BERLIN—Germany took control of the German business of Russian oil giant Rosneft Oil Co. as Berlin races to safeguard its energy supplies before its planned ban on Russian oil imports kicks in later this year.
The German government said it would place Rosneft’s German subsidiaries under trusteeship. The business’s flagship asset is the PCK refinery in Schwedt, eastern Germany, that provides Berlin and the surrounding region with much of its gasoline and aircraft fuel. Rosneft’s Germany assets make up a total of around 12% of the country’s oil-processing capacity, making it one of the largest oil-processing companies in the country.
“The trusteeship counteracts the impending threat to the security of the energy supply and lays an important foundation for the preservation and future of Schwedt,” the economy ministry said Friday.
The step marks an escalation in the economic standoff with Russia as Germany seeks to decouple itself from decades of reliance on Moscow’s prolific energy exports. It is the second major Russian energy asset that the German government is taking over in the wake of the Ukraine invasion. Berlin put Gazprom PJSC’s German natural-gas business, formerly known as Gazprom Germania GmbH, under trusteeship in April.
Several other refineries in Europe are controlled by Russian companies and feed on Russian crude. Relying on them for fuel complicates the European Union’s plan to ban Russian crude shipments from December and represents another weak spot in Europe’s energy architecture.
The German move on Friday raises questions as to whether Schwedt will continue to receive Russian oil. Without supplies, the refinery would only have reserves for about three weeks, a senior PCK manager said. After that, the German capital’s fuel supplies could run short.
Existing pipelines can supply Schwedt with non-Russian oil, but not enough to allow the refinery to operate at capacity, the manager said. Expanding the pipelines’ capacity would cost hundreds of millions of euros and take up to three years, the PCK manager said.
A senior German official denied this was the case and said that the refinery would be supplied via pipelines leading to the port cities of Rostock in northeastern Germany and Gdansk in Poland.
Berlin was also in talks with Kazakhstan for oil deliveries via the Druzhba pipeline, the economy ministry said. In addition, Schwedt has ample oil storage capacities, it said.
“Even if the PCK refinery is not producing at full capacity, the heating supply for the region around Schwedt is secured,” the economy ministry said.
Berlin was initially reluctant to take control of the Rosneft business but moved after Western sanctions against Russia led some banks and service providers to stop doing business with the company, making it impossible for the refinery to continue operating, officials said, even though Rosneft isn’t sanctioned.
Berlin has also intervened to support other energy companies hammered by high natural-gas prices, including by agreeing to take a 30% stake in embattled energy supplier
as part of a bailout package. The company and the government are currently discussing increasing that stake to a majority.
Gazprom announced an indefinite halt to natural-gas flows via the Nord Stream pipeline to Germany earlier this month in what European officials have called an economic attack to punish the West for its support for Ukraine. Moscow insists that the move was the result of technical problems caused by sanctions placed on Russia.
On Friday, the economy ministry said Rosneft’s German subsidiaries, which include three refineries in total, were placed under trusteeship of the Federal Network Agency, the country’s energy regulator. The ministry said that the Rosneft subsidiaries imported crude oil worth several hundred million euros from Russia to Germany every month.
The landlocked Schwedt refinery, located near the Polish border, is one of Germany’s largest and has received its crude from Russia via Druzhba—Russian for friendship—since the plant was opened in the 1960s. Germany is set to stop importing Russian crude later this year as part of the EU’s ban on Russian oil.
The Schwedt refinery was the biggest obstacle to Germany accepting the ban on Russian oil imports because thousands of jobs in the region depend on it. The German government said Friday that it would support the Schwedt refinery during the current turmoil and work to transform the region.
“We are thus securing jobs at the PCK refinery Schwedt and the energy supply in Germany. With an additional package for the future, we are creating perspectives in this region,” Chancellor
wrote on Twitter.
The Kremlin-controlled Rosneft didn’t respond to a request for comment. In August, the Russian company warned that replacing Russian oil at its German refinery would cause fuel prices to jump in Germany.
There are other European refineries depending on Russian crude. Among the biggest is Lukoil PJSC’s 14 million metric-ton-a-year ISAB refinery in Sicily, which Russia’s biggest private energy company bought out in 2013. The complex accounts for about a fifth of Italy’s refining capacity and generates 20% of Sicily’s electricity, according to industry group Unione Energie per la Mobilità.
ISAB ran on crudes from West Africa, the Persian Gulf and elsewhere before the war. But when Moscow invaded Ukraine, Western banks stopped funding Litasco, the Swiss trading subsidiary of Lukoil that owns the refinery. Litasco began to supply the Sicilian refiner with Russian crude alone.
As a result, analysts say the refiner will have to close if it isn’t nationalized or sold before the Dec. 5 embargo, endangering several thousand jobs in one of Italy’s poorest regions. Early this summer, Italian ministers said the government was considering both options. A third solution, analysts say, would be a state guarantee that makes banks comfortable with funding Litasco, enabling it to supply ISAB with crude from outside Russia.
If ISAB is nationalized, it shouldn’t have the same difficulties in sourcing non-Russian crudes as Schwedt because it has easy access to a port. Spokespeople for the Italian economy ministry and Lukoil didn’t respond to requests for comment.
Lukoil also owns Burgas, Bulgaria’s only refinery, and a refiner in Romania. Bulgaria has a carve-out from the EU sanctions, allowing it to keep buying Russian crude beyond December.
All the refiners have been profitable for Rosneft and Lukoil since the start of the war, analysts say. They have bought discounted Russian crude, processed it into diesel and gasoline and sold the fuels at full market prices.
Lukoil’s Sicilian refinery alone was likely on course to make about $2.5 billion in annual profit, said analysts and a former Lukoil official. Before the war, ISAB was a perennial lossmaker, prompting Lukoil to look to close or sell the refinery, or convert it into a waste-processing or solar plant, the official added.
“Right now, it’s a license to print money,” said
an analyst at energy consulting firm FGE, of the refiners running on Russian crude.
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