Oil: Belarus’ 2020 oil losses caused not only by strife with Russia, but also due to decline in export markets
<p> Belarus has lost Br1.5 billion ($612.9 million at the rate of the National Bank of Belarus) due to disagreements with Russia on oil supplies, President of Belarus Alexander Lukashenko said in his annual address to the nation and the parliament on August 4. </p> <p> </p> <p> Minister of Finance of Belarus Yuri Seliverstov told reporters on August 5 that revenues of Belarus’ republican budget will stand Br3.7-4 billion ($1.516-1.639 billion) short in 2020, as economic growth slows down due to the global consequences of the coronavirus pandemic and the unfavourable environment on the oil market. </p> <p> </p> <p> “Half of this amount accounts for the oil market behaviour and a decrease in the size of customs duties and the export of oil products. Considering the global economic trends, we forecast a short supply of the income tax, dividends from state-owned enterprises in the amount of slightly over Br2 billion ($819.873 million),” said Seliverstov. </p> <p> </p> <p> Commentary </p> <p> </p> <p> The amount of losses of the Belarusian economy due to oil disagreements with the Russian Federation voiced by Lukashenko seems to be greatly exaggerated. Most likely, it is calculated on the basis of the projected annual oil losses for the whole year 2020, besides, it does not take into account another reason for the emerged financial costs for Belarus - a fundamentally new situation on the export markets of oil products due to COVID-19, which led to a decrease in demand for oil products and a collapse in oil prices. </p> <p> </p> <p> This is confirmed by the data provided by the Finance Minister a day later. </p> <p> </p> <p> It should be reminded that Belarus and Russia had been failing to agree on the oil supply terms that would suit both parties for quite a while early this year. As a result, Russia cut oil supplies to Belarus in the first quarter, imports of Russian oil to Belarus fell in January-May 2020 by 42% year on year to 4.084 million tonnes, by 75% in monetary terms to $689.819 million. </p> <p> </p> <p> Since April, supplies of Russian oil have resumed, but the situation in Belarusian oil refining has not fundamentally changed, which was due to the global trend of decline in demand for oil products in the key export markets of Belarus. </p> <p> </p> <p> According to the National Statistics Committee of Belarus (Belstat), Belarus’ oil product export dropped in January-May 2020 by 53.6% year on year. Losses were estimated at $1.412 billion in monetary terms. Fiscal revenues from foreign trade were down 30%. The state budget was reportedly Br719 million ($230 million) short in terms of export duties on oil products and potash fertilizers against January-May 2019. </p> <p> </p> <p> Alternative oil is more expensive than Russian crude. </p> <p> </p> <p> In early 2020, amid a protracted dispute with Russian oil companies over the price of oil, Belarus hastily started arranging for supplies of oil from alternative sources. The Belarusian Oil Company (BelOil) has already purchased at least 16 lots of oil in Azerbaijan, Norway, Saudi Arabia and the USA, which have already been delivered by tankers through the ports of Klaipeda and Odessa or are still on the way to Belarus. </p> <p> </p> <p> Hardly anyone expected that the transportation of alternative oil by tankers and delivery through the ports of Belarus would be a quick and cheap way to import oil. </p> <p> It is not officially reported how much alternative oil costs for Belarus. If we proceed from the statistics, we can conclude that the first alternative supplies cost Belarus really much more than Russian oil could cost (overpayment was more than $130 per tonne). </p> <p> </p> <p> However, in spring the market situation was in favour of Minsk: the cost of oil on the world market fell to a historical minimum, as a result of which the appeal of Russian oil for Belarusian refineries decreased markedly, while the appeal of alternative crude, on the contrary, increased. </p> <p> </p> <p> Based on the Belneftekhim data on the volumes of alternative oil supplies and Belstat data on oil imports by country in monetary terms, one can make approximate calculations of the price of import supplies for Belarus. </p> <p> </p> <p> In early 2020, Belarus bought two tankers of Norwegian oil of 166 thousand tonnes for $52.5 million. Based on these data, it follows that Norwegian oil cost $316 on average for Belarus. At that the first tanker of Norwegian oil was bought before the world quotations collapsed - at the end of January. This oil could cost Belarus about $400 per tonne, at the same time the price of April delivery was much lower - about $230 per tonne. </p> <p> </p> <p> In January-May Belarus imported 5 million tonnes of oil for $904.8 million. Russia bought about 4 million tonnes of oil at $689.8 