Black ingratitude: Czech Republic switches to Transalpine pipeline supplies
The repaired TAL pipeline will start delivering black gold to the Kralup and Litvinov refineries as early as the second quarter of 2025, and oil exports from Russia to Europe will once again decrease. Izvestia investigated what is the future of the Druzhba oil pipeline and where Russia will sell its surplus oil.
Immediately after sanctions were imposed on Russia, sea transportation of oil was restricted. Supplies to Hungary, the Czech Republic and Slovakia were carried out via the Druzhba pipeline. Hungary was granted the exclusive right to be exempted from the oil embargo against Russia, a privilege it still enjoys. Moreover, in the middle of 2022 Hungarians severely suppressed the so-called gasoline tourism, as gasoline from Russian oil produced by Hungarians turned out to be the cheapest in the European Union, recalled Irina Kezik, head of the Tekface project, expert of the inter-sectoral expert and analytical center of the Union of Oil and Gas Producers of Russia.
- This case shows with all obviousness that none of the EU countries has benefited from the sanctions against Russia. For several years they have been overpaying for more expensive oil, which is traded at a premium to Urals," the expert believes.
Rejection is unlikely
The Czech Republic has decided to diversify its purchases and will receive additional oil from Poland, Igor Yushkov, leading analyst of the National Energy Security Fund, expert and lecturer at the Financial University under the Government of the Russian Federation, believes.
- The Czech Republic's logic is more political than economic. The Czech Republic is home to a refinery owned by PKN Orlen. This Polish company will buy oil for its refineries and pump these volumes to the Czech Republic," he said.
According to the expert, there is no question of a complete ban on pumping Russian oil to Eastern Europe - at least not yet. "To make such a decision, all EU members, including Hungary and Slovakia, must speak out against Russian supplies, which is unlikely," Yushkov said.
Hungary, the Czech Republic and Slovakia as recipients of pipeline oil are more economically stable. Over the past two years, the investment attractiveness of these countries has grown sharply, especially for energy-intensive industries, says Ekaterina Kosareva, managing partner of the analytical agency VMT Consult.
- In particular, the Chinese automobile concern BYD in 2024 decided to open production of electric cars in Hungarian Szeged, the first car will roll off the assembly line this year (investments are estimated at €5 billion). BYD already operates in Hungary, producing buses. German giants of the automotive industry are also heading here: BMW is building a car plant in Debrecen, Chinese and South Korean companies are investing in battery production facilities for electric cars (the largest of them is CATL worth €7.3 billion). This is a positive trend for the Hungarian economy," the analyst gave an example.
According to her, as the production potential increases, the need for energy will grow. "And this means that it is extremely unprofitable for the countries tied to Druzhba to tear up relations with Russia. The growth of supplies is also likely," the expert comments.
Not without problems
There is also an opposite opinion. "An increase in oil supplies to Hungary and Slovakia is unlikely, as Russian oil currently meets almost 100% of the needs of these countries," Vasily Tanurkov, director of the corporate ratings group at ACRA, told Izvestia.
He also does not rule out a complete rejection of Russian oil by increasing the volume of raw materials from Kazakhstan.
- On the scale of the world market, the remaining volume of pipeline supplies of Russian oil to the EU is insignificant. Meanwhile, Europe is getting used to buying oil products from India produced from Russian oil. In 2024, it was India that took 10% of the European market for petroleum products (with a 15% share of diesel fuel). In the top of the largest sellers in the EU is also Turkey, which also actively buys Russian oil and oil products," the expert estimates.
The refusal of supplies from Russia is fraught with a number of problems that need to be solved already now, believes Olga Orlova, head of the "Industry" direction at the Institute of Oil and Gas Technologies.
- Firstly, despite the completion of modernization, certification and obtaining permits in various instances will have to be done. Secondly, the volume of costs incurred by the importing country will increase sharply: it is easier and faster to reach an agreement with one supplier than with ten or more, interruptions, increased operational costs for maintenance, etc. cannot be ruled out. At similar volumes, each refined ton of oil will be more expensive in terms of production costs. Instead of long-term contracts at a stipulated cost, we will have to overpay on spot deals. Thirdly, it is likely that the Czech Republic, which solved the problems with oil supplies on its own, will worsen relations with its neighbors - Hungary and Slovakia, which were positively disposed towards Russia and oil purchases in Russia," she says.
According to the expert, the unpreparedness of the infrastructure to receive different quality oil is also important. "The whole production process is customized for the Russian Urals grade," she continues. - It is necessary either to modernize capacities, which means millions of dollars of investments, or to look for a grade close to Urals".
Are there alternatives
Igor Yushkov said that in case of toughening of sanctions pressure, the blow will fall primarily on European countries.
- If even Hungarian MOL refuses to buy Russian oil at some point, these planned volumes will most likely be redirected to Novorossiysk, as well as Ust-Luga and other ports in the Leningrad region, to then transport them by sea to India and China, which account for up to 90% of Russian oil exports," he said.
On Jan. 10, U.S. sanctions against Russian oil companies, tankers and traders went into effect. Yushkov does not expect huge changes as a result of this: "In the coming weeks there will be some stage of restructuring of schemes of work, delivery and payment for oil".
At the same time, some market participants criticize Russian companies for exporting crude oil and lack of refining. However, according to an analyst from FNEB, these countries import crude oil as they try to provide raw materials for their own refineries. "The sale of refined products is a separate market where Russia excels. Russian diesel fuel is bought by Turkey, Brazil and a number of other countries," he concluded.
According to Irina Kezik, India greatly values the opportunity to buy cheap Russian oil and further resell it to the same EU countries and will not agree to the options that could be offered to it by the international community.
- The consequences of the latest package of sanctions are not as dangerous as is commonly estimated, as they affect one-fifth of the shadow oil tanker fleet, but not more," she added.
In order to reduce dependence on crude oil supplies abroad, it is logical to increase refining in Russia. However, Vasily Tanurkov disagrees with this. "There are a number of limitations: demand, logistical capabilities, legislation. An increase in the depth and volume of oil refining should be coordinated with the growth rate of domestic demand," he believes.
