Mažeikiai refinery: Lithuania – ours, oil and money for it – Russian

Orlen Lietuva oil refinery
Mažeikių nafta, PKN Orlen Lietuva, DELFI / Kiril Čachovskij

Most Lithuanians view Russia as our greatest threat. Few people do things that would benefit their enemy. However, it is very likely that every time we fill our cars’ tanks with petrol or diesel, part of the money paid ends up landing in the pockets of pro-Kremlin figures. How do national security and economic benefit play together, for instance having in mind Mažeikiai refinery, Martynas Žilionis asked in tv3.lt news portal?

At the start of this year, a public opinion and market research company Vilmorus survey commissioned by the Ministry of Foreign Affairs revealed that 68% of respondents viewed Russia as an unfriendly country toward Lithuania. 82% of respondents described relations with the country as negative, while only 7% – positively.

Despite such negative perceptions among the public, Russia remains the country’s largest foreign trade partner. According to the Department of Statistics, exports and imports to and from Russia comprise more than 14% of all trade traffic – more than with any other state. A large part of the imports is Russian oil.

The oil processing company Orlen Lietuva, which operates Mažeikiai refinery in Mažeikiai town in northern Lithuania, declares that last year it realised 1.93 million tonnes of its production in Lithuania. Based on the Department of Statistics’ data, in 2018, a little over 0.6 million tonnes of petrol and diesel were imported to Lithuania.

The Competition Council has investigated that 75-90% of the petrol and diesel sold in our country’s petrol stations is made in Mažeikiai refinery, while the rest is imported (mostly from Finland, Russia, and Belarus).

Mažeikiai refinery not disclosing suppliers

In other terms, some 3 of 4 litres of any fuel purchased in any Lithuanian petrol station is made inMažeikiai refinery and it is mostly made from Russian crude.

That said, Orlen Lietuva spokeswoman Kristina Gendvilė would not reveal, just how much Russian oil is processed in Mažeikiai refinery. However, according to her, crude oil from the Russian Primorsk and Ust Luga ports comprises less than 80% of the roughly 10 million tonnes that the company processes every year.

The Orlen Lietuva spokeswoman would not answer, from what Russian companies the crude oil is purchased, only responding that “Oil supply transactions are confidential information, thus we cannot disclose the companies with which we make oil purchase transactions.”

However, the PKN Orlen Group, which owns the Lithuanian processing plant, has declared on its website in 2013 regarding a large scale supply contract with the Russian state-owned Rosneft.

This company has long been headed by Igor Sechin, who is viewed as a close friend of Vladimir Putin. Due to Russian attempts to destabilise conditions in Ukraine, since 2014 Rosneft has been under Western sanctions.

Based on 2016 reports, the three-year deal made between PKN Orlen and Rosneft back then included special clauses regarding oil supply to the Mažeikiai refinery through Būtingė terminal. The newest reports talk about the Polish and Russian companies’ agreements, based on which crude oil supply quantities are being lowered.

The State Security Department (VSD) and Second Investigation Department under the Ministry of National Defence released a national security threat report every year. This year’s report particularly focused on Russia.

That said, while it spoke about the country’s security, Russia’s influence regarding electricity, there were no mentions of gas or oil imports to Lithuania.

Russia a threat, but not its oil?

The tv3.lt news portal has inquired how does the VSD view the fact that Lithuania purchases a large portion of the oil from a Russian company, which faces sanctions. Also, under what conditions can the cooperation of Lithuanian companies with Russian companies be viewed as a national security threat and whether dependence on Russian oil can be viewed as such a threat.

The VSD’s head of strategic communications Aurelija Katkuvienė did not respond to these inquiries. She only specified that regulations are in place for the protection of important strategic objects in Lithuania.

“The function of the VSD in this process is to review investment and deals and provide information to the commission under the Ministry of Economy and Innovations,” she stated.

The former chairman of the Seimas National Security and Defence Committee (NSGK) Vytautas Bakas stated he has no information on any threats due to Orlen Lietuva’s purchase of oil from Rosneft.

“I do not analyse, who buys from whom. For example, Lithuania buys gas from Gazprom, probably no less than half the gas consumed. Orlen is a Polish company, one of our strategic partners. Truth be told, I do not believe that it could take actions, which are incompatible with security interests,” the MP said.

According to him, national security and economic relations are a very complex problem: “In regard to electricity, I believe that we are 90% dependent on Russia and have no other choice. Our goal in the long term is to ensure complete independence. We might also be buying gas from Russia, but the amounts have declined after the terminal [LNG terminal in Klaipėda] was constructed and we now have a choice.”

Differences between electricity and oil sales

According to V. Bakas, in regard to energy resources, it is important for us to make sure that the selling party cannot blackmail us, that we wouldn’t be dependent on a sole supplier.

“When we talk about oil and gas, we have ensured diversification, we can choose our sources, buy on the market. A problem arises when a country (not just Lithuania) becomes dependent on a single supplier and it can manipulate prices, make politically motivated decisions, interfere with the political system and such. That’s really troubling. Currently, I have not heard of such threats, as far as oil products are concerned, but I will definitely look into it,” the MP assured.

Swedbank chief economist Nerijus Mačiulis noted that the electricity and oil markets are different and have different influences on national security.

“To replace electricity import and shift its synchronisation from the East to Western markets is something that cannot be done immediately. Preparations are necessary and the move takes a long time. Meanwhile, oil supplies can be changed rather quickly. After all, if one supplier ceases to sell, you can buy from others,” the economist explained.

According to him, it is necessary to keep in mind that oil is not a fully homogenous product. Every oil processing plant is calibrated for a specific type of oil, depending on its weight and sulfur content.

Specifics of the Mažeikiai plant

“Of course, the Mažeikiai plant was made for working with the heavy, sulfurous oil extracted in Russia. Such is the oil it most often buys. But there are alternatives places to buy such oil in the world, just perhaps it is harder, more expensive to import it to Būtingė terminal,” N. Mačiulis explained.

“Oil is specific, its density and sulfur content differs and the Orlen plant is adapted to this specific type of oil. It isn’t all that easy to simply go ahead and turn away, purchase oil extracted in the North Sea or in the Middle East. Not all oil is suitable for the Orlen processing plant. That’s also important to keep in mind,” the economist conceded.

Electricity is the same everywhere, its imports depend on whom the system is synchronised with, also where the power lines are placed. Oil differs depending on the extraction location and is suitable for specific plants.

“The decision of what networks to synchronise Lithuanian energy networks with is a long term strategic goal, you cannot accomplish it over one day. Trade can change on a daily basis.

Overall, no one has said anywhere in Lithuania that we mustn’t trade with Russia, mustn’t buy from it or sell it produce. It is the main foreign trade partner Lithuania has, both based on imports and exports. There are numerous exported goods and also their transit. Politics is politics, but when we look at reality, economics is a whole other dimension and our economic relations with Russia are quite flexible,” the economist summarised.

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