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Thursday October 06, 2022

Refineries’ views on Russian oil import sought

Pakistani banks through which refineries open LCs for import of crude oil are not willing to import the Russian crude oil in the presence of sanctions against Moscow

June 30, 2022
A worker turns a valve at UdmurtNefts Gremikhinskoye oil field east of Izhevsk near the Ural Mountains, Russia, Dec. 7, 2007. Photo: Agencies
A worker turns a valve at UdmurtNeft's Gremikhinskoye oil field east of Izhevsk near the Ural Mountains, Russia, Dec. 7, 2007. Photo: Agencies

 ISLAMABAD: The Russian crude oil is acceptable to Pakistan’s refineries but there are many ifs and buts including the issue of how to import it amid sanctions imposed on Russia in the wake of its invasion of Ukraine. For Russia’s crude oil import, the government needs to enter into GtG (government-to-government) commercial contract with a mode of payment that ensures no impact of economic curbs on Moscow.

“This analysis is from four refineries that include PARCO, Byco, PRL and NRL submitted to the Petroleum Division in response to the government letter written on June 27, 2022 to them for seeking their input till June 28 on five issues. These included payment methodology, technical suitability of crude grade in view of each configuration and yield in terms of percentage of volume, quantity and grade of the subject crude to be required by the refinery, transportation and freight analysis for import from Russia in comparison with normal imports from Middle East based on cost and benefit analysis and existing commitment of upliftment from Arab Gulf region with respect to term contracts,” a senior official at the Petroleum Division told The News.

“The Pak-Arab Refinery says it can utilise 15-30 percent Russian crude oil by blending it with the crude oil it imports from the UAE and Saudi Arabia for refining purposes. Byco says Russian crude oil specifications vary from field to field and most of it is acceptable except Ural crude oil, which has a large percentage of sulphur. In short, most of the Russian crude oil is acceptable.”

The official said the refineries, which were currently facing difficulties in getting their LCs (letters of credit) confirmed by foreign banks, could not import Russian crude. Pakistani commercial banks through which refineries open LCs for import of crude oil from Saudi Arabia and the UAE are not willing to import the Russian crude oil in the presence of sanctions against Russia.

At present, refineries open LCs in dollars which are confirmed by foreign banks and information about every transaction in dollars goes to the New York bank. So for the import of Russian oil, refineries cannot make any transactions amid sanctions against Russia. However, refineries say in case the government manages to import the Russian crude oil under any transaction mode, then they can use the Russian crude oil for producing mogas, diesel, and other petroleum products. “Can the government, which is ready to reenter the IMF programme, avoid the sanctions? This is the biggest question that refineries have no answer to.”

In the past, Byco imported two Russian crude oil cargoes but at that time there was no Russia-Ukraine war and there were no sanctions on Russia. According to official and industry sources, Russia used to sell its crude oil through trading companies such as Trafigura, Vitol and others. The said fuel trading companies used to store the Russian oil in Fujairah. From there, it was purchased. Now under the new scenario, the situation has entirely changed. In the presence of the US, the UK and EU sanctions, the refineries will have to import the crude oil from Russia not through the trading companies and this is how the insurance and freight charges for importing crude directly from Russian ports will also matter in the landed cost of Russian product.

According to industrial sources, China is the biggest importer of Russian crude oil and then comes India. India has been using the Russian crude oil for many decades. Under the scenario, it is importing the crude either under the Indian Rupee-Ruble transaction arrangement or a barter deal.

China and Russia are trading in their own currencies. The US and other big western economies have protested against India. However, India rejected their plea saying its economy heavily depends upon fuel from Russia. They said that it is India that also managed to get a waiver from the US sanctions on Tehran for importing fuel from Iran. Since the economic muscle of India is very strong as its reserves stand at $650 billion and is a lucrative market for Russia, the US and EU countries cannot afford to annoy India.

However, Pakistan, they said, is aspiring to be in the IMF programme with only $10 billion in reserves and massive unsustainable external loans. They said that in case Pakistan imports Russian oil, it may face the wrath of the US. The US may influence Saudi Arabia to cut oil facilities Pakistan is presently getting. They also suggested that for importing the Russian oil, the government should also take a nod from the IMF.

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