Russia: the Schwedt refinery, an economic battleground

Berlin announced on Friday the confidence in the German subsidiary of the Russian giant Rosneft. Behind this decision, the battle for Germany’s energy independence is being played out. In this conflict, the Schwedt refinery, in the east of the country, played an important role.

Germany continues to gradually cut energy bridges with Russia. The government announced on Friday, September 16, the trust in Rosneft Deutschland, the German arm of the Russian oil giant. A decision that marks the acquisition of one of the high places of the economic presence of Russia in Germany.

This measure “contradicts the imminent threat to the security of energy supply”, said Berlin. The German subsidiary of Rosneft manages three sites in Germany that represent 12% of the national oil refining capacity. Located in Schwedt, between Berlin and the Polish border, in Karlsruhe, in the southwest, and in Vohburg, in Bavaria, these refineries will be placed under the “trustee administration” of the national energy network agency for at least six. months.

The lights of Berlin

Berlin fears that Moscow will use oil as a weapon, like gas. Gazprom decided at the beginning of September to close the tap of the Nord Stream 1 gas pipeline for an indefinite period. In the context of the war in Ukraine and Western sanctions against Russia, “it is difficult to allow a Russian group to manage such important energy installations for Germany”, summarizes Detlef Stolten, director of research center on energy questions in Jülich, western Germany.

The Rosneft Deutschland trust is about a race against time to find alternatives to Russian hydrocarbons. In April 2022, the government took control of the German subsidiary of Gazprom. In July, the authorities launched a major construction project for a port terminal for the import of liquefied natural gas (LNG) in Wilhelmshaven to partially compensate for the suspension of the import of Russian gas. Finally, in August, Chancellor Olaf Scholz took advantage of a state visit to Canada to sign hydrogen import agreements that will diversify the German energy mix.

But the management of Rosneft’s German activities is more important. It has been in the works for months and is at the top of the German government’s priorities because of one particular site: that of Schwedt.

This giant refinery in the Land (German administrative region) of Brandenburg keeps the lights on in Berlin and the entire northeast of the country, while supplying energy to all industries in this part of the territory.

“We moved Berlin and Brandenburg”, do we read in Rosneft Deutschland’s advertising brochures. “This is a little grandiloquent but not completely false”, lamented the German daily Süddeutsche Zeitung.

Without the oil from Schwedt, Berlin’s airport would not be able to continue operating, there would be no fuel at the gas stations in the region, and all the construction industry in northern Germany – mostly building roads – would be almost that can be stopped.

Who will replace Russian oil?

The Schwedt refinery is controlled by a Russian group and receives only Russian oil. More specifically, this site is one of the main destinations for the black gold that passes through the Druzhba pipeline (Friendship pipeline in Russian), the longest oil pipeline in the world that runs 4,000 km from the southeast Russia to northern Germany.

And Berlin no longer wants to hear about Russian oil… from January 1, 2023, according to a law passed in July. The Schwedt refinery thus single-handedly crystallizes all economic, geopolitical and even technological problems to find alternatives to Russian hydrocarbons.

First of all, the Schwedt site was built to “receive and process Russian oil, with its specifications”, Detlef Stolten pointed out. It is impossible, for example, to transfer Norwegian oil overnight. “We have to do the development work, which will take time and cost money”, the German expert acknowledges.

Then, Germany will have to find an alternative supplier in Russia. Berlin has been searching for the rare pearl since May. Rosneft offers to bring oil from Kazakhstan, pointed out the Mitteldeutsche Zeitung, a regional daily in the Land of Saxony-Anhalt. But Berlin prefers to return to countries that are not so close to Moscow.

The German government knocked on the door of Poland this summer, asking Warsaw to send it oil imported from the port of Gdańsk. But the Polish government has no desire to be a supplier to a site run by a Russian group. “Germany is clearly paying the price for allowing Russian companies to manage our energy supply,” agreed Detlef Stolten.

According to the calculations of the German trade union Fuels und Energie “it is not possible to completely replace the oil transported by pipeline”, pointed out the Süddeutsche Zeitung. It is necessary, not only to increase imports, but also to transport oil by train and tanker from southern Germany, which has a surplus.

A big mess that can be expensive. “About 6,000 tankers per day will replace the oil transported daily through the Druzhba pipeline. Even if Germany has the capacity to mobilize such a fleet, it will be very expensive to deploy,” said Süddeutsche Zeitung.

The Ghost of the West German Opposition, East Germany

In any case, “doing without Russian hydrocarbons – which are not expensive – will increase the bill for the State and the population”, recognized Detlef Stolten. But in the east of the country, some voices believe that the cost of this transition is not distributed fairly. “The Russian oil embargo was decided by West German politicians without considering the fact that it is the eastern regions, which are more dependent on Russian oil, that will pay for the increase in the invoice price”, complained on Twitter Sören Pellmannrepresentative of the Eastern Länder of the radical left party Die Linke.

The acquisition of Rosneft Deutschland by the State will also weigh on public finances. The government did not detail the cost of this operation, but the trusteeship of Gazprom Germania should cost between 5 and 10 billion dollars, and Berlin is also considering the nationalization of Uniper, one of the largest gas operators in Germany, which is in brink of bankruptcy. because of the Russian gas embargo. An operation that, again, should cost several tens of billions of euros.

“This is the cost of the trade conflict that Russia has waged against us,” said Detlef Stolten. For him, Berlin’s takeover of the Schwedt refinery illustrates that since the beginning of Russia’s invasion of Ukraine, there has been a military war on the ground, but also – less visible – an economic war. But, for him, if Germany does not pay the price of this freedom, “the long-term costs will be higher because Vladimir Putin will always be able to doubt the security of energy supplies”.

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