Germany Takes Control of Rosneft Refining Assets

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Germany has taken control of Rosneft's stakes in three German refineries to safeguard the country's fuel supplies as it plans to stop importing crude oil from Russia in line with an EU embargo that takes effect on Dec. 5.

The ministry of economic affairs said two of the Russian oil giant's German subsidiaries Rosneft Deutschland and RN Refining & Marketing have been placed under "the fiduciary management" of the federal networks agency BNetzA.

As a result of the order, the agency is taking control of Rosneft's stakes in three German refineries — PCK Schwedt (54.17%), Miro (24%) and Bayernoil (28.57%).

The measure — which took effect on Sep. 16 for an initial period of six months — was implemented to safeguard the continued operation of the refineries, the ministry said in a statement.

"Central critical service providers like suppliers, insurance companies, IT firms and banks, but also customers, were no longer willing to work together with Rosneft," its German subsidiaries and the refineries, the ministry said.

Rosneft is one of several Russian state-controlled companies that were targeted for sanctions shortly after Moscow went to war with Ukraine in February.

It is the majority shareholder in the 220,000 barrel per day Schwedt refinery, which up to now has relied primarily on supplies of Russian crude oil from the Druzhba pipeline. The Schwedt plant supplies most of the fuel sold in the Berlin area.

The Russian company also holds substantial minority stakes in the Miro refinery in Karlsruhe — Germany's biggest with a capacity of 310,000 b/d — and the 206,000 b/d Bayernoil plant, which lies to the north of Munich.

"This is a very important step for energy supply in Germany," Chancellor Olaf Scholz told reporters in Berlin on Friday. "We are making ourselves more independent from Russia."

The German government said the move will be accompanied by more than €1 billion in long-term economic support measures for the Schwedt plant and the surrounding region, which lies in the territory of the former East Germany.

Gazprom Precedent

The decision to take control of Rosneft Deutschland mirrors a similar move against Russian gas giant Gazprom's subsidiary Gazprom Germania earlier this year, as relations between Russia and Europe's largest economy deteriorated.

Gazprom recently cut off gas supplies to Germany via the Nord Stream pipeline, pushing up prices and forcing the country's gas importers to scramble after alternative sources of supply.

Scholz said on Friday that Germany would stop buying Russian gas altogether by the end of 2023.

The suspension of Rosneft's control over its refining assets in Germany was described as theft in Russia, although it had been widely expected.

Rosneft issued a statement condemning it as "a violation of basic principles of the market economy ... and of the inviolability of private property." 

Germany had previously indicated that it would halt imports of Russian crude oil by the end of this year, even though the EU embargo exempts imports via the Druzhba pipeline — a concession demanded by some smaller EU member states.

Moscow could respond in several ways, including a court case, halting crude oil supplies immediately — two months before the EU embargo — or nationalizing German assets in Russia.

However, Russia has refrained so far from tit-for-tat expropriations, although President Vladimir Putin did recently issue a decree that prevents foreign companies from selling some assets in the country for the time being.

Among other things the decree has prevented BP from selling its 19.75% stake in Rosneft.

Schwedt's Logistics Problem

Traders said that from a strictly commercial point of view, it would make sense for Rosneft and other Russian producers to keep supplying crude oil to the Schwedt plant and other German refineries as long possible.

However, Moscow could make a political decision to abruptly cut off supplies to Germany — something it has already done with gas supplies to some European countries.

There has already been talk of supplying the Schwedt refinery with crude oil shipped into the Baltic ports of Rostock (Germany) or Gdansk (Poland).

But traders said it would be impossible to replace all of the Russian crude supplied via Druzhba with oil shipped to those two ports, because they do not have sufficient capacity. There are also problems associated with the infrastructure needed to move the oil inland from those ports to the refinery.

Germany has also been talking to Kazakhstan about procuring Kazakh crude for the Schwedt refinery. However, that would require transit through Russia and ultimately may not be acceptable to Berlin.

Rosneft said it would consider all available options for protecting its interests in Germany, including litigation.

It also said that the supply contract with the Schwedt refinery would need to be updated to reflect the new situation in order for deliveries of crude oil to continue.

Meanwhile, Shell — which holds stakes in the Schwedt (37.5%) and Miro (32.25%) refineries — said the German government's move would not affect it much.

"Shell remains unaffected by this order as a shareholder in PCK [Schwedt] and Miro and will continue to comply with its contractual obligations in accordance with its own shares," it said in a statement .

Shell had been poised to sell its stake in the Schwedt refinery to Rosneft, but the transaction was held up by the war in Ukraine. Italy's Eni reportedly wants to sell its 8.5% stake in the plant too.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact >

Ukraine Crisis, Sanctions, Oil Supply, Security Risk , Policy and Regulation, NOCs, Refining, M&A
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