Vera Eckert. Shadia Nasralla. Ron Bousso

FRANKFURT/LONDON – Since February’s Russian invasion of Ukraine, people in Berlin waved Ukrainian flags as a sign of solidarity. However, most people who attended the rallies drove there in Russian oil-powered cars. This fuel supplies the majority of Germany’s capital.

According to official data, just over one third of Germany’s energy came from Russia in the last year. Until the invasion of Ukraine in February, the dependence of Europe’s largest economy on cheap energy from Russia – in part, a legacy of the Cold War – was not viewed as problematic by the authorities.

Now, German politicians say it may threaten the country’s security and want to wean Germany off Russian oil.

Schwedt is a Russian-owned refinery that can be found 90 minutes away from Berlin.

Its fuel powers nine out of ten cars in Brandenberg and its surrounding states. Half of the electricity generated by it is also fed into the grid. According to the website, “We drive Berlin or Brandenburg.”

PCK Schwedt refinery is owned by the majority of Russian state-owned oil firm Rosneft and operates it. The oil it uses comes entirely from Russia.

The refinery was thrust into the political spotlight on the eve of the war by Rosneft’s plan to increase its stake substantially, a request that Germany’s government has placed under review amid concerns that its energy reliance on Russia has grown too acute.

It now appears to be a mistake that a Russian state-owned firm such responsibility for the economy,” Robert Habeck, Economy Minister of the Greens, said to reporters late March when asked about future plans for Schwedt.

A spokesperson for PCK Schwedt did not respond to a request for comment about officials’ concerns over fuel security.

The refinery’s capacity of 233,000 barrels per day amounts to about one-tenth of Germany’s pre-pandemic consumption. France’s TotalEnergies also owns the nearby Leuna refinery. It has a similar oil production capacity and relies heavily on the Russian pipeline. [L2N2W50OH]

Graphic: German crude oil imports – https://graphics.reuters.com/UKRAINE-CRISIS/GERMANY-OIL/movanbklkpa/chart.png

In recent weeks, calls for the European Union’s 27 member nations to place an absolute oil embargo upon Russia gained momentum after photos of the civilian death in Ukraine led the International Criminal Court (ICC) to launch an investigation into the alleged war crimes.

Moscow claims its “special operation” campaign is a terrorist attack and denies that civilians were targeted.

EU countries claimed that Monday’s proposals by the bloc’s executive were being drafted to ban Russian crude. Diplomats however stated that Germany – having already cut its dependence on Russian oil and other resources – wasn’t actively encouraging an immediate embargo.

According to the president of Ukraine, Moscow has made so much money off oil exports that they don’t have to participate in peace negotiations. He has also called upon Germany to reduce its energy ties quickly with Russia.

The Kremlin didn’t immediately reply to our request for comment.

Recent opinion polls have shown that less than half (50%) of Germans would like to stop the import of Russian oil or gas. A number of Berliners who bought petrol this morning wondered if an embargo could hurt Russia.

It’s a matter of conscience. We want to assist the Ukrainians, but would we accept higher prices? said Melanie Barthel, 29.

Franziska Giffiey, Berlin’s mayor said that on April 7, she was concerned that so much of Eastern Germany’s fuel supply would depend upon the Schwedt refinery.

Giffey said in a newspaper that Schwedt could be cited as an example of a situation where nationalisation is “impractical.” Her response to further inquiries was not received.

Rosneft stated in a statement that it owns assets in Russia for over 10 years. It has also invested more than 4 billion euros to modernize the country, which helped to reduce fuel prices and ensure German energy security.

Rosneft claimed that an illegal seizure would violate private property rights. It would also destabilize Germany’s investment environment and put at risk foreign investors.

FROM FRIENDSHIP to THREAT

Like Berlin, the PCK Schwedt refining plant was once part of the Eastern Bloc. This refinery was constructed in 1960 to treat Russian oil that had been shipped from the Soviet Union to the satellite countries.

The oil is pumped through one of the world’s longest pipelines. It’s named “Druzhba”, which means friendship. Moscow created it to supply import-dependent allies.

Russian oil is used in the refineries of Poland, Slovakia, and Czech Republic.

Graphic: Which country is most dependent on Russian diesel imports for its fuel? – https://graphics.reuters.com/UKRAINE-CRISIS/GERMANY-OIL/znpneqbydvl/chart.png

Rosneft controls 54% and 54% respectively of Schwedt after 1991’s fall of Soviet Union.

Germany’s Economy Ministry announced in March it was reviewing the plan of Rosneft’s purchase of Shell (LON 🙂 PLC’s stake at the refinery. The Russian oil giant would still hold nearly 92%.

According to Reuters, a German government source stated that “the Russian attack altered our entire security evaluation.” Rosneft’s influence was seen in this light as a threat.

This confidential review is part of a foreign trade law that protects German technology, security and intellectual property against non-European Union investors.

The situation was not clear to those who are familiar. It is unclear how long it would take for the Schwedt review and what Germany would do in the event that Rosneft’s security role is found unacceptable.

Shell told Reuters in a statement it made clear its intentions for a gradual withdrawal from Russian oil and gas after the invasion. It also stated that they were in discussion with countries about maintaining supplies to customers.

According to the statement, “Ultimately, it’s up to the governments decide the extremely difficult tradeoffs that need making,”

Habeck, the Economy Minister, told reporters this month the government was working flat out to resolve the refinery’s situation in order to achieve “oil independence from Russia”.

The German government took temporary control of another Russian energy business on April 4: it put Russian gas giant Gazprom’s local unit – Gazprom (MCX:) Germania – under the control of the regulator after Gazprom attempted to sell its subsidiary to two other Russian companies.

Gazprom didn’t respond to our request for comment.

Shell is now in an awkward position due to the stalled sale. According to Reuters, a top Shell source stated that it would not be unexpected for Rosneft to approve the sale of Schwedt-to Rosneft’s stake.

Eni SpA of Italy, an Italian oil and natural gas company, owns the remaining shares. It stated that it was looking for them to be sold before the invasion. Eni SpA said that Russia had invaded and it would no longer sign supply agreements with Russia.

ALTERNATIVES

Replacing Russian oil in Germany will be an enormous task. Germany also imports oil via other pipelines including one from Italy. However, Russia remains its biggest supplier. Just 13% of the total US imports were delivered by America, which is second largest.

Rosneft also owns minority shares in Schwedt and two other German refineries. They supply them with crude oil, but they also buy oil from abroad.

Industry experts warn that it is difficult to source alternative PCK Schwedt supplies.

It was constructed to refine Russian urals crude through the Druzhba pipe. Only a tiny fraction of the oil can be transported by the Baltic Sea port Rostock.

Baltic ports are able to import oil from the United States and Saudi Arabia, but Schwedt will have to fight for it as east European refineries look for other sources of Russian crude.

Rosneft stated in a statement, that switching to other crude oil supplies at Schwedt will increase costs significantly and raise fuel prices for German customers.

Graphic: OECD member dependence on Russian oil imports – https://graphics.reuters.com/UKRAINE-CRISIS/OIL/byprjbrorpe/chart.png