Feature: Refiners in Europe seek alternative crudes; aim to increase runs

Refiners across Europe are looking for alternative crude supply in the wake of Russia's invasion of Ukraine, with many starting to maximize CDU runs in order to secure better supply as international buyers shun Russian-origin products.

As concerns mount over possible EU sanctions to cut dependence on Moscow's oil and gas, companies across Europe are distancing themselves from buying Russian crude or products.

ExxonMobil's French downstream subsidiary Esso SAF said March 24 that following Russia's invasion of Ukraine it was looking for alternative sources of crude oil, though currently there are no difficulties with crude supply for its two refineries -- Gravenchon and Fos-sur-Mer -- as they are flexible in terms of the type of crude they can take.

Earlier this week, TotalEnergies pledged to end all purchases of Russian oil by year-end, after ceasing spot oil purchases. The French oil major also said it would end Russian oil supply contracts for its Leuna refinery in Germany "as soon as possible" and at the latest by the end of 2022, and would arrange alternative supply solutions, in particular by importing oil via Poland. Leuna currently receives crude via the Druzhba pipeline.

Shell was one of the first energy companies to cease all spot purchases of Russian oil and products. BP, Italy's Eni and Saras, Spain's Repsol and Cepsa, Portugal's Galp, Finland's Neste, Sweden's Preem, Poland's PKN and Norway's Equinor have also suspended all new purchases of oil and oil products from Russia.

Meanwhile, Austria's OMV said it has stopped acquiring Russian crude for its three refineries -- Schwechat in Austria, Burghausen in Germany and Petrobrazi in Romania -- while Varo Energy, which fully owns the Cressier refinery in Switzerland and has a share in Germany's Bayernoil, said it has "not entered into any new Russian crude purchases since the beginning of the conflict."

Gunvor's Ingolstadt refinery in Germany also is not processing any Russian crude.

Higher CDU runs

Europe's refiners are expected to start increasing runs to cover at least some of the shortfall in Russian imports.

Before the invasion of Ukraine, Europe was importing from Russia about 2.7 million b/d of crude and another 1.5 million b/d of products, mostly diesel, but also feedstocks such as fuel oil and vacuum gasoil.

ExxonMobil's Fos-sur-Mer refinery is currently running at full utilization in order to supply the market, the company said. The refinery supplies the southeast of France.

Other refineries in the Mediterranean are also increasing utilization in order to compensate the reduced diesel imports. Some are "running in max distillate mode," one trader said.

In Northwest Europe refiners are also ramping up their CDU units or keeping them steady as margins remain generally strong, despite volatility.

With diesel cracks making "particular gains" at the end of last week, that has given "refining margins a boost, with Forties cracking margins becoming positive after strong flat prices turned them negative March 10," S&P Global Commodity Insights wrote in a note March 21.

However, a lack of feedstocks, as refiners are halting purchases of Russian VGO, is posing problems for secondary units runs, traders said.

With demand for gasoline set to seasonally rise in the next few months, refiners are increasingly concerned about the reduced VGO supply.

"It is really the worst news you can have going into Q2," a trader said.

The dearth of VGO is also adding to already record-high natural gas prices which have pushed hydrogen prices up and hence the costs for running desulfurization units.

Some refineries might therefore ramp up their CDU units but choose to reduce runs at secondary units, such as hydrocrackers, traders warned.

The high natural gas prices coupled with difficulties in securing suitable crude grades, and a lack of sufficient capacity is capping the potential for higher runs in Europe, according to the International Energy Agency.

In its latest report it estimated "only a modest upward revision in European run rates from March to December."

Status of European refineries on Russian oil supplies