Belarusian oil refineries lost $80 mln due to sanctions

    Due to US sanctions, the losses of Belarusian refineries have already reached $80 million. This was announced by Deputy Prime Minister Yuri Nazarov. However, according to him, Belarusian refineries (Naftan and Mozyr Oil Refinery) will process 16.8 million tons of oil in 2021, which is 0.5 million tons, or 3% more than in 2020. The current situation in the Belarusian oil industry is described in the article of the Belorusy i rynok newspaper.


    What measures have been taken?

    – Oil refineries are carrying out large-scale modernization: the process at Mozyr Oil Refinery has reached the final stretch; Naftan may complete its modernization by the end of the year, which will make it possible for the plant to produce petroleum coke. Even before the events of 2020, Naftan signed contracts with several American companies for the supply of petroleum coke. Now the situation has changed, however, the product is in demand on the world market, – says economic observer Tatyana Manenok. – Mozyr has also significantly expanded its  product line recently: it sells not only traditional gasoline, diesel fuel, but also a wide range of products that makes it possible for it to earn money today.


    What is happening to the Belarusian oil refining?

    Manenok notes that the volume of oil refining has slightly decreased. According to her, the volume of oil refining is less than the potential of Belarusian refineries: the maximum volume is 24 million tons of oil; the optimal one is 18 million tons. Today, they operate at optimal load, taking into account the fact that they can get the most of light high-margin products in order to sell them in premium markets.

    For the Belarusian oil industry, such a market is the Ukrainian one where Belarusian oil products account for about a quarter of all physical exports of oil products.

    – The premium market is Ukraine where Belarusian exporters of oil products are very strong. At the end of last year, they signed long-term contracts on rather favourable terms, and even representatives of the factories, including Mozyr Oil Refinery, officially stated that these contracts made it possible to compensate (considering that the price in Ukraine is a market price) for the effect of the tax maneuver. The share of Mozyr Oil Refinery on the Ukrainian market, the share of some types of products reaches 40-50% on the market of light oil products, and Belarusian bitumen occupies more than 50% of the Ukrainian market, – the expert says.


    How does Naftan skirt the sanctions?

    Large Russian oil companies do not want to work directly with Naftan. A funny situation occurred when Russian suppliers say that they do not deliver to Naftan, Russian Transneft claims that it does not transport oil to the refinery, however, Naftan keeps on as operating as usual.

    “This suggests that the supply of Russian oil has been preserved, but in order to circumvent US sanctions, they are formalized through intermediaries, through gasket firms. Export to Ukraine is going on and on. And deliveries that used to go to Western Europe can again be masked through intermediaries”, said Vadim Iossub, Senior Research Analyst at Alpari Eurasia.

    Tatyana Manenok also talks about intermediary companies that supply oil to Naftan. Although Transneft announces that it does not supply oil to Naftan, the enterprise is operating at optimal load. There is a demand in the world market for oil products, and given that the cost of oil for Belarus is lower than world prices, even taking into account the effect of the tax maneuver, Belarusian oil products are competitive on neighboring markets: they are still supplied to the markets of Poland, the Czech Republic, and the Baltic countries.

    But since the enterprise is still under sanctions, the export of Naftan is out of the public eye.

    – Talking about the possibilities of preserving exports, let’s look at the website of the Belarusian Oil Company: in a day or two, information on supplies is updated, the website contains an indication of Mozyr Oil Refinery, but Naftan is not there – just products of the Republic of Belarus. Consequently, there are no serious obstacles to the sale of petroleum products. This is also a likely way to circumvent the sanctions – not to advertise that these produced by Naftan. Of course, Naftan has incurred certain losses, however, it can compensate for the losses due to the conjuncture, due to the light existing mechanisms of assistance (for example, credit assistance was mentioned), – says Manenok.


    Will it be possible to maintain the export of petroleum products after the new year?

    US sanctions will start working in full force from the end of the year. In addition, the Americans have a secondary sanctions regime: they promise to punish anyone who tries to skirt the sanctions. However, in order to punish someone in the regime of secondary sanctions, this someone must at least be searched for and found. And here the question arises: how much will the United States be diligent in finding bypass mechanisms?

    – If America turns a blind eye to this, in reality no secondary sanctions will be applied, no one will be punished – oil to Belarus and oil products from Belarus will go through intermediaries. And under these conditions, not only the preservation of volumes is possible, but even some increase. It is clear that in this case the Belarusian oil refiners will have to share part of the margin with an intermediary, – says Vadim Iosub. – But if a precedent for the application of secondary sanctions arises: the perpetrators are found, punished, fined, their assets are frozen, then it will be difficult to apply bypass mechanisms. In this situation, it will be difficult not only to increase, but also to maintain export volumes.

    Tatyana Manenok agrees with him: “We do not yet know how the US sanctions will work, how effective the secondary sanctions will be. But if there is a market where oil products are in demand (albeit with a smaller margin for Belarus, which will have to be shared with intermediaries), moreover, competitive oil products, then they will find ways to infiltrate there”.