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Central European refiners face supply risk

Central European oil refiners, such as PKN Orlen SA and MOL Nyrt, are at risk to disruptions in crude-oil supplies because of their dependence on imports from Russia, Fitch Ratings said.

Companies at biggest risk are PKN, Poland's biggest refiner, its smaller Polish rival Grupa Lotos SA and MOL's refineries in Hungary and Slovakia, Fitch said in an e-mailed statement.

“While all these refineries are able to continue operations in the event of severe crude delivery disruptions'' because of their alternative suppliers, supply disruptions “would harm their refining margins,'' Fitch said.

The East European countries, once Soviet Union satellites, have been reluctant to allow Russian companies to control their strategic industries, such as Mazeikiu Nafta AB, the Baltic region's only refiner, whose supplies were halted by a leak in the northern part of Druzhba pipeline on Aug. 2.

European Union politicians have voiced concern that Russian President Vladimir Putin may use the region's dependence on Russian oil and gas as a political weapon. Russian producers suspended crude oil supply to Europe in 2004 and cut gas supplies to the EU in January this year, amid price dispute with Ukraine.  

The dependence on Russian crude is a combination of historical factors, their location and the lower price of the Russian commodity compared with crude produced by Western Europe.

Mazeikiu is now purchasing Russian crude oil from the terminal near St. Petersburg and is transporting it by tankers to its Butinge terminal in Lithuania. PKN is buying Mazeikiu for USD 2.34 billion from Yukos, after other Russian bidders failed to buy the strategic company.

“If supplies of Russian crude oil by pipeline to Mazeikiu are not resumed within the next few weeks, this could lead one to conclude that political rather than technical reasons are to blame for the supply disruption,'' Fitch said.

Logistical and price advantages for Russian oil companies exporting to central European refineries make long-term supply disruptions to the region unlikely, Fitch said. (Bloomberg)