The fight for the security of fuel supplies to Poland in the era of sanctions should take into account the infrastructure in west Pomerania, around which controversies are growing, but a Big Chief from Szczecin could solve the issues – writes Wojciech Jakóbik, editor-in-chief at BiznesAlert.pl.
Putin’s gas station is shutting itself down
The International Energy Agency estimates that Russian oil production will fall by one million barrels per day in 2023 due to sanctions restricting access to markets. Because of the plummeting oil production in Russia, the country has exceeded the cutting quotas agreed on as part of OPEC+. Putin has already called Saudi Arabia to coordinate oil policy because of that. He might have asked for higher cuts across OPEC+ or a larger amount for Russia to continue with the deal, which most sources say will not be revised at the February 1 summit. This shows that the Russians are losing the initiative and can only respond to Western sanctions by self-aggression in the sector that is fundamental for the bankrolling of the social order in Russia. They have to cut production because they have nowhere to store surplus oil, and the European market is closing more and more because of the maritime embargo in the European Union and a comprehensive ban in the Anglo-Saxon countries. This is exacerbated by the maximum price imposed on Russian oil introduced by the G7, the European Union and Australia. The government decree that will implement president Putin’s ban on oil deliveries to countries that will apply the price cap will enter into force on 1st of February. According to the decree, companies will collect information, then have a month to „remove the problem”, and if that doesn’t work they will stop the supply to Russian Railways and Transneft, depending on the means of transport, on the basis of a government request. Since the provision launches on 1 February, the ban may enter into force in early March, and then even the deliveries provided on the basis of the PKN Orlen-Rosneft contract that is binding until the end of 2024, may be halted. It is possible that such a scenario would allow Orlen to go down from a 10 percent share of Russian oil in the portfolio to zero without negative legal consequences for the termination of the agreement by the Poles. Thus, Poland and Germany will be able to belatedly fulfill their political promise on giving up Russian oil by the end of 2022. The alternative scenario is that the maximum price of oil from Russia will remain on paper. The price is to be 5 percent cheaper than the Urals market price, which currently sits at about USD 50 per barrel. However, Russians often offer discounts worth several dollars in order to sell the fuel. In such cases the price drops below the G7 price cap, which means the oil will keep flowing, but it will be subject to Russia’s decisions. Nevertheless the oil supply on the market will hinge a lot more on the Chinese economy than the whims of the Kremlin, which is losing the initiative.
Fuel prices at gas stations will depend on the agreement between Poland and Germany
However, a similar solution on the fuel market may have more significant consequences, because Western countries, led by Poland and Germany, have not yet unveiled cards in terms of ensuring security of supply. On February 5, the EU embargo on the supply of petroleum products from Russia comes into force. According to Bloomberg, the maximum price for premium products will be USD 100-110 and USD 45 per barrel for products sold at a discount price. The difference in prices is intended to reduce the threat to the security of supply to the West. However, the price cap requires a consensus of EU countries to join the G7 and Australia. According to Bloomberg, analysts from Vortex found that before the embargo, EU states had stocked up on Russian oil to the tune of 600 thousand barrels a day on average. Germany is a good example, as it contracted 3 million tons of fuel from the United Arab Emirates in September. Add to that Poland, which announced through its state-owned Orlen deliveries of Saudi oil in the spring and American oil in the winter of 2022. Therefore, it is to be expected that they have accumulated stocks to compensate for possible market shortages caused by the embargo on oil products from Russia. This would mean that the thesis of Dr. Michał Paszkowski from the Institute of Central Europe is correct, that there will be no problem with the availability of fuels, but with their price, because oil products from Russia were cheap, gave a high margin at relatively high prices, as evidenced by the record results of the Gdańsk refinery possible thanks to the processing of the Urals blend. In a similar vein, the president of TotalEnergies, whose company was involved, among other things, in the Leuna refinery in eastern Germany, supplied by the Polish Naftoport, is not afraid of a shortage of petroleum products, but predicts an increase in their prices due to changes in logistics. All the deliveries to Leuna are coming from outside Russia, including via the Naftoport in Gdańsk. The Schwedt refinery is facing a bigger challenge though. It has already halved its working time and is waiting for tankers that had arrived to Poland and were supposed to have transferred the oil by the end of January, but as at the date of publishing this article this has not happened yet. Poles agreed to make their Naftoport available to Germans, but on the condition that Schwedt will be derussified, which means eliminating Rosneft Deutschland from the refinery. BiznesAlert.pl has learned on both sides of the Oder that as of yet no decision on the Schwedt refinery has been made, one of the reasons being the security of supply to western Poland and eastern Germany. The agreement between Poland and Germany would give bright prospects to the infrastructure in Central and Eastern Europe, with the Naftoport leading the way and the second Pomeranian oil pipeline, whose fate may depend on the future of Schwedt.
