Without consensus: Central European countries move towards oil and gas embargo of Russia

Baltic states. The Lithuanian, Latvian, and Estonian authorities have jointly condemned Russia’s aggression against Ukraine (“IEŚ Commentaries”, no. 531) and are in favour of introducing far-reaching sanctions, including those involving energy (“IEŚ Commentaries”, no. 539; “IEŚ Commentaries”, no. 540). This position is a manifestation of solidarity with Ukraine and the willingness to counter the growing threat posed by Russia, which not only take into account the dependence of the Baltic states on supplies of energy and oil products from Russian, but also involve an element of political and economic calculus. Among these countries, there is only one refinery, in Mazeikiu, which belongs to PKN ORLEN S.A. As a result, a concern of Płock is deciding on the direction of crude oil imports to the refinery. The company has already purchased five tanks for refineries in Lithuania, Poland, and Czechia, and alternative spot deliveries for the Mazeikiu plant have been secured. In addition, these countries, apart from oil products from the Lithuanian refinery in Mazeikiu, also import liquid fuels from Russian refineries, and the level of gasoline and diesel sales on the domestic market of Russian origin in 2021 was 50% and 35% (Estonia), 3% and 26%, respectively (Lithuania) and 2% and 12% (Latvia). Taking into account the operation of the oil terminals at the Baltic Sea, these countries are able to fill the potential shortage of oil products by importing it by sea.

The Baltic states also import natural gas from Russia. The level of dependency varies and amounts to approx. 95% (Estonia), approx. 90% (Latvia), and approx. 49% (Lithuania). Deliveries from Russia have so far been carried out both by land and via the regasification terminal in Klaipeda. Nevertheless, in order to reduce this dependence, Lithuania decided to suspend the purchase of this commodity in the form of LNG (deliveries were organized by the Novatek company from the terminal in Vysotsk). Ingrida Šimonytė, the prime minister of Lithuania, claims that the state could do without Russian natural gas because it has access to appropriate infrastructure. In addition, fifty parliamentarians have proposed to the Seimas adopting a resolution on the embargo of energy resources from countries that carry out or support military aggression against Ukraine. In Latvia, Latvenergo has already purchased in order to reduce dependence on Russia LNG cargos from Norway, the US, and Qatar (they will be unloaded in April-May 2022 at the Klaipeda terminal, and the natural gas will be directed to underground gas storage in Inčukalns, Latvia). In Estonia, there is currently an ongoing discussion on the diversification of energy supply, but specific decisions have not yet been made.

The Visegrad Group countries. Czechia, Slovakia, and Hungary condemned Russia’s armed aggression towards Ukraine, but they assess the possibility of imposing an embargo on the import of energy differently. While Czechia and Slovakia are in favour of introducing full sanctions against Russia, Hungary takes a different standpoint. There are four refineries operating in these countries: in Litvínov and Kralupy (Czech Republic), in Bratislava (Slovakia), and in Százhalombatta (Hungary), but oil products from Russia are imported only to Hungary (11% for diesel). Deliveries of crude oil to refineries from Russia have not currently been suspended, but are slightly limited due to renovations that are already underway at the Bratislava plant and that will also start in April 2022 in Százhalombatta. Due to the lack of limitations on supply, no significant measures are taken to diversify the sources and directions of crude oil supplies. For Hungary, Russia is an extremely important energy partner because, on the one hand, the country imports crude oil to the plants in Bratislava and Százhalombatta (both refineries are owned by the Hungarian MOL Group) and natural gas (about 95% of supplies to Hungary), and on the other hand, Russia participates in energy projects, including the expansion of nuclear power plant in Paks [1]. Viktor Orbán, Prime Minister of Hungary, emphasizes that most of the crude oil and natural gas comes from this direction, and 90% of Hungarian families use gas for heating. This type of dependency is the result of long term policy of importing energy from Russia. Nevertheless, it is technically possible to ensure crude oil supplies via the Adria pipeline, but for Hungarians the availability of alternative grades is crucial. There are few alternatives for natural gas. Czechia and Slovakia are also dependent on Russia, and natural gas imports from this direction are 98% and 85% respectively. Nevertheless, a priority role is played by political support for Ukraine.

Selected Balkan countries. In general, the Balkan states (including Croatia, Romania, and Slovenia) condemned Russia’s aggression against Ukraine and are now in favour of introducing far-reaching sanctions. Importantly, they import energy resources from Russia to a limited extent, which affects their position towards Moscow. In the context of the crude oil market, only Romania imports large quantities of this commodity from Russia, but the convenient location on the Black Sea and developed infrastructure favour diversification. One problem, however, is the availability of other types of crude oil and the level of products obtained at that time. The Balkan states also import natural gas from Russia – Slovenia is the most dependent here (approx. 75%), slightly more than Romania (45%, with a large share of domestic production) and Croatia (28%). These countries may increase gas supplies via the Krk regasification terminal or, theoretically, from Azerbaijan, and via infrastructure in Turkey (LNG terminals).

Bulgaria’s position resonated strongly in comparison with other Balkan states, as Bulgarian Prime Minister Kiril Petkov announced that he would try to exclude crude oil and natural gas imports from potential sanctions against Russia. This type of position results from high dependence – the majority (approx. 70%) of the crude oil processed at the Burgas refinery (190,000 barrels per day) comes from Russia. Approximately 73% of natural gas supplies are also provided by Russia. In these circumstances, it will be extremely difficult to change Bulgaria’s stance.

Conclusions

• The attitude of all Central European countries toward Russia’s armed aggression against Ukraine is clearly negative. Nevertheless, the objections formulated by Bulgaria and Hungary against the possibility of introducing full sanctions (e.g. an embargo on the purchase of crude oil and natural gas) on Russia are conditioned by political and historical, as well as energy, considerations. High dependency and failure in the past to provide alternative import channels make these countries oppose far-reaching sanctions.
• Taking into account the technical and logistical aspects of crude oil supply, the refineries in Burgas, Bratislava, and Százhalombatta have the technical capacity to import other grades. The problem, however, is their availability and marginal quality (comparable to Urals grade from Russia). As part of alternative solutions, refineries from Central Europe could increase the purchase of cargoes from Saudi Arabia (Arab Light), Iraq (Basrah Medium, Kirkuk), Iran (Iranian Light/Heavy), Libya (Es Sider), Norway (Johan Sverdrup), and Oman (Oman Blend).
• With regard to natural gas, the lack of adequate infrastructure connections places countries reliant on Russia in a difficult position. There are few alternative solutions, as in the past the countries of Central Europe made attempts to develop routes ensuring the diversification of supply sources only to a limited extent. Nevertheless, a change in the stance of the European Commission, as well as of individual countries, will result in the development of infrastructure and taking further actions from supply side (looking for other suppliers) and demand (e.g. support for the development of renewables).
• Working out a unified position of EU countries on energy sanctions against Russia will be extremely difficult. Only the development of common mechanisms and solutions at the EU level could increase the level of energy security and induce some states to change their stance on the embargo on the crude oil and natural gas import from Russia. Nevertheless, the current market conditions (including low crude oil production levels and fuel stocks in OECD countries, OPEC + countries’ policy, sanctions against Iran and Venezuela, limited availability of natural gas on the market) make it extremely difficult to reach a consensus.

[1] D. Héjj, Rozbudowa elektrowni atomowej w Paks – znaczenie i perspektywy, “Prace IEŚ”, nr 4/2021.