Inexistent oil from Russia: Will Ukraine find alternative to oil from Baku?

Azerbaijani mass media are excited: the Ukrainians are planning to replace Russian oil with oil from Azerbaijan. Haqqin.az quotes Ukrtransnafta as saying that the oil will be supplied to the Kremenchug oil refinery. According to the agreements reached by Ukrtransnafta and Ukrtatnafta, the Azerbaijanis are expected to supply 1.3 million tons of oil a year for three years, with the first load to be sent to Odessa on Jan 1, 2017.

However, Dmitry Marunich, Co-Chair of the Energy Strategies Foundation, has told EADaily that the Azerbaijani oil cannot replace oil from Russia as the Kremenchug factory is not refining any Russian oil for the moment.

“Ukrtatnafta has not received crude from Russia since 2007. The reason is known: the Russians stopped their supplies when Ihor Kolomoisky’s Privat Group seized the Kremenchug oil refinery,” Marunich said.

In 2007, Kolomoisky’s people took Ukrtatnafta away from Tatarstan and Tatneft through court proceedings. In 2014, an international commercial arbitration court said it was a seizure and obliged Ukraine to pay Tatneft as much as $100mn. A few years before, Tatneft stopped supplying oil to the Kremenchug oil refinery. As a result, the factory’s output slumped by 80%.

So, in Ukraine there is no Russian oil to be replaced, except for a small section of the Odessa-Kremenchug pipeline, where one can still find Urals crude oil linefill.

“I am surprised at Ukrtansnafta’s position. Controlled by Privat Group, it is still keeping in stock almost 400,000 tons of process oil it once pumped from major pipelines and is now claiming over 1bn UAH or 2.5bn RUR for the storage. For more than a year Ukrtransnafta has been at suit with Ukrtatnafta and now they have made a deal,” Marunich said.

Today, Kremenchug is not the only oil refinery in Ukraine. According to OilNews, it can refine 19 million tons a year but is refining just one quarter of it. It refines crude supplied by Ukrnafta, a company controlled by the selfsame Kolomoisky. Since last year, it has been receiving oil from Kazakhstan. As of today, it produces just 13% of all petrol and Diesel fuel in Ukraine. The rest is imported from Belarus, Russia, Poland and Lithuania.

Azerbaijani oil will hardly change anything on the Ukrainian market, especially as it is not clear where the Azerbaijanis will get it from.

“We doubt that Ukrtransnafta has ordered so much oil. Azerbaijani sources say that there is no extra oil in their country, with local traders fighting for every barrel. So, perhaps, this will be swap supplies of Iranian oil,” Marunich said.

“Iran is now trying to increase its oil exports and is using dumping schemes. Direct oil supplies to Ukraine would be expensive for Iran. So, perhaps, the Iranians have asked the Azerbaijanis to supply their oil to Ukraine in exchange for Iranian oil for Azerbaijani customers in some other places. The same scheme might be used in Belarus: in mid Oct, the Azerbaijanis sent there oil via Ukraine and Lukashenko mentioned Iranian oil. Perhaps, Ukraine will get oil meant for Belarus. In 2012, when Lukashenko quarreled with the Russians, Belarus made a deal with Venezuela and ordered swap crude from Azerbaijan. But later the sides made it up and Belarus refused to pay for the ordered oil, which was carried via the territory of Ukraine. Something like this may be going on now: Russia has promised to resume oil supplies to Belarus, and Ukrtatnafta and Ukrtransnafta are trying to be proactive in order to avoid new losses,” Marunich said.