Berliners’ reliance on Russian fuel exposes Germany’s dilemma over Ukraine By Reuters

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© Reuters. The industrial facilities of the PCK Raffinerie oil refinery are pictured in Schwedt/Oder, Germany, April 12, 2022. The company receives crude oil from Russia via the ‘Friendship’ pipeline. Photo taken by drone. REUTERS/Martin Schlicht

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By Vera Eckert, Shadia Nasralla and Ron Bousso

FRANKFURT/LONDON (Reuters) – People on the streets of Berlin have waved Ukrainian flags in demonstrations of support since Russia invaded Ukraine in February. But those who traveled to the rallies did so largely in cars fueled by Russian oil, which provides most of the fuel for the German capital.

Just over a third of Germans came from Russia last year, according to official data. Until the invasion of Ukraine in February, Europe’s largest economy’s dependence on cheap energy from Russia – partly a legacy of the Cold War – was not considered problematic by the authorities.

Now German politicians say this could threaten the country’s security and want to wean Germany off Russian oil.

A Russian refinery in Schwedt, a 90-minute drive from Berlin, has become the focus of debate.

Nine out of 10 cars in the capital and surrounding state of Brandenberg are powered by its fuel, and 50% of the electricity it generates is fed into the public grid. “We drive Berlin and Brandenburg,” the refinery says on its website.

The refinery, PCK Schwedt, is majority owned and operated by Russian state oil company Rosneft. All the oil it refines comes from Russia.

The refinery was thrust into the political spotlight on the eve of war by Rosneft’s plan to dramatically increase its stake, a request the German government considered as its energy dependence on Russia grew. too sharp.

“It now turns out to have been a mistake to entrust a Russian state-owned company with such responsibility for the economy,” Economy Minister Robert Habeck, from the Greens, told reporters in late March when asked about the situation. future of Schwedt. refinery.

A spokesperson for PCK Schwedt did not respond to a request for comment on officials’ concerns about fuel safety.

The refinery’s capacity of 233,000 barrels per day is about a tenth of German consumption before the pandemic. The nearby Leuna refinery, owned by France’s TotalEnergies and of similar capacity, also relies on the same pipeline from Russia for most of its oil. [L2N2W50OH]

Chart: German Crude Oil Imports – https://graphics.reuters.com/UKRAINE-CRISIS/GERMANY-OIL/movanbklkpa/chart.png

Calls for the 27-nation European Union to impose an outright oil embargo on Russia have gained momentum in recent weeks, after footage of civilian killings in Ukraine prompted the International Criminal Court to open a investigation of alleged war crimes.

Moscow, which calls its campaign a “special operation”, says it did not target civilians.

EU governments said on Monday the bloc’s executive was drafting proposals to ban Russian crude, but diplomats said Germany – which has already cut its consumption of Russian oil and gas – did not support actively an immediate embargo.

Ukraine’s president said Moscow was making so much money from oil exports that he didn’t need to take the peace talks seriously and called on Germany to quickly sever energy ties with Russia.

The Kremlin did not immediately respond to a request for comment.

Opinion polls in recent weeks show that less than half of Germans want to stop importing Russian oil and gas. Several Berliners shopping for gasoline on a recent morning wondered if an embargo would harm Russia.

“It’s a conflict of conscience: of course we want to help Ukrainians, but even if we accepted higher prices, would that really help them?” said Melanie Barthel, 29.

Berlin Mayor Franziska Giffey told German newspaper Handesblatt on April 7 that she feared such a large part of East Germany’s fuel supply would depend on the Schwedt refinery.

Referring to Schwedt, Giffey told the newspaper that there could be cases where nationalization “is unavoidable”. She did not respond to a request for additional comment.

Asked about the debate in Germany over whether to cut off Russian fuel supplies, Rosneft said in a statement to Reuters that it had owned assets there for more than 10 years and had invested 4 billion euros in the modernization during this period, helping to lower fuel prices for consumers. and to guarantee German energy security.

Rosneft said any illegal seizure of its assets would be a gross violation of private property rights and destabilize the investment climate in Germany, jeopardizing the interests of foreign investors.

FROM FRIENDSHIP TO THREAT

The PCK Schwedt refinery, like Berlin itself, belonged to the Eastern bloc during the Cold War. It was built in the 1960s to process Russian oil shipped to satellite states of the former Soviet Union.

Oil is pumped through one of the longest pipelines in the world. Its name, “Druzhba”, means friendship: Moscow built it to supply its import-dependent allies.

Refineries in Poland, Slovakia and the Czech Republic also depend on Russian oil.

Chart: Which country is most dependent on Russian diesel imports? – https://graphics.reuters.com/UKRAINE-CRISIS/GERMANY-OIL/znpneqbydvl/chart.png

After the fall of the Soviet Union in 1991, Western oil companies bought Schwedt, but Rosneft owns and controls 54% of the plant.

In March, Germany’s economy ministry said it was considering a plan for Rosneft to buy Shell (LON:) PLC’s stake in the refinery, which would leave the Russian oil giant owning nearly 92%.

“The Russian attack changed our whole assessment of security,” a German government source told Reuters. “In this context, the control of Rosneft was considered a possible threat.”

The review, a confidential process, falls under a foreign trade law designed to protect German security, technology and intellectual property from non-EU investors.

People familiar with the situation could not say how long Schwedt’s review would take or what Germany would do if it concluded Rosneft’s role was a security threat.

Shell said in a statement to Reuters it had been clear about its intention to phase out Russian hydrocarbons after the invasion and was in talks with governments on how to maintain supply to consumers.

“Ultimately, it is up to governments to decide the incredibly difficult trade-offs that need to be made,” the statement said.

Habeck, the economy minister, told reporters this month that the government was working hard to resolve the refinery situation in order to achieve “oil independence from Russia”.

The German government took temporary control of another Russian energy company on April 4: it placed the local unit of Russian gas giant Gazprom – Gazprom (MCX:) Germania – under the control of the regulator after Gazprom tried to sell its subsidiary to two other Russian companies.

Gazprom did not respond to a request for comment.

The blocked sale leaves Shell in a dilemma. A senior Shell source told Reuters it would be surprising if the German regulator approved the sale of its stake in Schwedt to Rosneft: “We will have to work out what to do next, but at the moment we cannot. not do much.” says the source.

The remaining shares in the refinery are owned by Italian oil and gas company Eni SpA, which said it was looking to sell them ahead of the invasion. After the invasion of Russia, Eni, like many oil companies, declared that it would not sign new supply agreements with Russia.

ALTERNATIVES

For Germany, replacing Russian oil will be a daunting task. Germany imports oil through other pipelines, including one from Italy, but Russia is by far its biggest supplier. The second largest, the United States, delivered only 13% of its total imports.

In addition to Schwedt, Rosneft owns minority stakes in two other German refineries and supplies crude to them, although they also buy oil elsewhere.

Finding alternative supplies for PCK Schwedt will be a challenge, according to industry experts.

The refinery was built to process Russian crude from the Urals via the Druzhba pipeline and the only other conduit that feeds it – from the Baltic Sea port of Rostock – can only transport a fraction of the oil it needs. need.

Baltic ports receive oil imports from other producers – such as Saudi Arabia and the United States – but Schwedt is expected to compete for this as Eastern European refineries seek alternatives to the Russian crude.

Rosneft said in a statement that switching to alternative crude supplies at Schwedt would significantly increase costs and raise fuel prices for German consumers.

Chart: Dependence of OECD members on Russian oil imports – https://graphics.Reuters.com/UKRAINE-CRISIS/OIL/byprjbrorpe/chart.png

James R. Rhodes