NewsGermany leans on Poland for energy security amid planned expropriation of Russian stakes in refineries

Germany leans on Poland for energy security amid planned expropriation of Russian stakes in refineries

Robert Habeck, Vice Chancellor of Germany, Minister of Energy and Economy
Robert Habeck, Vice Chancellor of Germany, Minister of Energy and Economy
Images source: © Getty Images | NurPhoto

3:33 PM EST, February 13, 2024

Germany must secure oil supplies for its crucial refineries. By planning to expropriate the Russians, they risk retaliation, including possible supply disruptions from Kazakhstan.

"Poland has been very helpful in securing oil supplies for eastern Germany in the past," said Robert Habeck, Germany's Vice Chancellor and Minister of the Economy, during his visit to Warsaw, according to Reuters.

He was also reassured that he would be able to purchase oil through Poland, even in the event of the derussification of the PCK refinery in Schwedt.

Berlin ensures its safety

For Germany, supplies through Poland are vital. The Gdansk Oil Port is a global gateway for the region due to its high throughput capacity. According to the official data from the Polish company, a total of 39.7 million tons of crude oil were transshipped there in 2023. By comparison, in 2022, 27 million tons of crude oil and finished fuel products flowed through Poland's "northern gate".

From the Gdansk port, crude oil is pumped to Plock, and from there it can be sent to Schwedt and further to the Leuna refinery. In total, the oil that flows into Gdansk is pumped to Germany through a pipeline approximately 621 miles long.

"Polish infrastructure has played a key role for years. Germany's strategic dependence on Poland in this area is historically rooted. The infrastructure for crude oil imports of former East and West Germany is still not interconnected," says Kamil Lipiński from the Polish Economic Institute.

Following the halt on Russian crude oil, the Urals oil refineries Leuna (owned by TotalEnergies) and PCK Schwedt (majority-owned by Russians but under a commissioned administration) needed to find an alternate source. They turned to Gdansk.

A major concern for Germany is the latter refinery. It's not just a significant facility because it fuels supply stations in Berlin and eastern Germany, including the Berlin-Brandenburg airport, but also western Poland.

The problem arises from the fact that the Russians, particularly Rosneft, still possess the majority stake, legally speaking. The daughter company of the Russian corporation, Rosneft Germany, owns 37.5 percent of the shares, the same stake that Shell used to have before selling theirs to British Prax. However, the Russians hold the controlling stake via another subsidiary, RN Refining & Marketing. Combined, the shares of the Russian companies amount to 54 percent.

To maintain control over oil supplies, the German government has taken over the administration of the Russian shares and frozen all profits meant for Rosneft. This is, however, a provisional solution. Berlin needs to lengthen its supervision every six months, and the Russians won't quit without a fight. They are engaging in legal battles to contest this decision. Even though they've lost in court already, they continue to appeal these verdicts.

Germany caught in a decision-making crisis

The caretaker supervision ends on March 10. It's likely that the upcoming decision will extend this suspended state. However, the German side plans to resolve the issue once and for all. They have the means to do so.

The Vice Chancellor Habeck's Ministry has come up with a special amendment to the energy security law. This amendment would make it possible to expediently sell off Rosneft's shares without prior need for nationalization. Igor Sechin, the head of the Rosneft group, reportedly sent a letter to Minister Robert Habeck and other members of the government, stating his readiness to sell the shares, as per Handelsblatt's reports.

The authorities in Berlin, however, seem to have warmed up to a much more drastic solution, although they remain reticent on officially confirming it. When quizzed by Money.pl about Rosneft's assets, Susanne Ungrad, the spokesperson for the Ministry of Economy, remarked that the ministry refrains from commenting on reports regarding either sales or nationalization.

Nevertheless, the possibility of expropriating the Russians is being discussed more seriously. However, this decision comes with a string of threats that Robert Habeck, among others, is attempting to neutralize with his visit to Poland.

The delay in derussifying can be attributed to several levels of complexities involved. If the state takes over assets and then sells them, it will inevitably lead to compensation claims by Rosneft Germany, which according to Handelsblatt, could amount to billions of euros.

The second concern is the repercussions German companies currently operating in Russia might face. Berlin anticipates they could encounter a fate similar to that of Rosneft in Schwedt - annexation by the Kremlin.

The Vice Chancellor's visit to Poland is connected to the third concern. As per Handelsblatt, Moscow might retaliate against the deportation of Rosneft by interrupting oil supplies from Kazakhstan to Germany.

Germany planned to use Kazakhstan as a loophole to escape from Russian oil. However, it's not a foolproof solution. First, there are doubts about the origins of Kazakh oil. It’s similar to Russian oil in terms of properties. It's not without reason that Kazakhstan changed the name of its export oil to KEBCO to distinguish it from Russian REBCO and protect it from possible sanctions.

The problem is that Kazakh oil is initially pumped to Russia, where it can be mixed with Russian oil before being exported from Russian sea ports. This mix-up can result in Russian oil reaching the EU under the guise of being Kazakh oil.

The second, and more critical issue from Berlin's perspective, is that these deliveries still occur via Russian pipelines, giving Putin both control and a slice of the profits. Theoretically speaking, it also provides the opportunity to sabotage supplies. It's important to note that KazTransoil is supposed to deliver 1.3 million tons of raw materials to Germany in 2024.

Poland might replace the Kazakh supply

In this scenario, Poland's role becomes paramount in case of possible supply issues from Kazakhstan. The Vice Chancellor was assured that Warsaw would lend a hand in the event of any disturbances. Sources from Reuters revealed that two weeks ago, Poland had committed to replacing the entire Kazakh volume.

"The capacity of existing infrastructure could be a short-term challenge," emphasizes Kamil Lipiński.

As the expert explains, transporting a sufficient amount of oil on the Gdansk-Mieszewko Strzałkowskie stretch could prove difficult. It has a yearly capacity of about 33.1 million tons of crude oil and must provide for Polish refineries (excluding the refinery in Gdansk, that's about 18.7 million tons) and the demand from the refineries in Schwedt and Leuna, minus imports through Rostock (7.7 million tons).

For years, Germany compensated Poland for its readiness to transport crude oil via this route for the Schwedt and Leuna refineries. At the beginning of December 2022, Berlin and Warsaw signed an agreement, bolstering Poland's support for Germany's efforts to detach from Russian oil.

Poland and Germany are expanding their infrastructure in the region. Berlin is investing in the existing pipeline that connects Schwedt with the port in Rostock. On the other hand, Poland is progressing on the construction of the second phase of the Pomeranian Pipeline. According to the plan, this would enable the introduction of 27.5 million tons of crude oil per year into the system, both for local refineries and for export. Given the scale of the investment (149 miles of an oil pipeline), the project is estimated to take 3-4 years to complete.

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