June 22, 2016 [OPIS] - Russian oil producer Rosneft will increase crude oil supplies to Czech refiner Unipetrol from July to around 5 million mt/year for three years, majority owner PKN Orlen said in a regulatory filing, adding to signs that the oil giant is tightening its grip on Europe.
The revision of the 2013-dated supply deal, which had previously foreseen deliveries of 2.9 million mt/year, suggests that Rosneft is to become the dominant supplier through mid-2019.
Unipetrol runs two refineries with a combined capacity of 8.7 million mt/year (175,000 b/d), at Litvinov (5.4 million mt/year) and Kralupy (3.3 million mt/year).
When sealing its first term supply contract with Saudi Aramco, for 2.4 million mt/year (200,000 mt/month) from May to end-2016, PKN Orlen had said that some tons were earmarked for the Czech Republic, besides refineries in Poland and Lithuania.
The higher supplies from Russia hint to confidence that petrochemical and refining operations at Litvinov will be ramped up again this summer and return to full capacity by autumn, following unplanned repairs since last August (see OPIS alert, April 22, 2016).
In the first quarter, Unipetrol’s refineries ran 66% of capacity, processing 1.43 million mt of crude oil, according to interim company figures. A fluid catalytic cracking glitch at Kralupy in mid-May and the ensuing multi-week
shutdown added to the company’s refining woes, as per Unipetrol information. PKN Orlen holds a 62.99% stake in the Litvinov-registered refiner.
Rosneft’s supplies through the Druzhba pipeline are pegged against the Urals crude oil price, derived from dated Brent and the Urals differential. The contract includes a liquidated damages clause.
During an economic forum at St. Petersburg last week, chief executive officer Igor Sechin highlighted Russia’s resource base, cost advantage, infrastructure, long-term contracts and market integration. “This model provides consistency, efficiency and stability of Russian oil exports,” he said, according to the speech script.
Putting Rosneft’s development cost at U.S.-$2.1 per barrel, the CEO predicted that new big projects would allow Russia to maintain output and investment levels, “while the majority of foreign public and national companies are cutting their capital costs and are forced to re-evaluate their project portfolios. …
Russian oil production so far has been developing under an upside case, but it is not the limit.”
