Will Belarus be able to buy American oil?

USA plans to sell oil to Belarus

First of all, Belarus has long been seeking an alternative in order to diversify the sources of raw materials. Secondly, in 2010-2011, on the wave of aggravation of relations with Russia due to the conditions of oil supply, Belarus managed to organize oil supplies from Venezuela, totaling about 1 million tons, quite unexpectedly for many observers. Minsk refused from this alternative only after it had traded more acceptable terms of Russian oil import during the negotiations with Moscow.

Now the main question is not whether it’s possible to supply American oil to Belarus. The problem is different: will oil supplies from the U.S. be a profitable business for Belarusian refineries or is it just another “maneuver” in trade with Russia for compensation of losses from the tax maneuver and, in general, for more attractive conditions of import of Russian energy carriers?

 

The oil issue in the “package” with the lifting of sanctions

The complete lifting of the U.S. sanctions remains on the agenda for Belarus. Belneftekhim and its enterprises have been under U.S. sanctions since 2007. Sanctions against Belarusian enterprises, although frozen, are not completely lifted. Since 2015, the U.S. government has suspended the sanctions every six months.

Therefore, there is a special procedure requiring a U.S. government license for each specific transaction. This seriously complicates doing business. The Belarusian oil company is trying to achieve a relaxation of sanctions and obtain a permit for the purchase of American crude oil. According to “Voice of America” BNK has hired lobbyist David Genkarelli, who should help the company obtain a special license from the U.S. Treasury to purchase crude oil with delivery to the Belarusian refineries.

 

Vulnerable logistics

Earlier, the Belarusian side repeatedly stated its intention to find alternative sources and routes of oil supply to the Belarusian refineries. As a rule, this always happened because of the problems in negotiations with Russia on energy supplies. Now these intentions are absolutely logical. Due to the tax maneuver, the Russian oil will go up in price to the level of world oil since 2024. And if Belarus is ready for alternative oil supplies, it will be a good argument in negotiations with Russian suppliers of raw materials.

BNK in April this year said that it plans to organize supplies of alternative oil in the amount of 200-300 thousand tons per month through the seaports of the Baltic States or Ukraine as early as in 2019.

Minsk is searching for an alternative to the Russian oil because of not only the oil maneuver, but also the April accident at the Druzhba oil pipeline. Due to the supplies of “dirty” Russian oil, Belarusian refineries suffered to a greater extent, which, unlike European refineries, could not switch to alternative sources of raw materials. In order to avoid similar problems, Belneftekhim intends to build raw material quality control points on the border with Russia. However, this does not exclude the need to diversify oil supply routes.

It is clear that the logistics of oil supply from the U.S. to Belarusian refineries through the seaports of the Baltic States or Ukraine may be very costly for the refineries, given the recent investments in the key stages of modernization of $2.5 billion.

However, it should be taken into account that nowadays American companies produce oil virtually all over the world, including in Azerbaijan and Kazakhstan. In this case, oil does not need to be pulled across the ocean – it is possible to arrange deliveries to Belarus via Russia (although this option is still unrealistic due to the tariff policy of the Russian Federation) or via Ukraine via the Odessa-Brody oil pipeline (this route was previously developed for deliveries of Venezuelan oil to Belarus).

One should not forget that it is possible to supply American oil under the scheme of “swap” (substitution), which was also worked out a few years ago when supplying Venezuelan oil to Belarus (oil from Venezuela was replaced by Azerbaijani oil). However, there are certain nuances here. Experts say that the Odessa-Brody oil pipeline will be in demand only if it is fully loaded – and this is from 5 million tons of oil per year and above. Whether Belarusian refineries are ready for an alternative in such volumes is a big question. It is possible, however, that Ukraine will be interested in loading the currently empty pipeline with a smaller volume.

 

An argument for an uncooperative ally?

