barrels a day, it is the largest oil trader in the world that has dethroned the United States. China’s growing demand will be the subject of further struggle of Russia with Saudi Arabia. Their price war has prevented coordinated oil policy in the past, which was only broken by the price crisis in the second half of 2014, which resulted in the OPEC oil agreement led by Arabia and eleven non-Russian manufacturers under the leadership of Russia. The battle for China could theoretically reshape these powers and prevent the extension of the agreement beyond March 2018. This would mean a significant disappointment to the market and, possibly, price depression.

Russia’s actions described in Wyborcza are not isolated. By 2018, it wants to abandon the ports of the Baltic States in oil exports in favour of the port of Ust-Luga and to the detriment of the budgets of the ports in the states that criticize Moscow’s foreign policy. As in the gas sector, the economic and political interpretation of these movements can also be adopted here. It is about reducing costs and getting rid of intermediaries or hitting in the Baltic critics. Perhaps these goals are related.

Impact on Russia’s base

Poland, which accounts for about 10 percent of the Russian Federation’s oil exports, cannot match the strategic Chinese client, but it could cause confusion in the Russian base. The PKN Orlen-Saudi Aramco agreement triggered a nervous comment by Rosneft President, Igor Seiczin, who said that Arabia had entered the traditional area of Russian influence in the oil industry. This precedent may be continued.

According to, PKN Orlen, which is already delivering Saudi oil to the Czech Republic (through Unipetrol) and to Lithuania (through Orlen Lietuva), is expected to use domestic and foreign refineries for processing raw materials from Saudi Arabia to develop Saudi Aramco’s exports in Central and Eastern Europe. This is supposed to be one of the tools for increasing the profitability of the Lithuanian Mazeikiai refinery, which would provide Saudi Aramco with oil processing service.

Had this policy been combined with the capabilities of the Gdańsk Lotos Group Refinery, it could potentially lead to the formation of a hub for Saudi Arabia’s oil. The process would deepen the development of shale oil imports from the United States, as we have already had precedents. Such an alliance would certainly be under NATO’s political patronage and would coincide with the foreign policy interests of the US-Saudi alliance, which is competing with the China-Russia-Iran bloc.

Where Russia would worsen the quality of its oil in order to increase attractiveness of deliveries to China, a new raw material could enter the Central and Eastern Europe’s oil sector, for which Poland would become a gateway. Oil from Russia of a poorer quality could be replaced by the mixture from the US or Saudi Arabia in the future. This would increase competition in the region and threaten the interests of the Russians in their traditional stock. Expansion into China, where the Russians are doing better than the Saudis, would have to slow down in order to regain possession in Europe.

Keep the course for modernization

A restriction for the implementation of this type of scenario will be the need to modernize refineries for the processing of new blends, such as light oil from the United States and Saudi Arabia. The facilities in Central and Eastern Europe are historically adapted to the processing of raw materials from Russia, which is heavier and has more high-sulphur content. However, the fact that the Russians want to sulfurate the raw material sent to Poland even more and thus harm our importers is another argument for diversification and modernization.

Poland’s strategic interest is the continuation of the modernization of the refinery through the Lotos Group (EFRA) and PKN Orlen programs and the continuation of diversification. It may be important for the Polish market, which is being discriminated by the Russians, as described in Gazeta Wyborcza, but also for the region in which Russia’s strategic rivals are interested, i.e. the USA and Saudi Arabia.

Therefore, in spite of personal changes around the EFRA program described in Wyborcza, its smooth continuation should be ensured by the LOTOS Group. PKN Orlen needs equally energetic efforts towards modernization.