EU and U.K. Pivot From Russian Energy

"SCHWEDT, Germany -- Europe's dependence on Russian energy is drawing to a close, ending a decadeslong power imbalance and leaving the continent racing to squirrel away fuels and find alternative supplies.

The final act of separation: On Sunday, the European Union and the U.K. will bar imports of Russian fuels such as diesel and gasoline. The move follows a ban on Russian crude imports in December. Coal imports stopped last summer. Natural-gas flows from Siberia, once the lifeblood of European industry, have dwindled.

Taken together, the moves have allowed Europe to wean itself from Russian energy almost entirely in less than a year since the Ukraine story. The flow of Russian gas through pipelines to the EU and U.K. last month was nearly 90% lower than in January 2021, according to commodities-data firm ICIS.

"It's one of those moments when a decade, two decades -- in the case of the gas dependence, maybe even three decades -- happens in the course of a few months," said Neil Brown, a fellow at the Atlantic Council's Global Energy Center.

Europe has scrambled to stockpile fuels and put in place alternatives -- a pivot that is likely to prevent dislocations when sanctions kick in. Latvia, which borders Russia, imported diesel in January from eastern China, 13,700 nautical miles and 45 days away.

A giant refinery in this small northeastern German town illustrates the speed of the shift away from Russia. In recent decades, the PCK refinery turned over 1 billion tons of Russian crude into 20 types of fuel, providing Berlin, its airport and the surrounding region with much of their gas and aviation fuel.

But with no Russian oil since January, the refinery is operating at about 60% of capacity. The German government, which last year took control of the refinery from Kremlin-aligned oil giant Rosneft Oil Co., aims to raise that to 70% soon, and higher later this year.

In January, Schwedt got 80,000 tons' worth of non-Russian crude that arrived via tanker at the Polish port of Gdansk. Another source of crude is a pipeline from the northern German port of Rostock, though its capacity is limited and it would take years to expand. Kazakhstan also is expected to begin deliveries of crude to Germany this month.

"We have a learning curve in the logistics chain and refinery operations, but we learn quickly, adapt and optimize if possible," said Ralf Schairer, the refinery's chief executive.

With new sources of crude, the refinery could work at 80% to 85% capacity, said Jorg Steinbach, economy minister for Brandenburg, where Schwedt is located. "If everything crawls up in this direction, then we're on the right track, but we have not arrived at the destination yet," he said.

The landlocked refinery, located near the Polish border, is one of Germany's largest. It has received crude from Russia via the Druzhba pipeline since the plant opened in the 1960s.

Instead of pumping Russian crude, the pipeline's northern leg via Poland will be used to transport Kazakh oil to Germany, after the Kazakh government got approval from Moscow to use the infrastructure.

"This switch away from Russian oil is a feat of strength that will sometimes be jerky," Michael Kellner, state secretary at the Economy Ministry, said in December. "But overall, it is possible and the right thing to do, because it will make our energy supply more independent and robust."

Governments have sought to wrestle control of other refineries and critical pieces of energy infrastructure out of Russian hands. In Bulgaria, lawmakers last month cleared the way for the state to take control of Russian oil giant Lukoil PJSC's refinery in the country if there is a supply crisis or a threat to national security. The refinery, which processes Russian crude, is exempt from the EU crude-import ban, but can't export its products from Sunday, except to Ukraine.

Russian fuels have long powered European cars, farms and factories, accounting for about a quarter of the bloc's imports of petroleum products before the recent sanctions on Russia. Traders initially expected the continent to have greater difficulty swapping out Russian diesel than crude. But after a recent buying spree, most expect Sunday to pass without incident.

Stores of gasoil, a category that includes diesel, in a northwest European hub have swollen to their highest level since the summer of 2021, said Insights Global. That has helped to bring prices down after they jumped last year.

Disruption could still occur, said Viktor Katona, lead crude analyst at Kpler if it isn't consistently profitable for China to send fuel to Europe. Delays at a major new refinery in Kuwait and outages at U.S. plants pose another challenge for Europe, he added." [1]

1. World News: EU and U.K. Pivot From Russian Energy
Kantchev, Georgi; Wallace, Joe.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 04 Feb 2023: A.8.