Cold War relic threatens Europe’s plans to ditch Russian oil

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(Bloomberg) – Berlin risks running out of fuel unless German officials find a way to prevent a Cold War relic from falling victim to geopolitics.

A refinery on the Polish border, which supplies the bulk of jet fuel for the German capital’s airport and gasoline for vehicles in the region, is caught in the European Union’s standoff with Moscow over the war in Ukraine. A plan to ban Russian oil imports by the end of the year threatens to choke off supplies to the small-town Schwedt facility, crippling Berlin and much of Germany from the East in the process.

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The PCK refinery is directly connected to a pipeline pumping Russian crude across the Ural Mountains. Because the facility is far from a major port, there is no easy alternative, and the fact that it is controlled by Kremlin oil champion Rosneft PJSC multiplies the complexity.

From Berlin to Germany’s Baltic coast and parts of western Poland, “virtually all planes, police cars, fire trucks and ambulances are powered by Schwedt fuel,” said Annekathrin Hoppe, mayor of the city ​​of 34,000 inhabitants located on the Oder. The closure of the refinery “would be a disaster”.

The facility, which covers an area more than twice the size of New York’s Central Park, was built in the 1960s to cement the former communist East Germany’s reliance on the ‘Soviet Union. The struggle to find a solution shows that these ties are still strong more than three decades after the fall of the Berlin Wall.

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Read more: Europe’s rocky road to making a Russian oil ban work

To comply with the oil embargo planned by the EU, the government of Chancellor Olaf Scholz is considering heavy-handed solutions, in particular taking control of the refinery as it did with the German unit of Gazprom PJSC. But a change in ownership would not solve the main problem: replacing the 12 million tonnes of crude pumped each year to the refinery by the Druzhba pipeline, named after the Russian word meaning “friendship”.

“The refinery is not set up for anything” other than high-sulfur Russian crude oil, said Ben Van Beurden, chief executive of Shell Plc, which has a stake in PCK it was trying to sell. The refinery declined to comment for this story.

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German Economy Minister Robert Habeck visited Schwedt last week to address concerns about the future of the refinery. As hundreds of workers struggled to hear, he climbed onto a table to better get his message across on how the government is working to ensure operations can continue if Russian oil is banned.

“We need your production, your work to protect Germany’s supply,” Habeck told PCK staff, adding that there will likely be disruptions. “I don’t want to take you for a fool or paint a picture that’s too rosy.”

German authorities are scrambling for options and have determined that an old pipeline from Schwedt to the Baltic port of Rostock could be used for crude delivered by tanker. But its relatively small size means it could only cover around 60% of normal volumes. To boost supply, plans to increase pump pressure and upgrade infrastructure are under discussion, according to officials familiar with the matter.

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Another option would be to have tankers dock at Gdansk in Poland and send crude through a pipeline that connects to the Druzhba. That would require help from Warsaw, which has its own supply issues to deal with as it phases out Russian power.

Read more: Germany to stop Russian oil imports regardless of EU sanctions

Polish Climate Minister Anna Moskwa said the government, which is already helping supply another German refinery in Leuna, wants Rosneft out of PCK ownership. She indicated that the country could ask for even more in return.

“We are working with the German side on a new joint refinery management model so that it is optimal for both Polish and German companies,” she said. “I can assure you it’s a business model. It’s not charity.

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Read more: How Poland’s plan to stop buying Russian oil affects Germany

Residents of Schwedt, home to a 13th-century church, doubt decades-old infrastructure connections can be successfully rerouted in just over six months.

“There have been several crises with Russia since the plant was established, but these have never affected the supply relationship,” said Gundolf Schuelke, president of the regional chamber of industry and trade. trade. “This conflict – with its massive scope and its sanctions and counter-sanctions – is unprecedented.”

Berlin already had a taste of what could happen if Russian crude ran out. In 2019, supplies via the Druzhba were found to be contaminated. Within weeks, Berlin was running out of fuel and needed emergency deliveries of heating oil, diesel and gasoline from Hamburg.

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In this case, the problem was short-lived. Now more structural change is underway, and PCK has done little to prepare for a period without access to cheap Russian crude – or the end of the fossil fuel era.

Longer term, city officials are pushing to transform not only the refinery but also the local economy by creating an “innovation campus” to attract startups and sustainable industrial enterprises.

Hamburg-based Bio-Lutions International AG is setting up a factory that will process tomato straw and stems into an alternative to plastic packaging. Leipzig-based Verbio Vereinigte BioEnergie AG already produces biodiesel, bioethanol and biomethane at the PCK site and shares its extensive pipeline, rail and processing infrastructure.

But these efforts do not immediately replace the refinery, which employs about 1,200 people and maintains at least as many jobs with local partners. In addition, the heat generated by the plant keeps 80% of Schwedt’s homes warm during the winter.

“If PCK stops production, there is no more fuel in East Germany and no more fuel in Berlin,” Verbio CEO Claus Sauter said in a conference call last week. “A whole region will die.”

©2022 Bloomberg LP

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Mary I. Bruner