26 February 2020, Wednesday, 4:07
The Wait Is Nearly Over

Refineries Are Intolerable Burden for Lukashenka, Economist Says

Refineries Are Intolerable Burden for Lukashenka, Economist Says
Leanid Zlotnikau

No more "oil emirates" are available for him.

Despite the words of U.S. Secretary of State Mike Pompeo on the possible supply of American oil to Belarus at "competitive prices," experts doubt that it can replace the Russian one in Lukashenka's "economic model".

"So far, the supply of American oil to the Belarusian market raises more questions than answers. I would not consider American oil as a good and systemic alternative to Russian oil," says an expert on fuel and energy complex Tatstsiana Manenak.

Meanwhile, the Belarusian refineries have been operating in the minimum load mode since January 1. How can it affect the petrochemical industry and the economy as a whole?

Economist Leanid Zlotnikau answers the questions of Charter97.org:

- The situation for the Belarusian oil refining is increasingly uncertain due to no agreements reached with Russia at the state level. Meanwhile, the search for alternative oil looks sporadic and only 80 thousand tons have been supplied by Norway.

Gutseriev's supplies are also not enough to fully load the refineries. It takes at least 1.5 million tons a month to reach a more or less acceptable annual volume. In general, about 20 million tons are needed to fully load refineries.

- How can it affect the oil and petrochemical industry?

- Refineries cannot stay idle, they have to be constantly minimally loaded. You see, if oil refining is suspended, then it has to be launched for some time. It's a quite expensive procedure. Any stops complicate processing. Refining is getting more expensive if one tries to restart it after a shutdown. It brings nothing good.

And the main thing is that nobody has prevented our government from entering into contracts with Russian companies to get the required amount of oil at a cheaper price than the Norwegian one. There is a simple solution to the problem: to sign contracts with those they used to conclude in Russia. This does not need agreement at the highest level. One just has to agree with oil companies.

The Russian leadership doesn't mind if we take as much oil as we need, but at a slightly higher price - although it will still be lower than the world one. There's no problem here. The problem is political, arising from the "nature" of our leadership and its method of "managing" the country.

- And how will the authorities deal with the problem of oil refineries due to their "peculiarities"? By the way, there is unconfirmed information about readiness to sell them to China...

- I don't think they're going to sell the refinery to China. At least because China doesn't need it either, because the prospects of our refineries are doubtful. Oil prices from Russia will reach the world ones by 2025. It is important for China whether these refineries bring profit and it can cover the cost of their purchase. When Russian raw material prices rise, this issue is removed.

There are examples when nobody wants to take Belarusian enterprises that bring losses. For example, the cement plant in Hrodna region has long been unprofitable, and attempts to sell it at any reasonable price have failed.

I think all the talks about China's desire to refine oil here are not serious yet. First of all, it also buys oil itself. It does not make a point to bring oil from China either: there are no pipes, the price by sea will eventually be higher than the world price. It seems to me that this is as serious as Norwegian oil supplies. It is likely just political moves.

- How do you assess the Belarusian budget losses from the new oil and gas war with Russia?

- I would not say that the losses are small, but it is caused by lower income from the processing of excessive oil. It was profitable when oil cost up to $100 per barrel (the Belarusian authorities received it at lower prices).

Now the income is low, because both refineries - in Mozyr and Navapolatsk - are, as they say, designed only to process oil products, fuel, not some other chemical products required for the production of polymers, industrial chemistry enterprises.

It will be extremely expensive to redesign both refineries. They will not bring any profit. At present, both refineries are focused on the production of oil products. Their production is profitable only if consumers locate close to these refineries.

If they are far away, the transshipment in Baltic ports only makes logistics unprofitable. Therefore, these two plants have become an intolerable burden. One refinery would be enough for Belarus.

Costly logistics, drop in world oil and gasoline prices are the best indicators of it. The fact that oil will cost less in 3-5 years adds to the probability that Belarus does not need two refineries.

Given all these probabilities and the specific situation, there is no point to buy these refineries. After all, they bring little income now. Their profitability will be poor, not as high as it used to be. Besides, the "modernization" of these refineries has reduced the prospects for the oil processing efficiency. It is necessary to recoup the cost of 2 billion spent on these refineries, pay off these debts. This repayment is based on foreign borrowings. That is, the foreign currency should close up these costs somehow. In general, I think that previous revenues of the refineries fell into oblivion.

- Is the "oil emirate" over for Lukashenka?

- Strictly speaking, the Emirates relate to oil production, not to its processing.

Indeed, the depth of our oil refining today is slightly lower than the average for Russia. I mean that even after "modernization" it is not yet known whether these refineries will reach the world level of oil processing depth.

It is now 0.7, and after implementation, it may be 0.8-0.85... This coefficient is much higher in Germany. The refineries are located near the consumers or near the ports to make the delivery cheaper. We don't have this option.

Therefore, there will be no more "emirates" for Lukashenka. It's over for high oil revenues.