million per tonne. It turns out that the average price of Russian oil was about $170 per tonne. At the same time in January-March, in the absence of contracts with major Russian companies, Belarus imported about 1.6 million tonnes of Russian oil at $417.7 million. The average price was $261 per tonne. At that, it is known that in January the Russian oil cost $340 per tonne, and in March - about $170 per tonne. </p> <p> </p> <p> At the same time, in April-May, when the world oil prices collapsed, Belarus purchased 2.5 million tonnes of Russian oil at $272.1 million per tonne. The average price was $108.8 per tonne. </p> <p> </p> <p> According to the statistics, in March-May, Belarus bought three tankers of oil of about 270 thousand tonnes for $64.4 million from SOCAR Trading – a trading arm of the State Oil Company of Azerbaijan. It turns out that this oil cost Belarus $238.5 per tonne on average. Through Lithuania, Belarus bought oil at an average cost of $72 million per tonne. It was reported that in March, Belarus bought from traders four tankers of Russian oil through the port of Klaipeda for a total of 320 thousand tonnes. Thus, the average price of Russian crude oil for Belarus was $225 per tonne when delivered through Lithuania. </p> <p> </p> <p> In May, Belarus bought 80 thousand tonnes of oil from Saudi Arabia for $9.7 million. According to the statistics, its average price was $121.3 per tonne. </p> <p> </p> <p> These are, of course, rough estimates of price calculation, since a number of factors, including contractual terms of delivery, logistics, etc., affect the final price of oil. But in any case, for Belarusian refineries, delivery of Russian oil through the Druzhba pipeline is the most advantageous option in terms of logistics. Delivery by sea, transshipment in ports and transportation by rail costs another $35-45 per tonne of crude oil. </p> <p> </p> <p> Now Belarus has reduced the import of alternative oil to two tankers per month. </p> <p> </p> <p> The Belarusian authorities emphasize that they have deliberately engaged in organizing oil supply from alternative sources, even despite the fact that for Belarus, Russian oil will be cheaper than any alternative before 2024. </p> <p> </p> <p> On the one hand, it looks credible. Minsk would not give up alternative supplies even after the premiers agreed at the end of March on the terms of resumption of Russian oil supplies to Belarusian refineries (Moscow agreed to compensate Belarus through interbudgetary mechanisms part of the premium to Russian oil companies ($4.3 on each tonne of Russian oil supplied to Belarus). </p> <p> </p> <p> As a result, in April regular supplies of Russian oil to Belarus were resumed and amounted to 1.47 million tonnes for the month, while in May - 1.13 million tonnes. In January-May 2020, Belarusian refineries processed about 5.4 million tonnes of oil, that is, about every fifth ton was alternative. </p> <p> </p> <p> Now the situation in the world markets is slightly recovering as quarantine restrictions are lifted. Naturally, the demand for petroleum products began to recover, but it is still far from pre-crisis levels. </p> <p> </p> <p> In June, Belarus bought 1.1 million tonnes of Russian oil. According to Argus agency, in January-June 2020, Belarusian refineries received a total of 6.15 million tonnes of oil, while 4.65 million tonnes - Russian oil supplied by pipe, while about 0.5 million tonnes - deliveries by rail. The volume of alternative oil amounted to about 1 million tonnes, that is, approximately every sixth ton is alternative oil. </p> <p> </p> <p> For the third quarter Belneftekhim agreed with the Ministry of Energy of the Russian Federation on oil deliveries to Belarusian refineries via Druzhba pipeline in the amount of 5.75 million tonnes. The quarterly schedule is based on the indicative oil balance for 2020 in the amount of 24 million tonnes (23 million tonnes - delivery by pipeline transport and 1 million tonnes - by rail). </p> <p> </p> <p> According to Belneftekhim, in July the Belarusian refineries bought 1.58 million tonnes of oil from Russian oil companies, including 1.495 million tonnes delivered through the system of main oil pipelines and 85 thousand tonnes - by rail. In August the refinery's demand for oil will amount to 1.37 million tonnes (the decrease in refining is due to scheduled repairs of Naftan, Novopolotsk and Vitebsk Region). At the same time, Russian companies have confirmed requests for supply of 1.21 million tonnes, of which 77 thousand tonnes will be delivered by rail. </p> <p> </p> <p> As for alternative oil, two tanker deliveries of Azerbaijani and American oil with total volume of 160 thousand tonnes are planned for August. </p> <p> </p> <p> It should be noted that in spring the price of oil collapsed, as a result of which the export duty on oil in April almost zeroed. The appeal of Russian oil for Belarus