Although it is unlikely that Minsk will be able to buy large volumes of U.S. oil (perhaps, at the initial stage, it will be limited only to test delivery), the very fact of trading in strategic goods with Russia’s enemy is a serious challenge to Moscow in the context of problems in trade for more preferential terms for the import of Russian energy resources. Moreover, if the alternative oil supplier is not Azerbaijan or Kazakhstan, but the United States.

The US is already the world’s largest producer of hydrocarbons. In 2018, oil production in the US increased by 16% and gas production by 12%. The United States outperformed Russia in terms of gas production back in 2011 and Saudi Arabia in 2012.

The U.S. is forecast to account for 61% of global oil and gas production from new projects in the next 10 years. In particular, Global Witness predicts that the volume of oil and gas production at new American projects will be 1.5 times higher than at all other new projects in the world.

In early July 2019, the first Wisdom Venture tanker with 75,000 tons of oil from the USA arrived in Ukraine at the port of Odessa. The first batch of U.S. oil delivered to Ukraine, as noted by traders, is only a fragment of a completely new picture of the large-scale invasion of U.S. oil in the European market. They point out that American oil exporters instantly offered their oil to European importers as soon as there were reports of contaminated Russian oil coming to Europe.

As a result, Europe now imports about 2.5 million tons of U.S. oil per month, and even reliable and long-standing Russian clients – Croatia and Greece – became its buyers.

Experts note that since 2010 there has been a unique transformation of the global energy market, during which the U.S. has become an energy power, one of the leading oil producers, as the world’s leading natural gas producer, they have outpaced Russia.

At the same time, many analysts believe that due to objective reasons Russia is destined to gradually leave the world oil market, as the remaining oil in Russia is mainly difficult to extract (70%).

According to the estimates of the Russian Minister of Energy, Alexander Novak, made at the government meeting, by 2035 Russia will lose up to 40% of its oil production. At the same time, from 2025, when Russia will have to produce mostly hard-to-recover oil, there will be a lack of advanced Western technologies, because as a result of sanctions, access to them will be very limited, and this will be a serious problem.

Thus, if by 2035 Russia loses 40% of its oil production, it will actually turn into a country that produces only for its own domestic consumption, not for export.

 

Will Belarusian refineries be ready for an alternative?

For this purpose, Belarusian refineries are in a hurry to complete the modernization of their facilities. Both projects – the slow coking complex at Naftan and the heavy oil residue hydrocracking complex at Mozyr Oil Refinery – are at the active stage of implementation. According to Belneftekhim, the commissioning of these technological facilities will ensure the depth of oil refining at both refineries at the level of the world’s best refineries.

At Naftan, in 2019, general contractors will have to complete the work that will enable them to start certain stages of commissioning at the delayed coking unit and sulphur production unit. “This will be the next step towards the achievement of the set task – to obtain finished products at the delayed coking complex in 2020,” Deputy Chairman of the Concern Belneftekhim Vladimir Sizov saidĀ  in an interview with the departmental magazine “Belneftekhim’s Bulletin.

According to him, construction and installation works at all facilities of the hydrocracking complex of heavy oil residues should be completed in 2019 at the Mazyr Oil Refinery: sulphur and hydrogen production units, as well as facilities of the general plant, except for high pressure units at the hydrocracking unit.

“We all understand that the sooner the new complexes at Naftan and Mozyr Oil Refinery are put into operation, the sooner the refineries will start to make profit from them,” Vladimir SizovĀ said.

At the same time, Belneftekhim is considering three possible options for the strategic development of domestic refineries: fuel and petrochemical, petrochemical and aromatic. Previously, the concern’s specialists drew attention to the fact that the strategy for the development of refineries until 2030 should take into account “the limited access to modern promising technologies, which allow to ensure the highest added value and competitiveness of products.

We can assume that if Minsk manages to achieve the complete abolition of the U.S. sanctions, it will be easier to solve problems with access to promising technologies.

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