CEE petchem firms face a more aggressive Russia in sourcing oil - bank

05 December 2012 16:59  [Source: ICIS news]

LONDON (ICIS)--Central and eastern European oil and petrochemical producers must face up to a more aggressive Russia, bolstered by the diversification of export routes, when planning their crude oil purchasing, an investment bank said on Wednesday.

Poland's PKN Orlen seems set to reduce its reliance on long-term supply contracts from 80% to 50% in the provision of its annual need of around 15m tonnes of oil, probably because of Russia's new stance on exports, said Prague-based bank WOOD & Company.

“We believe the sole reason for not signing long-term contacts may be that such contracts do not now provide the advantages (secure supply and discounted prices) they used to,” said Robert Rethy, an analyst at the bank, in a note to investors.

“This is bad news for Orlen and is in line with our thinking that Russia is likely to become more aggressive when pricing its crude exports towards central and eastern Europe (CEE) due to the increased flexibility of its export routes,” he added.

In June, the ING banking group, warned that the profitability of Czech petrochemical producer and Orlen subsidiary Unipetrol could suffer if its struggles to obtain Russian oil via the Russia-to-CEE Druzhba pipeline are not resolved.

Two weeks ago, Unipetrol announced it was confident that its contracted oil supplies were secure for the rest of this year.

Druzhba supplies to CEE did not appear at risk in the near term, said analyst Rethy, saying that although Russian pipeline operator Transneft’s nominal quarterly allocation of crude oil to Poland had fallen drastically, from 5.5m-6.0m tonnes/quarter to below 4m tonnes/quarter, physical deliveries are uninterrupted and remained at previous levels.

However, Rethy added that Druzhba prices are likely to rise “as experienced in 2012 in the Czech Republic, which is fully dependent on spot purchases”.

By: Will Conroy
+44 20 8652 3214

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