Belarus is slowly entering the third month of consecutive protests and there is very little indication that either of the sides is ready to let go. President Lukashenko continues to disperse protesters with water cannons whilst gradually booting out all foreign reporters who might present a different picture than that of a Manichean struggle between the forces of law and order and hell-bent troublemakers. Amidst the manifold incarcerations and convictions, the opportunities for a negotiated solution are becoming slimmer by the day. Ironically for President Lukashenko, the international pressure on him to step down has compelled him to get back to his traditional trading partner, Russia. In the meantime, Belarus has sunk to the reality of it being sanctioned by the European Union. EU leaders have managed to persuade Cyprus which had resisted any calls to sanction Minsk (Cyprus was obstructing the Belorussian vote as a means of focusing more attention on its travails with Turkey’s illegal drilling programs) and have levied restrictive measures on 40 Belorussian officials with one major exception granted – President Lukashenko was not included. The fact that the list is overwhelmingly composed of Interior Ministry cadres only underscores the awkwardness with which Brussels endeavors to pressurize the long-standing Belorussian leader into relinquishing his position. The US sanctions list is even thinner than the European one, combining a total of 7 persons, however Washington has had Lukashenko on sanctions since 2006.
Political pressure mounting on Lukashenko has pushed the besieged Belorussian president closer to Moscow. One of the recurring themes of Russo-Belorussian energy talks, the price negotiations on the upcoming years’ natural gas imports, went much easier this year – by early September the two sides have already indicated their preliminary agreement on the conditions of the agreement. Before the elections President Lukashenko was stating that Minsk might ask for 40-45 USD per MMCm (its agreed 2019 price was set at 132 USD per MMCm), nowadays Belorussian officials no longer state their ideal pricing level be set that low. Moreover, Minsk now seems to be open to embrace the 2022 startup of the Eurasian Economic Union common gas market rules.
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It remains to be seen what exactly Minsk and Moscow could agree on with regard to the former’s crude imports. The crux of the disagreement has been the fixed discount to the average Urals monthly price which the Belarussian side sees as high as 12 USD per metric ton (i.e. 1.65 USD per barrel). As the Belorussian state oil company Belneftekhim failed to find common ground with Russian crude exporters, all of whom had no interest in maintaining a subsidized form of oil deliveries and wanted to squeeze as much as possible from Russia’s never-ending tax reform, Q1 2020 witnessed unprecedented lows in pipeline imports. This in turn has nudged Belarus to reenergize its seaborne deliveries, buying Urals lookalikes from all over the European continent.
In the end Moscow and Minsk have agreed on a 10.70 USD per metric ton (1.45 USD per barrel) discount which would be valid for the remaining part of 2020. Running contrary to the previous trend of starting the talks quite late in the year, the 2021 price discount negotiations have already started in September, most probably due to Belarus’ willingness to avoid another supply intervention from the Russian side akin to what happened this year. This does not mean that Belneftekhim’s demands are in any way more constructive than those of 2020 – for the first bilateral meeting it has indicated 15.50 USD per metric ton price discount, 0.7 USD per barrel higher than what it had this year. Considering that the survival of the Belarussian Lukashenko regime lies primarily through the Kremlin, this seems a rather ambitious move now.
All of the above have necessitated an attenuation of Belarus’ opportunistic crude sourcing policy that has raised some eyebrows in Moscow over the course of 2020. Merely a couple of months ago President Lukashenko publicly vowed to increase Belarus’ intake of US crudes and even took in 2 cargoes (Bakken and a custom-made blend called White Eagle Blend), that is nowhere to be seen today, economic profitability or refining suitability notwithstanding. Judging by maritime movements in the Black and Baltic Seas, the last seaborne cargo that Belorussian refiners have imported was an Azeri cargo that discharged early September in the Ukrainian port of Odessa. The increasing trend in Russian pipeline crude deliveries to Belarus, however, points to things settling back to the pre-2020 state of things.
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Graph 1. Belarus’ Monthly Russian Crude Imports in 2020.
Source: data compiled by author.
According to the latest Belneftekhim utterances, the amount of Russian crude that Belarus will export in October 2020 stands around 1.65 million tons (see Graph 1). That is the highest monthly allocation this year has seen yet even a solid year-end of 2020 would not be enough to cover up for the gaping hole in the first couple of months. As things stand currently, Russian crude exports to Belarus have dropped 34% compared to 2019. On the other hand, the current Belorussian political leadership can provide other deal sweeteners to Russia that would satiate its boundless energy appetite – for instance, rerouting all of its products exports from Baltic ports to the Russian port of Ust-Luga.
That this would happen should not surprise Russia-watchers, Moscow itself has invested quite the effort into eliminating its own usage of non-Russian Baltic ports and to facilitate the usage of Ust-Luga and Primorsk (in 2019 the aggregate volume of Russian exports from the Baltic states stood at 1.4 million tons, 90% down from the 2015-2016 level). By signing up for the supply route diversion, Lukashenko will simultaneously deliver a political message to Lithuania, Latvia and Estonia for sanctioning him and his close circle personally, drying up perhaps the last genuinely profitable revenue stream for the Baltic countries’ ports. The successful rerouting will take time though – as there is no direct pipeline connection to Ust-Luga or Vysotsk, the scheme’s profitability depends on the Russian Railways’ rail tariff which might need further discounting if it wants to stay competitive.
By Viktor Katona for Oilprice.com
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