Oil reshuffle in Poland – Urals out, Iran in

*Iranian crude oil production.

*Iranian crude oil production.

13 August 2016, Moscow — Poland is replacing Russian oil with Iranian oil and unsold Urals crude is being redirected to Asia, industry sources told Reuters.

Trader Mercuria, once the largest seller of Urals in Poland, is closing down and emptying Russian oil out of its tanks in the port of Gdansk. Mercuria will use a tanker bringing in Iranian oil to transport out its unwanted Urals.

Mercuria is sending more than 250,000 tonnes of Urals to Asia via super tanker Atlantas (VLCC), which will arrive in Gdansk with two million barrels of Iranian oil on board, said two industry sources familiar with Mercuria’s plan.

A Mercuria spokesman told Reuters that the company was still interested in the Polish market and will continue working and developing its business there in the coming years.

“Unloading of Urals from tanks in Gdansk is just the company’s response to market changes and that does not mean Mercuria plans to stop working in Gdansk and in Poland,” he said.

Urals lost its position on the Polish market in the past year due to the increased activity of Middle Eastern producers, which boosted supplies to the Baltic Sea area, forcing Russian companies to cut prices. The considerable reduction of pipeline oil prices in Poland since the start of 2016, combined with Gdansk imports, squeezed out Mercuria’s supplies. Polish refiner Lotos bought 2 million barrels of oil from National Iranian Oil Company (NIOC) and the cargo will arrive in Gdansk in mid-August.

Mercuria’s lease contract for shore tanks in Gdansk with PERN, the Polish operator of trunk oil pipelines, expires in August, sources say.

The contract will not be extended, Mercuria refused to pay higher rates, and the trader will empty tanks before the end of August, sources say.

“Storing oil in Gdansk lost its point for Mercuria this year. In March, the company practically exited the Polish market,” a trader said.

Direct Contracts

Mercuria had a leading position on the Polish oil market. The company bought Urals pipeline supplies, provided by Russian producers through the Druzhba oil pipeline system, under long-term contracts and then resold the oil to Polish refiners PKN Orlen and Grupa Lotos.

However, in recent years Russian producers began to sign direct contracts with refineries, and Mercuria’s share in the Polish market began to fall.

Rosneft and Tatneft were the major suppliers of Urals pipeline supplies to Poland this year. The companies supplied crude oil under direct contracts with PKN Orlen and Grupa Lotos.

Rosneft has a contract to supply 25.2 million tonnes of Urals to PKN Orlen between 2016 and 2019. Rosneft also has a contract with Lotos to supply 2.7 million tonnes of Urals per year till the end of 2017.

Tatneft’s contract is for the supply of 100,000-200,000 tonnes a month of Urals to PKN Orlen and up to 200,000 tonnes to Grupa Lotos.

In June 2016, Rosneft and PKN Orlen signed a contract for the supply of up to 15.8 million tonnes of oil to the Czech Republic, which receives oil through the southern branch of Druzhba oil pipeline, from July 2016 and June 2019.

In late 2015, Surgutneftegaz signed a contract with Mercuria on oil supplies to Poland in 2016, with the volume planned at the 2015 level of about 3.6 million tonnes.

However, lower purchasing prices from Polish refiners forced Mercuria to cancel its only oil contract with Surgutneftegaz in 2016.
COMPETITION INCREASING

Russia intends to fight for its share in the European oil market, said Rosneft head Igor Sechin, with “flexibility and ingenuity”, even if it means increased discounts for Urals.

In Poland, for now, the reverse is happening Saudi Arabia, the world’s largest oil producer, started supplies of crude oil to Poland at the end of September 2015. The volume and range of imported crude grades have only increased since then.

In July, ten tankers were unloaded in Gdansk, including six with oil brands other than Urals, data from the ship tracking system in Reuters terminal showed.

“Since the beginning of summer, there is almost no Urals in Gdansk. PKN Orlen buys Kirkuk and Arab brands, Lotos started working with Iran, not to mention some unusual purchases like African crude or Azeri light,” said a major Russian oil trader, “Urals is going through the pipeline, it has its own economy there, but supplies by sea are almost pointless.”

In recent years, Poland has been actively working to increase energy security and reduce its dependence on Russian oil imports. In April this year, Gdansk’s tank farm capacity, owned by PERN, increased from 300,000 to 677,000 cubic meters. Petroineos, Shell and Total have leased tanks in the port, traders said.

Several sources in the industry said that Poland may use the freed capacity in Gdansk to build up oil stocks.

“They wanted to allocate part of the tanks for a strategic oil reserve,” the source told Reuters.

*Gleb Gorodyankin, Olga Yagova. Alexander Krivov – Reuters

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