has also fallen, both in terms of export duties to the budget and as a cheaper raw material for domestic oil refining. This made alternative sources of oil quite attractive for Belarus. </p> <p> </p> <p> Rising oil prices make Russian oil more attractive for Belarus. After all, it is a source of foreign exchange for the budget in the form of export duties, as well as for the refinery and Belorusneft, which has resumed exporting its own oil since April. </p> <p> </p> <p> As a result, since April, Belarus has significantly reduced the volume of alternative oil imports. </p> <p> </p> <p> However, earlier Belneftekhim stated that Belarus would not give up supplies of alternative oil even if Russian companies provided “the most favorable conditions” to Belarusian refineries, and, moreover, would increase supplies from other countries every year. </p> <p> </p> <p> Earlier Belneftekhim stated that they plan to make long-term contracts with oil companies of Azerbaijan and Saudi Arabia. It was noted that Belneftekhim had made an assessment of the possible volume of alternative oil supplies to Belarus for 5 years. </p> <p> </p> <p> Thus, the situation with the conclusion of long-term contracts for oil supply to Belarus will show how serious Minsk is about alternative oil supplies. </p> <p> </p> <p> Alternative oil helped Minsk restore diplomatic relations with the USA and to distance itself from Moscow. </p> <p> </p> <p> For many years, Russia could use oil supplies as leverage to pressure Belarus, which was tied to a monopoly supplier of raw materials in the absence of an alternative. The refusal of Russian suppliers to conclude long-term oil contracts with Belarus for 2020 was seen by Minsk as an element of the Kremlin’s political pressure and pressure to further deeper integration. </p> <p> </p> <p> To prevent this, the President of Belarus set a task for the government to diversify oil supplies so that in the future the share of Russian sources would not exceed 40%. </p> <p> </p> <p> Against the background of the escalating oil conflict between Minsk and Moscow in early 2020, U.S. Secretary of State Mike Pompeo said during his visit to Minsk in February that the U.S. could help Belarus reduce its energy dependence on Russia. </p> <p> </p> <p> In this case, the interests of Minsk and Washington coincided. Speaking in support of Minsk, the U.S. addresses the problem of strengthening its geopolitical influence in the region. In turn, the purchase of American oil allowed Belarus to take a step forward in the dialogue with the US, which in turn helped restore full diplomatic relations between the two countries. In late April, U.S. President Donald Trump nominated U.S. Deputy Assistant Secretary of State Julie Fisher for the post of Ambassador to Belarus. </p> <p> It is unlikely, of course, that Minsk expects the U.S. to become a strategic supplier of oil for Belarus. Belarus also does not intend to give up Russian oil supplies in favour of alternatives. </p>
2020-08-10
Primepress
Belarus has lost Br1.5 billion ($612.9 million at the rate of the National Bank of Belarus) due to disagreements with Russia on oil supplies, President of Belarus Alexander Lukashenko said in his annual address to the nation and the parliament on August 4.
Minister of Finance of Belarus Yuri Seliverstov told reporters on August 5 that revenues of Belarus’ republican budget will stand Br3.7-4 billion ($1.516-1.639 billion) short in 2020, as economic growth slows down due to the global consequences of the coronavirus pandemic and the unfavourable environment on the oil market.
“Half of this amount accounts for the oil market behaviour and a decrease in the size of customs duties and the export of oil products. Considering the global economic trends, we forecast a short supply of the income tax, dividends from state-owned enterprises in the amount of slightly over Br2 billion ($819.873 million),” said Seliverstov.
Commentary
The amount of losses of the Belarusian economy due to oil disagreements with the Russian Federation voiced by Lukashenko seems to be greatly exaggerated. Most likely, it is calculated on the basis of the projected annual oil losses for the whole year 2020, besides, it does not take into account another reason for the emerged financial costs for Belarus - a fundamentally new situation on the export markets of oil products due to COVID-19, which led to a decrease in demand for oil products and a collapse in oil prices.
This is confirmed by the data provided by the Finance Minister a day later.
It should be reminded that Belarus and Russia had been failing to agree on the oil supply terms that would suit both parties for quite a while early this year. As a result, Russia cut oil supplies to Belarus in the first quarter, imports of Russian oil to Belarus fell in January-May 2020 by 42% year on year to 4.084 million tonnes, by 75% in monetary terms to $689.819 million.
