European refiners acting fast to replace Russian crude

European refiners looking to replace Russian crude have turned to countries and grades that have seen limited flows to the continent in recent years, as well as buying more oil from sources used regularly prior to the invasion of Ukraine.

Refiners have started buying crude cargoes from as far afield as Abu Dhabi and Angola as well as additional North Sea barrels, in a trend that will accelerate after EU leaders May 30 agreed a deal to ban Russian oil imports by sea.

Following weeks of negotiations over the EU's latest Russian sanctions plans, land-locked Hungary finally accepted an exclusion for access to Russian crude via the Druzhba pipeline, in a move set to phase out almost 90% of Russian oil imports into the bloc by the end of 2022.

Poland's PKN Orlen has long since said -- at the beginning of May -- that it was ready to comply with the EU's proposal to ban Russian crude imports within six months, having stopped purchasing Russia's Urals blend crude on the spot market following the invasion of Ukraine.

Instead, it has increased spot purchases from the US, Saudi Arabia, West Africa, and Norway. PKN's Orlen Lietuva refinery in Lithuania stopped taking any Russian cargoes at the end of March and plans to process only oil from Saudi Arabia.

A number of refiners have underscored that crude from the Middle East was seen as a good alternative for Urals.

Greece's Hellenic Petroleum said it could replace Urals with similar grades, mostly from the Middle East.

Hellenic "immediately secured alternative raw material sources, without affecting the operation of our units and the continuous market supply, while taking advantage of the refineries' flexibility to process various types of crude oil and good cooperation with other producing countries," it said recently.

Middle East

Europe has been pulling more sour crude from the Middle East as it worked to reduce its reliance on Russian oil, according to traders.

"It is a matter of displacement. Urals is going east, and Persian Gulf grades need to find another way," a trader said.

Persian Gulf grades taken by European refiners included Abu Dhabi's Murban and Upper Zakum, Oman crude and Iraqi Basrah Medium, according to the source. Of those, only Basrah Medium has been a typical part of the European refining diet.

Murban and Upper Zakum both arrived in Europe in May for the first time since 2018 and 2015, respectively, according to Kpler shipping data. No cargoes of Oman crude have arrived yet since 2016, the data showed.

North Sea

Others have been shifting their attention to the North Sea.

Sweden's Preem, which was among the first to stop purchasing Russian crude, has mostly replaced it with oil from Norway and the North Sea.

Poland's Grupa Lotos has also been receiving crude from Norway and the North Sea.

While North Sea grade Forties is not a like-for-like comparison for Urals, it has seen increasing demand from local refiners in recent days as its value has lagged distillate-rich grades such as Ekofisk.

"Anyone that can blend should be looking to take Forties in. It looks super cheap versus sweet," one trader said.

The Kronviken loaded Forties May 16-17 and took the oil to Rostock, Germany, Platts cFlow showed. A pipeline connects Rostock to the Schwedt refinery in Northeast Germany.

Officials have said that seaborne imports via Rostock as well as Poland's port of Gdansk could help feed the Schwedt refinery, which typically processes Russian barrels delivered through the Druzhba pipeline.

However, a decision about supplies to Schwedt once the embargo is enforced at the end of the year has not been taken yet. Local authorities have expressed concerns about the future of the refinery asking for an exemption from the ban until 2030, according to German media.

However, TotalEnergies expects Russian crude supply to be zero in 2023 at its Leuna refinery in Germany, which is also supplied via Druzhba.

Its Russian crude supply dropped 550,000 mt in May from 800,000 mt in February and 900,000 mt last October. TotalEnergies also said that it has secured around 700,000 mt of capacity from the Gdansk pipeline to feed Leuna and expected to get crude from elsewhere in the world, looking mostly at the North Sea and Africa.

Alternative supplies, however, would cost more than Russian crude, it said.

"Refineries have such good margins they are very much incentivized to pay higher values for crude from anywhere else to keep running," a crude trader said.

"Other than those using pipeline Urals, most can diversify to some extent. There will be much more from the Middle East, and a positive effect on those diffs. Some from the US and WAF, Azeri, CPC ... all the other grades will be supported."

ExxonMobil's French refineries Fos and Gravenchon have been using alternative supplies following the invasion of Ukraine. The company said that last year most of their supply came from the Middle East, North America, Africa and the North Sea.

Africa

Africa has also seen increased demand from European refiners. Traders reported increased flows from Angola in the past few months as replacement for Urals. Kpler shipping data showed an average 353,000 b/d heading to Europe in May, the most since August 2016.

"What has pushed the Angolans up a lot is the West using them as a replacement [for Urals]," a trader said.

Apart from Hungary, exemptions have been granted to Bulgaria and Slovakia.

According to Slovakia's prime minister, the country's demands for an exemption have been accepted and it will continue to get pipeline deliveries to the Bratislava refinery until it has an established alternative in place.

Likewise, Bulgaria has been exempted from the embargo until the end of 2024, local media reported, citing Prime Minister Kiril Petkov. That will enable the Neftokhim refinery in Burgas to adapt to processing other types of crude oil.

According to the Czech Republic's prime minister, cited on the public Czech Television, his country also has an exemption for oil deliveries via pipeline.

Czech Republic's Litvinov refinery is supplied by Druzhba, but according to local media, it has started processing a variety of crudes in the past few years, including from the US, Africa, North Sea, Saudi Arabia, Kazakhstan and Azerbaijan. The second refinery in the country, Kralupy, is supplied via the Trans Alpine pipeline with non-Russian crude.