Fossil fuel companies profit from oil trade between Europe and Russia – EURACTIV.com

As the European Union prepares a full-scale embargo on Russian oil imports, EURACTIV takes a closer look at some of the companies that have so far profited from trade within the bloc.

Hungary and Slovakia should be given more time to implement the ban and can continue to buy Russian crude until the end of 2023 under existing contracts, according to EURACTIV.

This can be explained by the presence of a single fossil fuel company – MOL – a Hungarian integrated oil and gas company that operates refineries in both countries, as well as in Croatia.

Hungary was until recently one of the fiercest opponents of an oil embargo, fearing it would cripple its economy. But he may have had other motives for his opposition. To protect domestic consumers from rising fuel prices, Hungary capped gasoline prices in the fall, a measure the government decided last week to extend until July 1.

The costs of the price freeze are currently split between the big players, the smaller service stations and the government. The Budapest government offers tax breaks and subsidies, but these still allow small retailers to cover their own operating costs, leading some to threaten lawsuits, Forbes Hungary reported.

Meanwhile, MOL, the Hungarian fossil fuel giant that takes about two-thirds of the Hungarian market, saw its loss from the price cap largely covered by higher oil refining margins.

The company’s refining margins hit staggering levels in March, according to media reports.

Compared to the previous 10-year high of $9.3 per barrel of refined products, MOL gained $34.9 per barrel of refined oil in March. This is largely due to the much lower price of Russian export blend oil (REBCO) used in MOL’s refineries compared to other types of oil.

These prices have been further pushed down by the sanctions imposed on Russia by Western countries.

MOL’s subsidiary refinery in Slovakia, Slovnaft, which is also totally dependent on Russian crude, is facing a similar downward price trend.

However, analysts say this is not solely due to the sanctions. Tamás Pletser, an analyst at Erste Securities in Budapest, said cheaper Russian oil is not the only reason margins have risen.

“The profits from diesel production are also significantly higher. Even before the war there was a global shortage, and the Russian invasion multiplied it,” he said.

EURACTIV asked the MOL Group for comment but did not receive a response before publication.

Things are similar on the margin front in Poland, although they lead to different policy outcomes. The country’s largest crude oil processing company, PKN Orlen, operates six refineries: three in Poland, two in the Czech Republic and one in Lithuania. However, it has managed to reduce its dependence on Russian oil from 90% in 2017 to around 70% in 2020.

It also benefited from market volatility: while in February the company’s refining margin was $7.70 a barrel, in March it was already $39.30.

Yet the company is ready to get rid of Russian oil. “If the EU imposes a ban on Russian crude oil, PKN Orlen will comply with such a decision,” Daniel Obajtek, executive chairman of PKN, told Polish news agency PAP on April 25: “We can do at any time, because we are well prepared.

Other EU countries are considering facilities owned by Russian companies. In Germany, two refineries – Schwedt and Leuna – imported Russian oil, although the latter recently stopped.

Schwedt is owned by Rosneft, and its business model has been described as “importing cheap Russian pipeline oil for refining” by German Economy Minister Robert Habeck.

The German state of Brandenburg, where Schwedt is located, has a weak economy and is governed by the SPD, the party of Chancellor Olaf Scholz.

In Romania, Petrotel, one of the three major refineries currently in operation, was taken over by the Russian Lukoil in 1998. Of a capacity of 2.4 million tonnes per year, 2.1 million tonnes were refined from oil imported in 2021.

Lukoil also has assets in Bulgaria. Lukoil Neftohim Bulgaria, which joined the Lukoil Group in 1999, is the largest oil refinery in the Balkans.

Between 2006 and 2020, the company only reported profits in 2007, 2016 and 2017, reporting losses in all other years. In the company’s latest report, published in 2020, the company declared a loss of more than 255 million euros.

Additionally, the Lukoil Neftohim refinery in the Black Sea port city of Burgas was built in such a way that it can only refine Russian oil and other rare types of Middle Eastern oil.

Bulgarian energy expert Vasil Nachev said on Tuesday (May 3) the price of Russian Ural oil used by the Lukoil refinery in Bulgaria was $37 a barrel cheaper than Brent, the benchmark in world oil markets.

“The Commission for the Protection of Competition must assume the role and verify the mechanism by which this price is formed. We have an intermediary there. However, Bulgaria is silent on the import of oil processed in the refinery,” Nachev said.

According to Martin Vladimirov, an energy expert at the Center for the Study of Democracy, a Bulgarian think tank, the intermediary company is Litasco, the majority shareholder of Lukoil Neftohim Bulgaria.

LITASCO was founded in 2000 in Switzerland and is the exclusive marketing and international trading company of Lukoil.

“The difference goes to Litasco in Switzerland, where there is a very low profit tax and there are legal options that allow that profit to be untaxed and go directly to Russia. This way the profits stay in Russia,” Vladimirov told Radio Free Europe.

Lukoil is also present in the Mediterranean. Lukoil Isab, whose refinery is located in Priolo, Italy, in the province of Syracuse, holds a significant share of the country’s refining capacity (around 22%), with an annual production of 16 million tonnes.

It buys 30 to 40% of its shares from Russia. Last week, Reuters reported that Italy was considering temporarily nationalizing the company.

[Edited by Georgi Gotev/Zoran Radosavljevic]

Mary I. Bruner