Big Chief from Szczecin
This brings us to the challenges Poland is facing. They are visible both in the Naftoport in Gdańsk, and in the constant threat of hybrid attacks on this type of infrastructure, of which we wrote about on BiznesAlert.pl. Another challenge was described by the Energy Policy Institute in response to revelations that were cited, among others, by our portal. Ukrainian media warned in January that the Ukrainian fuel network UPG had acquired a stake in the Baltchem Chemical Plant Terminal. The Ukrainians claim that it has controversial ties to oligarchs close to Alexander Lukashenko. UPG had denied such claims. However, the Ukrainian portal A-95 warns that the UPG can be a cover to evade Western sanctions against Russia and Russian supplies through Szczecin. „We categorically and with full responsibility declare that this information is untrue and is intended to discredit the UPG brand. This is an element of fierce competition, which we consider „black” PR aimed at damaging the reputation of the company,” the UPG statement quoted by BiznesAlert.pl said. In fact, the acquisition of Baltchem by UPG took place in accordance with the provisions of the law, and according to information we acquired, the Polish state could have blocked this transaction, but did not use this opportunity. One can imagine that these assets would have returned to the state via PKN Orlen or PERN. No such thing happened, and the Ministry of State Assets did not answer our questions before this text was published. The assets in question are the Terminal Świnoujście with 11 above-ground and two underground tanks and the Szczecin Terminal with railway infrastructure for the distribution of fuels. This is an important source of finished fuel supplies to western Poland, which is also supplied from Schwedt. Baltchem claims that it did not bring even a ton of fuel from Russia after the invasion of Ukraine on February 24. However, the Institute of Energy Policy warns of another threat, namely the fact that the fuel that arrives via Szczecin could be redirected from the Polish market to the Ukrainian one. „In our opinion, it is highly likely that the new owner will change the existing policy of the company and will use the purchased offshore terminals to import fuel ready for the needs of the Ukrainian market,” stated Przemysław Ogarek and Mariusz Ruszel. „The worst-case scenario is a periodic shortage of fuel in Poland,” warn the authors of the analysis. However, it needs to be said that the mandatory fuel reserves in Poland have to last 60 days from the moment all fuel imports stop. This means the prediction that instead of shortages the prices will soar seems more likely. This, however, is also detrimental to the economy, as well as to public support for Ukraine. The energy crisis turning into an economic one will undermine it, acting in favor of the pro-Russian forces in Poland. The fact is that fuel sellers in Ukraine currently receive a price up to three times higher than in the European Union due to the demand of the Ukrainian Armed Forces. Poland is a window to the world of these supplies and it is necessary to reconcile the political interest of oiling the Ukrainian war machine and ensuring Poland’s fuel security, as well as the business of selling fuel on both markets. BiznesAlert.pl sources argue that it is possible to sign a deal with Baltchem that will guarantee secure supplies to Poland. „In the past Baltchem’s infrastructure was controlled by the State Treasury, but in the 90s Poland gave it up,” said Paweł Poncyljusz, an MP from the Civic Coalition. „On the other hand, since January 2023, Baltchem has been in the hands of an entrepreneur well known to the Polish intelligence, especially the Internal Security Agency (ABW). In this case, ABW representatives should agree on the terms of fuel imports through Baltchem so as to ensure that the needs of Poles come first,” our interlocutor concluded. This probably means they will need to talk to Jan Bobrek, son of Krzysztof Bobrek, a fuel businessman from Szczecin who is the main shareholder of Baltchem. It may turn out that Poles will have to ask for help from the Big Chief, in this case an important figure on the fuel market in Szczecin. But will he help?