Since April, supplies of Russian oil have resumed, but the situation in Belarusian oil refining has not fundamentally changed, which was due to the global trend of decline in demand for oil products in the key export markets of Belarus.
According to the National Statistics Committee of Belarus (Belstat), Belarus’ oil product export dropped in January-May 2020 by 53.6% year on year. Losses were estimated at $1.412 billion in monetary terms. Fiscal revenues from foreign trade were down 30%. The state budget was reportedly Br719 million ($230 million) short in terms of export duties on oil products and potash fertilizers against January-May 2019.
Alternative oil is more expensive than Russian crude.
In early 2020, amid a protracted dispute with Russian oil companies over the price of oil, Belarus hastily started arranging for supplies of oil from alternative sources. The Belarusian Oil Company (BelOil) has already purchased at least 16 lots of oil in Azerbaijan, Norway, Saudi Arabia and the USA, which have already been delivered by tankers through the ports of Klaipeda and Odessa or are still on the way to Belarus.
Hardly anyone expected that the transportation of alternative oil by tankers and delivery through the ports of Belarus would be a quick and cheap way to import oil.
It is not officially reported how much alternative oil costs for Belarus. If we proceed from the statistics, we can conclude that the first alternative supplies cost Belarus really much more than Russian oil could cost (overpayment was more than $130 per tonne).
However, in spring the market situation was in favour of Minsk: the cost of oil on the world market fell to a historical minimum, as a result of which the appeal of Russian oil for Belarusian refineries decreased markedly, while the appeal of alternative crude, on the contrary, increased.
Based on the Belneftekhim data on the volumes of alternative oil supplies and Belstat data on oil imports by country in monetary terms, one can make approximate calculations of the price of import supplies for Belarus.
In early 2020, Belarus bought two tankers of Norwegian oil of 166 thousand tonnes for $52.5 million. Based on these data, it follows that Norwegian oil cost $316 on average for Belarus. At that the first tanker of Norwegian oil was bought before the world quotations collapsed - at the end of January. This oil could cost Belarus about $400 per tonne, at the same time the price of April delivery was much lower - about $230 per tonne.
In January-May Belarus imported 5 million tonnes of oil for $904.8 million. Russia bought about 4 million tonnes of oil at $689.8 million per tonne. It turns out that the average price of Russian oil was about $170 per tonne. At the same time in January-March, in the absence of contracts with major Russian companies, Belarus imported about 1.6 million tonnes of Russian oil at $417.7 million. The average price was $261 per tonne. At that, it is known that in January the Russian oil cost $340 per tonne, and in March - about $170 per tonne.
At the same time, in April-May, when the world oil prices collapsed, Belarus purchased 2.5 million tonnes of Russian oil at $272.1 million per tonne. The average price was $108.8 per tonne.
According to the statistics, in March-May, Belarus bought three tankers of oil of about 270 thousand tonnes for $64.4 million from SOCAR Trading – a trading arm of the State Oil Company of Azerbaijan. It turns out that this oil cost Belarus $238.5 per tonne on average. Through Lithuania, Belarus bought oil at an average cost of $72 million per tonne. It was reported that in March, Belarus bought from traders four tankers of Russian oil through the port of Klaipeda for a total of 320 thousand tonnes. Thus, the average price of Russian crude oil for Belarus was $225 per tonne when delivered through Lithuania.
In May, Belarus bought 80 thousand tonnes of oil from Saudi Arabia for $9.7 million. According to the statistics, its average price was $121.3 per tonne.
These are, of course, rough estimates of price calculation, since a number of factors, including contractual terms of delivery, logistics, etc., affect the final price of oil. But in any case, for Belarusian refineries, delivery of Russian oil through the Druzhba pipeline is the most advantageous option in terms of logistics. Delivery by sea, transshipment in ports and transportation by rail costs another $35-45 per tonne of crude oil.
Now Belarus has reduced the import of alternative oil to two tankers per month.
The Belarusian authorities emphasize that they have deliberately engaged in organizing oil supply from alternative sources, even despite the fact that for Belarus, Russian oil will be cheaper than any alternative before 2024.
On the one hand, it looks credible. Minsk would not give up alternative supplies even after the premiers agreed at the end of March on the terms of resumption of Russian oil supplies to Belarusian refineries (Moscow agreed to compensate Belarus through interbudgetary mechanisms part of the premium to Russian oil companies ($4.3 on each tonne of Russian oil supplied to Belarus).
