Energy crisis: Securing fuel and heating oil: State reaches for Rosneft

It is a far-reaching decision – for the PCK refinery in Schwedt, Brandenburg, but also for millions of consumers at the pump, when flying or when heating: The federal government has placed the German subsidiaries of the Russian state-owned company Rosneft under state control. The Federal Network Agency now also has the final say at PCK.

To date, petrol, diesel, heating oil, kerosene and other products have been produced there from twelve million tons of crude oil every year. PCK supplies Berlin and the northeast. This also indirectly affects the rest of the German market: If production in Schwedt is not running smoothly, this can affect supply and prices.

Now Chancellor Olaf Scholz and Economics Minister Robert Habeck have given the all-clear: With the decision of the federal government, the location is secured. The 1200 jobs would be preserved and the security of supply was guaranteed. Scholz spoke of “good news” and a “decision to protect our country”. Is everything clear now?

1. The initial situation: Russian operator processes Russian oil

PCK – VEB Petrolchemies Kombinat Schwedt in GDR times, hence the abbreviation – has been supplied with Russian oil via the Druzhba pipeline for decades. It previously belonged to a good 54 percent of the Rosneft subsidiaries. He originally wanted to buy the 37.5 percent stake from the co-owner Shell, but this was stopped. When Russia invaded Ukraine at the end of February and the EU decided on an oil embargo against Moscow, the German government faced two problems: PCK was dependent on Russian oil. And a Russian operator was in charge. According to Habeck, he had no interest in turning away from Russian oil.

2. Habeck’s solution sketch

Habeck went to Schwedt in early May and outlined a solution: shipments of non-Russian oil via other routes, federal financial aid, and a possible trust structure. Habeck’s State Secretary Michael Kellner later formulated a location guarantee: PCK would continue to work in 2023 without oil from the Druzhba pipeline. However, it remained unclear whether it would be fully utilized.

According to the Ministry of Economics, initially only 50 to 60 percent of the oil requirement can be covered via the port of Rostock. If parts of the refinery lay idle, not only jobs would be in danger. There would probably be a regional shortage of fuel in the short term. Work has been going on for months to fill the gap. Habeck aimed for tanker oil from the Polish port of Danzig. The problem: Poland has no interest in supplying the Russian state-owned company Rosneft during the war.

3. The state steps in

Habeck spoke early on of a trust solution. This is exactly what is happening now with the trust management for six months. The legal foundations were laid in mid-May in the Energy Security Act. In order to secure the supply, this provides for “the possibility of trusteeship over companies in the critical infrastructure and, as a last resort, the possibility of expropriation”.

The government’s intervention in PCK was nevertheless delicate for the federal government. For a long time it was feared that Russia would cut off gas supplies via the Nord Stream 1 pipeline in retaliation. Moscow did anyway. Then there was concern that Russia would also stop oil supplies immediately, without waiting for the embargo. This danger continues, as Scholz admitted on Friday. “We don’t know what’s going to happen now.”

4. What does the announcement by the federal government mean?

If Russia stops delivering oil to Schwedt overnight, capacity utilization could drop in the short term until a replacement arrives. Scholz and Habeck made every effort to appease. Preparations had long been made for the fact that Russia would no longer deliver for reasons related to the Ukraine war, said the Chancellor. “We have prepared exactly this case.”

For this purpose, the capacity of the existing pipeline from Rostock to Schwedt will be expanded. It is to be expanded quickly to an annual capacity of up to nine million tons per year. That would secure 75 percent utilization of the refinery. However, it will take a while for the federal government to build in the 400 million euros estimated for this.

The second solution is talks with Poland about deliveries via Danzig. These are well advanced, said Habeck. There are probably no firm commitments from Warsaw yet, the minister hinted. But that was not to be expected as long as Rosneft was still in charge of PCK. The federal government also wants to talk to Kazakhstan in order to secure further oil from there via Druzhba.

5. Government encourages employees

The Chancellor’s answer to the question of how busy PCK will be from January remained quite vague: “Actually, we believe that no matter what happens, there is a good chance that there will be a sufficient supply of oil, so that the refinery can work.” Should things change from time to time, an employment guarantee should take effect.

“Nobody has to worry that they won’t be able to pay their home loans, their bills at home or anything else,” said Brandenburg Prime Minister Dietmar Woidke. However, the entry of the state and the switch to new sources of supply will probably demand a lot from the employees in Schwedt one way or another. In the medium term, a change is imminent: Schwedt is to turn away from oil and produce “green” hydrogen.

6. Consumers should continue to be able to refuel and heat

Habeck repeatedly emphasized that the supply of refinery products was guaranteed. The Düsseldorf economist and energy expert Jens Südekum also sees good opportunities for this. The concept presented by the government is not surprising – that’s why it was probably well prepared, Südekum told the German Press Agency. Should it work out with the deliveries via Poland, PCK should probably work at full capacity. From Südekum’s point of view, the economic slowdown is also helping to ensure reliable and affordable supply. The price for western types of oil has recently fallen significantly.