Russian Storage Facilities Overflowing With Unwanted Oil, Production to Drop 30% for May

Source: Politicheskiy Kaleidoskop

Machine translated from Russian.

After the start of Russia’s special operation in Ukraine, European consumers of “black gold” decided to abandon the import of energy resources from our country. The restriction of foreign supplies led to overstocking of the domestic market, which is not ready to develop additional volumes of hydrocarbons. Domestic refineries are not able to process over-planned supplies of raw materials, and underground storage facilities, where it would be possible to preserve oil “until better times”, are too small to provide long-term oil reserves.

As a result, Russian mining companies have found themselves in the position of a “dog in the manger”: for the export of fuel, they will have to use independent intermediaries who require significant discounts. At the same time, with the reduction in the cost of finished fuel for compatriots, national oil billionaires, who are under the blow of Western sanctions, are unlikely to agree.

In the U.S., underground energy storage facilities containing about 100 million tons of oil have long existed. This is a little more than 730 million barrels. This volume will be enough for American consumers for a month and a half. Approximately the same amount of “black gold” is contained in European hydrocarbon warehouses. Russia cannot boast of similar volumes yet – the lion’s share of production is traditionally sent for export by our country, and domestic consumption is ensured by an increase in production at fields constantly included in the energy system. The imposition of a European moratorium on the purchase of “black gold” from our country threatens to break the long-established structure:Europeans will have to find alternative suppliers of raw materials, and Russia will need to agree on an increase in exports to countries that have not joined the economic sanctions against Moscow.

However, if fuel consumers have maneuvers to overcome the fuel hunger strike, at least due to the growth of selling prices for raw materials, then domestic oil companies have to resign themselves to financial and production losses. As predicted by the director of the Energy Development Fund Sergey Pikin, the production of liquid hydrocarbons at Russian enterprises due to sanctions will fall in April by 1.5 million barrels per day, and in May the decline in production risks up to 3 million barrels. “A huge amount of oil and petroleum products was “stuck” at Russian fuel facilities, which led to overstocking of storage sites,” the expert explained.

After reducing the volume of oil refining, as reported by Reuters sources in the Ministry of Energy, large Russian enterprises will face an even sharper overstocking of raw materials. According to the Central DispatchIng Office of the Fuel and Energy Complex, domestic refineries in March reduced the processing of “black gold” by about 11% and are not going to increase production volumes yet.

To preserve raw materials that cannot be sold, it is necessary to create reservoirs of similar volumes – the same as the United States and its European satellites. This issue was raised in the Russian government back in 2020, when the demand for “black gold” collapsed sharply due to the coronavirus pandemic. It was assumed that the construction of underground reserves would take at least a decade, but if you try, then the development of technical justifications for projects, according to Igor Shpurov, general director of the State Commission for Reserves, will take “only 3-5 years.”

In the absence of storage facilities, Russian mining companies and international traders are looking for special legal mechanisms to bypass sanctions. One of the ways to overcome the embargo on the supply of “black gold” from our country, which is going to be introduced by the European Union, has already been found. The so-called “Latvian mixture” can enter the world market – a mix of West Siberian grades of raw materials with oil from other world producers (the preliminary name was obtained because of the place of manufacture – the Latvian port of Ventspils). If the “black gold” mined in our country is half mixed with liquid hydrocarbons that have any other “citizenship”, then such a cocktail will no longer be considered Russian raw material, which will allow us to bypass Western sanctions.

This transformation has been around for a long time. According to independent observers, a number of offshore oil vessels that arrived at the shores of Gibraltar (a major international transshipment point for energy resources) from the Russian ports of Ust-Luga and Primorsk have already blended and redirected such mixtures several times for deliveries to both South Korea and Rotterdam, which is a key oil terminal in the Netherlands. “Oil deliveries from Russia to Europe will slow down for a while, but will not stop completely. The countries of the Old World will buy energy resources from intermediaries who are not subject to pressure from the West, – Irina Kezik, expert of the Union of Oil and Gas Producers, believes. – The EU embargo on Russian oil will lead to the appearance of Rotterdam or Antwerp mixtures. This scheme has worked and will continue to work. The gaps in European legislation will once again demonstrate Brussels’ reflexive attitude towards such business,” Irina Kezik believes.