Energy 16 January, 2023 12:30 pm   

Polish-German derusification will determine prices at gas stations


If oil supplies from Poland to Germany’s Schwedt refinery actually start before the end of January, derusification of this facility may occur with or without the help of Orlen. The price of fuel at gas stations may depend on this decision, especially in view of the embargo on Russian oil products coming into force in February 2023 – writes Wojciech Jakóbik, editor-in-chief at

Will Rosneft be kicked out of the Schwedt refinery?

Poland’s Minister of Climate and Environment Anna Moskwa said at a press conference on January 2 that Germany intends to divest Rosneft Deutschland of its 54% stake in the Schwedt refinery (PCK). “Germany making a good gesture, that is, getting rid of the shares of Rosneft-a Russian company, was a condition for further talks, it happened,” the minister said, refusing to give details about the possible involvement of PKN Orlen. “We’re not saying it has to be Orlen. Here we are talking about business negotiations in general, so this needs to be confidential. We hope that such an agreement will be struck,” she stressed in January. Derusification of the PCK was a condition for the start of deliveries of non-Russian oil to Schwedt through the naftoport in Gdańsk. These, according to the declarations of the government of Brandenburg, are to start by the end of January, which would suggest an agreement on Schwedt has been reached. It could be crucial in the face of the upcoming G7 and EU embargo on oil products from Russia. At that point not only the supply of oil on the market, but also of refining products will be at stake. Before Russia attacked Ukraine, refining capacity across the world had gone down due to the coronavirus pandemic, and the heralded energy transition in the transport sector, but the war reinvigorated the demand. Europeans are outbidding each other when it comes to fuel purchases, with diesel oil in the lead, as they want to get supplies before the February embargo and because nobody knows what the demand in China will be. If the Chinese economy picks up after the pandemic restrictions are lifted, and sanctions on oil products come into effect in February 2023, prices could again rise significantly due to demand pressures. So what if the market has oil from sources outside Russia if the capacity of refineries does not go over what local refineries can actually process? Supply from Schwedt and other plants will depend on the efficiency of supply diversification. However, this can be mitigated by a recession and demand destruction. In any case, the market for oil products from Russia will shrink, and each refinery: Schwedt and Leuna in Germany, as well as Gdańsk and Płock in Poland, will have a huge impact on the prices at the gas pump in our countries. However, at this point according to data prepared by Refinitiv Eikon for Politico, the demand for diesel reached a record-breaking 8.2 million tons in December 2022, out of which 3.51 mt came from Russia. Europeans are importing oil to store it before the embargo hits. Germany imported 640,000 tonnes of diesel from Russia in December 2022 and is the continent’s biggest importer. That’s the most since May 2020.

Will Poland and Germany abandon oil from Russia?

The supply also depends on the fate of the declaration of Poland and Germany on the abandonment of oil from Russia at the end of 2022. Both countries have stuck to these declarations, but there are no sanctions yet that would enforce them. “The refinery has the capacity and is ready, the question remains about further details and of course sanctions, because they will impact any future agreements as well,” Anna Moskwa explained during the press conference. was the first to report that Berlin and Warsaw were seeking sanctions on oil supplies through the Druzhba oil pipeline. According to our information, preparations are underway to implement these laws and there is still a chance that they will come into force in early 2023 in order to give alibis to companies like PKN Orlen or its counterparts operating in Germany to break contracts with the Russians without paying penalties. Germans claim they abandoned Russian oil at the end of 2022, but there is no information about them actually terminating any contracts with suppliers from Russia. Currently Russia is not delivering any oil to Poland and Germany, which may be caused by the scheduled maintenance of the Druzhba pipeline that is to end on 16 January. However, some are already speculating whether the situation will unfold similarly to what happened to Nord Stream 1 in the summer of 2022. That maintenance break never ended and the tap was off until the sabotage in September 2022, which caused the gas prices to soar to a new record.

Are Western oil sanctions working?

A jump in oil prices would be useful to the Russians in the first quarter of 2023, because the impact of the invasion of Ukraine on the price of Brent has been offset by the vision of a recession (it costs about USD 80) and the Russians have to sell the Urals blend at an even lower price due to sanctions. It is listed for about USD 50, and in some cases it is sold with a discount setting the price at up to USD 30. Higher prices could boost demand, increase the cost of the West’s independence from oil and oil products from Russia, overhaul the Russian budget at risk of a record deficit, and encourage some Europeans to buy more from the Russians. For now, the Kremlin has to limit oil production because there is no real alternative to the European market. The Department of Finance therefore acknowledges that in 2023, it will be more difficult to replenish the Fund of National Wealth that gets money from the sale of hydrocarbons. Socvombank estimates that the deficit this year will reach RUB 3.4 trillion, which will have to be covered from the Fund, which holds about USD 180 billion. This means that Western sanctions work, but their impact on Russia is spread over time. Americans estimate that oil prices could reach up to USD 150 if it were not for the introduction of a maximum barrel price by the G7, Australia and the European Union from December 5, 2022. The fact that the Russians are selling oil below the USD 60 limit may mean that they are afraid of sanctions or that this is what the market conditions are, because Urals costs less. In February, the first revision of the maximum price is expected to occur, which is supposed to take place every two months. The cap is supposed to stay at 5 percent below the market value, which means today the price should drop to about USD 47-48. The next jab at Russia will be the embargo on Russian fuels introduced on 5 February 2023. At that moment a decision about Schwedt should be made, as well as the direction from which oil and oil products to Polish and German refineries will come, so that the sanctions on the northern strand of the Druzhba oil pipeline can enter into force. Proper synchronization of actions in the West should save the region from a shock, which would also be important for the future of the defense of Ukraine, which needs diesel for an effective counteroffensive, as well as fighting blackouts caused by Russian missile attacks, because generators supplied from the West run on fuel. Therefore, the West is counting on the fact that a differentiated embargo on oil products with a division into premium and normal fuel will force the Russians to comply. They had to reduce oil production due to sanctions, because they do not have the right storage tanks and the same will happen with fuel. Such a solution will also facilitate the search for alternatives by the private sector in Europe. It is worth constantly monitoring the issue of oil imports from Kazakhstan through the Druzhba pipeline in Russia. Any attempts to sell Russian fossil fuels under a false flag, for example by mixing Kazakh KEBCO with the similar Russian REBCO, will be met with second-order sanctions, and any reports of such attempts will damage the image of Western entities involved in this procedure.

When will there be a decision on the derusification of the Schwedt refinery and sanctions on the northern section of the Druzhba pipeline?

Already in January there may be an official press release about the derussification of the Schwedt refinery, PKN Orlen perhaps becoming its shareholder, as well as Poland and Germany coming through on their delayed abandonment of Russian oil through applying sanctions on the northern bit of the Druzhba. Decisions on this issue will be of fundamental importance for Polish-German cooperation, Western sanctions against Russia, the fate of the Russian invasion of Ukraine and fuel prices at gas stations.