The increasing political pressure on Lukashenko has brought the beleaguered Belarusian president closer to Moscow. One of the recurring topics of the Russian-Belarusian energy talks, the price negotiations for natural gas imports in the coming years, was much easier this year – at the beginning of September both sides announced their preliminary agreement on the terms of the agreement. Before the elections, President Lukashenko stated that Minsk could charge 40-45 USD per MMCm (the agreed price for 2019 was set at 132 USD per MMCm). Nowadays, Belarusian officials no longer claim that their ideal price level should be set that low. In addition, Minsk now appears open to the introduction of the Eurasian Economic Union’s common gas market rules in 2022.
It remains to be seen what exactly Minsk and Moscow could agree on on crude oil imports. The core of the disagreement was the fixed discount to the Urals average monthly price, which the Belarusian side holds at $ 12 per ton (i.e. $ 1.65 per barrel). When the Belarusian state-owned oil company Belneftekhim failed to find common ground with Russian crude oil exporters, all of whom had no interest in maintaining a subsidized form of oil supplies and wanted to benefit as much as possible from Russia’s never-ending tax reform, the first quarter of 2020 witnessed unprecedented lows Pipeline imports. This, in turn, has caused Belarus to get its shipments back on the road and buy Ural lookalikes from all parts of the European continent.
In the end, Moscow and Minsk agreed on a $ 10.70 per ton ($ 1.45 per barrel) rebate that will apply for the remainder of 2020. Contrary to the previous trend of starting talks fairly late in the year, the discount negotiations for 2021 began as early as September, most likely due to Belarus’ willingness to avoid further supply intervention from the Russian side, similar to this year. This does not mean that Belneftekhim’s demands are in any way more constructive than those of 2020 – the first bilateral meeting was quoted at $ 15.50 per tonne discount, up $ 0.7 per barrel from this year. Given that the survival of the Belarusian Lukashenko regime rests primarily in the Kremlin, it seems like a pretty ambitious move at the moment.
All of this has necessitated a weakening of the opportunistic raw material procurement policy in Belarus, which raised some eyebrows in Moscow in the course of 2020. Just a few months ago, President Lukashenko publicly vowed to increase Belarus’s intake of US crude oils, and even picked up 2 loads (Bakken and a bespoke blend called White Eagle Blend) that are nowhere to be seen, regardless of economic profitability or the refinement of aptitude. Measured by sea movements in the Black and Baltic Seas, the last sea cargo imported by Belarusian refineries was an Azerbaijani cargo that was unloaded in the Ukrainian port of Odessa in early September. However, the increasing trend in crude oil supplies from the Russian pipeline to Belarus suggests that the situation is moving back to what it was before 2020.
Figure 1. Belarus’ monthly Russian crude oil imports in 2020.
Source: data compiled by the author.
According to Belneftekhim’s recent statements, the amount of Russian crude oil Belarus will export in October 2020 is around 1.65 million tons (see Figure 1). This is the highest monthly allocation this year, but even a solid 2020 year-end would not be enough to fill the gap in the first few months. From today’s perspective, Russian crude oil exports to Belarus have fallen by 34% compared to 2019. On the other hand, the current Belarusian political leadership can offer Russia other sweeteners that would satisfy its boundless energy appetite – for example, the diversion of all its product exports from Baltic ports to the Russian port of Ust-Luga.
That this would happen should come as no surprise to Russia observers. Moscow itself has made great efforts to eliminate its own use of non-Russian Baltic ports and to facilitate the use of Ust-Luga and Primorsk (in 2019 the total volume of Russian exports from The Baltic States was 90% below the 1.4 million tons at 1.4 million tons Level from 2015-2016. By registering for the diversion of the supply routes, Lukashenko will simultaneously send a political message to Lithuania, Latvia and Estonia for personally sanctioning him and his close circle, which may be the last really profitable source of income for the Baltic ports Countries are drying up. However, the successful diversion will take time. In the absence of a direct pipeline connection to Ust-Luga or Vyshotsk, the profitability of the system depends on Russian Railways’ rail tariff, which may need to be further discounted to remain competitive .
By Viktor Katona for Oil IX
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