(Bloomberg) — Germany is days from halting piped oil imports from Russia, creating pressure to find alternatives.
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The nation’s economy ministry in Berlin confirmed on Tuesday that Germany won’t be buying Russian oil at all in 2023, reaffirming a pledge to halt by the end of this year. The step is to punish the Kremlin for the war in Ukraine.
One emerging idea is to use Russia’s pipeline system to import from Kazakhstan instead. There’s even talk of a test shipment early next year. Germany, along with most of the European Union, already has a ban on seaborne deliveries from Russia.
But getting piped supplies of Kazakh crude thousands of miles to refineries in eastern Germany would present huge challenges on multiple fronts. The first is that the pipelines through which the oil would have to flow are Russian — the giant Druzhba network.
As such, any decision to facilitate such shipments can only be made by Moscow. So far, Russia’s oil-pipeline operator Transneft PJSC hasn’t received any request from Kazakhstan to deliver to Germany, according to company’s spokesman Igor Dyomin.
Some Kazakh barrels are already pumped northward to Almetyevsk in Russia and mixed with oil from Russian fields into a common export grade, officially known as Russian Export Blend Crude Oil, or REBCO, which is more often referred to as Urals.
Physically shipping Kazakh crude to Germany without any Russian oil in it is unlikely to be feasible. It would require volumes to be sent in batches to avoid mixing it with molecules of Russian origin. That would be hugely disruptive to the Russian pipeline network and it’s hard to see Transneft supporting the idea.
Even if it did, such an approach would see German refineries receiving untested crude grade with characteristics that may be very different from those of their normal diet of Urals, which has tight parameters on density and sulfur content.
In practice, though, if shipments do end up getting made, they mightn’t end up being actual Kazakh-origin supplies.
Kazakhstan’s KMG Trading, a subsidiary of state oil company KazMunayGas JSC, puts 13 million tons a year into the Russian pipeline system and is allocated an equivalent amount of Urals that it can then sell internationally.
Urals Cargoes
The Urals cargoes belonging to KMG have been specifically excluded from EU sanctions on seaborne imports from Russia and have been re-labeled Kazakh Export Blend Crude Oil, or KEBCO, to distinguish them from REBCO.
Those cargoes are lifted from the ports of Novorossiysk on the Black Sea and Ust-Luga on the Baltic. They are entirely separate from Kazakhstan’s CPC Blend exports that get loaded onto tankers at a dedicated terminal near Novorossiysk.
But even if Russia agrees to some kind of swap, the question is: where would Kazakhstan find the extra crude to put into the Russian pipeline system in order to direct more to eastern Germany.
That’s because KazMunayGas must first supply refineries in Kazakhstan to fulfill its obligations on fuel supply to the domestic market.
When it comes to exports, the first priority — through KMG Trading — is to meet the needs of the firm’s refinery in Romania.
Remaining volumes are sold under long-term contracts, according to KazMunayGas. Kazakhstan can’t redirect the KEBCO it exports via Ust-Luga port without breaking those contracts for 2023 supplies, leaving next to nothing to spare for Germany.
So once the domestic market is supplied, and Romania is served, it’s unclear where Kazakhstan could find additional volumes for Germany. And that’s assuming Russia plays ball.
Convoluted Solution
One solution might come from Kazakhstan’s rising crude production. The nation plans to raise output to 92.6 million tons next year from 85.7 million tons expected this year, according to a presentation by Economy Minister Alibek Kuantyrov.
Another highly convoluted idea might be for Russia to supply crude into Kazakhstan’s oil refining system, freeing Kazakhstan to put its own barrels into Druzhba. Kazakhstan could then sell KEBCO — the rebranded Urals — to Germany. The Pavlodar refinery in eastern Kazakhstan previously processed Russian crude and could presumably do so again, as long as there is sufficient capacity in the pipeline through eastern Kazakhstan to supply the plant and continue to meet Russia’s exports to China along that same route.
Germany has two refineries in the east of the country that depend on Urals crude via the Druzbha link – TotalEnergies’ Leuna plant and PCK Schwedt, which was in the hands of Russian oil major Rosneft PJSC’s German unit until the government seized control over it in September.
PCK Schwedt refinery processes 11.6 million tons of crude annually, with Rosneft having a share of 6.3 million tons. Behind closed doors, government officials have negotiated for months with other partners in Poland — which could ship cargoes via its port Gdansk — and Kazakhstan.
While Schwedt has already received some shipments from alternative suppliers via Gdansk and through a pipeline from the German port of Rostock, the volume has not been enough to secure operations in the long-term.
Maybe there will be some piped flow of KEBCO to Germany. But it’s hard to see it being the main solution to the nation’s crude-supply challenges.
–With assistance from Petra Sorge and Nariman Gizitdinov.
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Source: https://finance.yahoo.com/news/germany-pivot-piped-kazakh-oil-121307976.html