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Belarus Buys Discounted Saudi Oil As It Further Reduces Imports From Russia

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Belarus Buys Discounted Saudi Oil As It Further Reduces Imports From Russia

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Belarus bought its first batch of 80,000 tons of crude oil from the state-owned oil company Saudi Aramco, Belneftekhim spokesman Alexander Tishchenko said.

A tanker with Arabian crude oil is expected in the port of Klaipeda, Lithuania on May 11th.

The concern also did not rule out that oil purchases from Saudi Arabia could be continued in the future, it would depend on “the pricing environment and the market situation.”

Back in February, Belarusian President Alexander Lukashenko announced that Minsk was in talks with various countries to diversify oil imports into the country, including with the United States, United Arab Emirates, Norway, Azerbaijan, Kazakhstan and others.

In addition, oil deliveries in the Baltic via Gdansk were announced via one of the lines of the Druzhba oil pipeline in reverse mode.

In April, the supply crude oil via tankers to the country amounted to 170,000 tons. The unloading ports are Ukrainian Odessa and Lithuanian Klaipeda.

These volumes, of course, are small, however, experts say that today’s alternative deliveries are a “trial balloon” in anticipation of larger-scale diversification steps.

Lukashenko, reportedly, plans to reduce the share of Russian crude oil exports to only 30-40%, and the remaining crude would be supplied through Ukraine and Lithuania.

Belneftekhim announced that in May Belarusian oil refineries will reduce oil imports from Russia to 1.13 million tons (compared to 1.56 million tons in April).

“In April, Belarus, as planned, received about 2 million tons of oil, 1.56 million tons of which are Russian deliveries via pipe and rail. The remaining volume is tanker deliveries and own production. In May, plans for deliveries from Russia were confirmed at 1.13 million tons,” Tishchenko said.

Between January-March, Russia didn’t deliver any oil to Belarus, since the two countries couldn’t agree on terms of delivery and prices. Regular deliveries continued in April.

The Minister of Energy of the Russian Federation, Alexander Novak, earlier stressed that Russian companies are ready in May to deliver oil to Belarus in the originally provided volume – that is, 2 million tons. That is evidently not going to happen.

All of this means that Saudi Arabia is continuing its oil price war, by flooding the European and Asian markets with heavily discounted crude oil, thus making it unfeasible to purchase oil from Russia, and other sellers.

Meanwhile, Russian oil and gas exports face difficulties with Ukraine, as the situation between Gazprom and Naftogaz continues being complicated.

Ukrainian company Naftogaz received a net profit of $ 2.3 billion for 2019. Compared to 2018, profit grew by $ 1.9 billion, or 5.5 times.

Net cash generated from operating activities amounted to 110 billion hryvnia (about $ 4 billion). This amount includes 55.7 billion hryvnias (about $ 2 billion) of compensation following a positive decision in arbitration under a transit contract, net of income tax. Before tax, the amount of compensation received amounted to $2.9 billion, the company said. Essentially, all of the company’s profit came from Gazprom paying it the settlement.

Ukraine also suggested that Russia should store gas in Ukraine.

The Director General of the Ukrainian gas transmission system operator (which has been carrying out the transit of Russian gas to Europe since January 1st, 2020) Sergey Makogon suggested that Gazprom lease part of the capacities of Ukrainian underground gas storage facilities (UGS) for injecting surplus gas.

“I think this year 10 billion cubic meters will be available for injection. m of gas from 31 billion cubic meters. m of total capacity [Ukrainian underground gas storages]. Gazprom can also store gas in Ukrainian underground gas storage facilities,” he said in an interview with RBC.

According to a new contract concluded at the end of 2019, the Russian company is to deliver 65 billion cubic meters of gas to Europe through Ukraine in 2020, or 178 million cubic meters per day.

The parties agreed that even if transit would be less, Gazprom should still pay for these minimum capacities for pumping gas.

“Already, the company does not fully use the paid transit capacities – out of 178 million cubic meters per day, only an average of 150 million cubic meters is used. That is 28 million cubic meters. m per day is paid, but not used,” Makogon said.

Therefore, it makes sense to consider the appropriateness of using all the paid capacity for importing gas to Ukraine, part of the volume can be given for transit, and the remainder can be brought into storage, he added.

According to the head of the Ukrainian gas transportation system operator, in winter, when demand in the EU grows, Gazprom will be able to pick up gas from underground storage facilities and send it to the EU.

For this, the company needs to sign a standard storage agreement at the rates of the Ukrainian regulator – about $ 10 per storage cycle of 1 thousand cubic meters. m of gas. The gas storage cycle in the UGSF includes the cost of three processes – injection, storage and, usually gas is pumped into storage from April to October, and taken in winter.

The situation is such that Gazprom needs to pay for larger amounts than it actually transits, and this, in no small part is a result of the epic drop in demand for not only crude oil, but all other types of energy.

“Ukrainian UGS facilities are 3-5 times cheaper than European ones, therefore there is demand and economic feasibility,” Makogon emphasized, adding that Ukraine is open for negotiations.

At the same time, Ukraine continues its course of proving it is not a loyal business partner, as Gazprom has paid the settlement in full and carries out its obligations, while Ukraine offers no quarter and would ask for even more funds in the case it stores Russian natural gas.

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