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January 14, 2020

Volume 3 Issue 7

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Belarus Halts Exports of Base Oils, Lubes

Belarus halted exports of base oils and finished lubricants this month in an effort to mitigate a potential energy crisis after Russia cut off crude oil deliveries to the country.

The government in Minsk is trying to minimize the local impacts after Moscow halted crude deliveries beginning Jan. 1. The two sides have not yet agreed to renewed contracts for Russia’s crude exports to Belarus. Russia has said it will raise prices if Belarus does not agree to closer economic integration.

Belarusian state-owned oil company Belneftekhim said exports of what the country classifies as chemicals, including base oils and lubes, were halted as of Jan. 1.

“Deliveries have been suspended .... Plants are reducing their workload to the technical minimum,” a spokesperson for Belneftekhim said.

One trading source told Lube Report that some spot volumes in January have been secured, but he expressed skepticism that regular supplies will resume soon.

Russia agreed to send about 900,000 tons of crude oil to Naftan to continue some operations for January. However, that amount is insufficient to cover normal levels of production. “That means that oil products output, including base oils, can be [reduced by half],” said Denis Varaksin, manager at DYM Resources, a Berlin-based base oil trader.

Naftan’s refinery in Novopolotsk has capacity to produce 198,000 tons per year of API Group I base oil and a minuscule amount of Group III base oil.

JSC Mozyr Oil Refinery is also state-owned and produces fuels but no base oils. Varaksin said the timing would be poor for any impact on base oils because the market recently began to pick up after demand was sluggish for most of 2019.

Belarus obtains more than 80 percent of its crude oil consumption from Russia but has not yet agreed to a contract for 2020. Russia said it will raise prices after failing to get Belarus to agree to greater economic and political integration. Belarusian President Alexander Lukashenko rejects the idea of political union with Moscow but has balked at the price increase because it would probably lead to hikes in prices for oil products in Belarus.

A halt to Russian crude deliveries is equally unpalatable because it could lead to domestic shortages of refined products. Lukashenko’s government is hoping that halting the country’s own exports could leave more oil products for its own market..

The two countries have had numerous spats over the years over oil and gas contracts.

“This situation could not in any way harm Russia,” said Oleg Tsvetkov, chief specialist at Topchiev Institute of Petrochemical Synthesis of the Russian Academy of Science. “We do not use Belarus base oils, while the additives made in LLK-Naftan are not affected because this company could still operate without Lukoil’s support.”

LLK-Naftan is a Russo-Belarusian lubricant additive production joint venture based in Novopolotsk.

Tsvetkov predicted that Belarus could not hold on too long and may agree on some Russian demands as it total energy needs are dependable on Russian supplies, while diverting the energy sources from Europe for example, would be not possible even in longer terms.

“This is a winter aggravation, and it could not last too long, maybe until March,” Tsvetkov said, adding that resolutions to previous spats were mutually beneficial.

ITAR-TASS News Agency/Alamy

A monument depicting an oil pipeline in the Gomel region of Belarus. Russia halted oil supplies to Belarus at the start of the new year, with Belarus in turn halting lubricant exports out of the country.