Geopolitics and the anticipated Lukoil decision about its Romanian refinery

29 March 2023
CEO Blog

Geopolitics surrounding the war in Ukraine had a massive impact on the supply of diesel fuel in the region, given that Ukraine is an important transit country for Russian oil and gas exports to Europe. The conflict has disrupted the transportation infrastructure in the region and led to a shortage of diesel fuel in countries such as Poland, Hungary, and Slovakia. It has also resulted in economic sanctions against Russia, which further complicate the supply of diesel fuel.

 

Romania too has been affected, and as a founder of a Group of international marketers, distributers, physical traders of oil and gas products in Romania, I would like to take this opportunity to share some views on the situation and explain how it may impact our industry and the wider economy.

 

Romania currently gets its diesel from three major refineries which are still working:

 

The uncertainties surrounding the latter – Lukoil’s Romanian refinery, located in the city of Ploiesti – bring about further fears of diesel shortages in our country. In light of the sanctions which were imposed against Russian energy, Lukoil is currently deciding on the future of its Romanian business, with several options being considered – whether to keep, shut down or sell the business. Total shutdown would be the worst possible scenario, with the loss of hundreds of jobs and tax revenue for the government, reduced domestic supply of refined products, making Romania more reliant on imports from other countries and leading to further price increases. Romania would be very short on diesel and the pressure would pass on to the existing terminal which is not fitted for these kinds of volumes right now. In this case, the path that was created in the last 12 months to supply Ukraine would also be in danger because the main problem of the existing terminal is the evacuation of the product from the tanks to the trains.

 

We do not know what will be the decision of Lukoil regarding their business in Romania, which is a difficult decision, and we do not know the timescales for it. Yet, Romania cannot afford for Lukoil to just shut the refinery so we hope that our government will help to find a solution. Lukoil’s traditional business concept is not likely to function anymore as they need to change their flow and rethink their business. Their concept was to import crude oil they own in Russia, put it into refineries and distribute all the products they were producing there. It is not the case anymore, because Romania cannot accept Russian crude anymore, so they need to buy another type of crude, which is not the same type of business and with totally different economics.

 

What we know publicly so far is that Lukoil is selling its refinery in the south of Italy, called ISAB. The discussions are very advanced with an Israeli company GOI, which is backed by commodities trader Trafigura. The transaction is planned to be completed by the end of March 2023 upon receipt of necessary approvals of Italian authorities. We also know publicly that Burgas, the biggest fuel producer in Bulgaria, was granted an exemption from the European Union’s ban on imports of Russian oil until the end of 2024 and therefore it is possible that the business of Lukoil in Bulgaria will continue.

 

However, it is not clear what is going to happen with Lukoil’s Romanian business. It is important to note that Lukoil has not yet made a final decision on the future of its refinery in Romania and as such, we cannot jump to conclusions about the implications without further information. Nonetheless, as an industry leader, I believe it is our responsibility to remain vigilant and proactive in addressing possible challenges and adapt to any changing market conditions.

 

Dan Berendel

CEO of MasterChemOil