As a result, in April regular supplies of Russian oil to Belarus were resumed and amounted to 1.47 million tonnes for the month, while in May - 1.13 million tonnes. In January-May 2020, Belarusian refineries processed about 5.4 million tonnes of oil, that is, about every fifth ton was alternative.
Now the situation in the world markets is slightly recovering as quarantine restrictions are lifted. Naturally, the demand for petroleum products began to recover, but it is still far from pre-crisis levels.
In June, Belarus bought 1.1 million tonnes of Russian oil. According to Argus agency, in January-June 2020, Belarusian refineries received a total of 6.15 million tonnes of oil, while 4.65 million tonnes - Russian oil supplied by pipe, while about 0.5 million tonnes - deliveries by rail. The volume of alternative oil amounted to about 1 million tonnes, that is, approximately every sixth ton is alternative oil.
For the third quarter Belneftekhim agreed with the Ministry of Energy of the Russian Federation on oil deliveries to Belarusian refineries via Druzhba pipeline in the amount of 5.75 million tonnes. The quarterly schedule is based on the indicative oil balance for 2020 in the amount of 24 million tonnes (23 million tonnes - delivery by pipeline transport and 1 million tonnes - by rail).
According to Belneftekhim, in July the Belarusian refineries bought 1.58 million tonnes of oil from Russian oil companies, including 1.495 million tonnes delivered through the system of main oil pipelines and 85 thousand tonnes - by rail. In August the refinery's demand for oil will amount to 1.37 million tonnes (the decrease in refining is due to scheduled repairs of Naftan, Novopolotsk and Vitebsk Region). At the same time, Russian companies have confirmed requests for supply of 1.21 million tonnes, of which 77 thousand tonnes will be delivered by rail.
As for alternative oil, two tanker deliveries of Azerbaijani and American oil with total volume of 160 thousand tonnes are planned for August.
It should be noted that in spring the price of oil collapsed, as a result of which the export duty on oil in April almost zeroed. The appeal of Russian oil for Belarus has also fallen, both in terms of export duties to the budget and as a cheaper raw material for domestic oil refining. This made alternative sources of oil quite attractive for Belarus.
Rising oil prices make Russian oil more attractive for Belarus. After all, it is a source of foreign exchange for the budget in the form of export duties, as well as for the refinery and Belorusneft, which has resumed exporting its own oil since April.
As a result, since April, Belarus has significantly reduced the volume of alternative oil imports.
However, earlier Belneftekhim stated that Belarus would not give up supplies of alternative oil even if Russian companies provided “the most favorable conditions” to Belarusian refineries, and, moreover, would increase supplies from other countries every year.
Earlier Belneftekhim stated that they plan to make long-term contracts with oil companies of Azerbaijan and Saudi Arabia. It was noted that Belneftekhim had made an assessment of the possible volume of alternative oil supplies to Belarus for 5 years.
Thus, the situation with the conclusion of long-term contracts for oil supply to Belarus will show how serious Minsk is about alternative oil supplies.
Alternative oil helped Minsk restore diplomatic relations with the USA and to distance itself from Moscow.
For many years, Russia could use oil supplies as leverage to pressure Belarus, which was tied to a monopoly supplier of raw materials in the absence of an alternative. The refusal of Russian suppliers to conclude long-term oil contracts with Belarus for 2020 was seen by Minsk as an element of the Kremlin’s political pressure and pressure to further deeper integration.
To prevent this, the President of Belarus set a task for the government to diversify oil supplies so that in the future the share of Russian sources would not exceed 40%.
Against the background of the escalating oil conflict between Minsk and Moscow in early 2020, U.S. Secretary of State Mike Pompeo said during his visit to Minsk in February that the U.S. could help Belarus reduce its energy dependence on Russia.
In this case, the interests of Minsk and Washington coincided. Speaking in support of Minsk, the U.S. addresses the problem of strengthening its geopolitical influence in the region. In turn, the purchase of American oil allowed Belarus to take a step forward in the dialogue with the US, which in turn helped restore full diplomatic relations between the two countries. In late April, U.S. President Donald Trump nominated U.S. Deputy Assistant Secretary of State Julie Fisher for the post of Ambassador to Belarus.
It is unlikely, of course, that Minsk expects the U.S. to become a strategic supplier of oil for Belarus. Belarus also does not intend to give up Russian oil supplies in favour of alternatives.