Belarusian Oil Market to Become a Battlefield for Russian Companies Soon it will become clear, who is going to get the best piece of the pie

By Vladimir Shlychkov, November 18, 2013

Until recently, the situation with the supply of Russian crude oil to Belarusian refineries has been developing quite predictably. Certain problems in relations between the partners emerged solely in terms of coordinating the quarterly supplies and the annual balance. Minsk asked for more (23 million tons for 2013), and Moscow expectedly offered to provide less – 18,5 million tons.

Uralkali as a Catalyst of the Process

Everything changed suddenly, and notably the wind of change started to blow from where it was expected the least. On Aug. 26, Uralkali general director Vladislav Baumgertner was arrested in Minsk. Two days later, Transneft unexpectedly announced plans to carry out repair works at the Druzhba pipeline in September. The company’s representatives reported, that the repair works will lead to the reduction of oil supply agreed for September by 400,000 tons, and offered oil companies to redirect this volume for export via terminals in Ust-Luga, Primorsk or Novorossiysk.

Nevertheless, a number of Russian officials including Deputy Prime Minister Arkady Dvorkovich predictably announced that no political background should be seen in such extraordinary course of events. Many commentators agreed that the oil refining industry, which is crucial for the Belarusian economy, faced serious problems, which could only be solved by Minsk's immediate backtracking on its stance on the so-called “potash scandal.”

However, Minsk turned out to have an ace up its sleeve in Russia. On Sept. 11, Igor Sechin conducted negotiations with Belarus President Alexander Lukashenko and Belneftekhim Chairman Igor Zhilin. In the course of negotiations the head of the Russian oil giant confirmed, that his company would fulfil its contractual obligations regarding oil supply to Belarus. Moreover, Sechin offered to make Rosneft the sole supplier of crude to its Western neighbor, and award it with the status of “special importer.” Lukashenko welcomed the initiative ordered his government to study the proposal.

Meanwhile, the hypothetical scenario could not but raise concerns among other market players. For instance, LUKOIL President Vagit Alekperov made a stand against this idea on Sept. 27. “I believe, that equal access of all market players should be retained. It made it possible for Belarus to maintain balance and make arrangements with various suppliers… Today there is a law stipulating the access of all legal entities to the pipeline network of the Russian Federation,” he announced on the sidelines of the Sochi 2013 investment forum. Belarusian oil refining industry is immensely attractive for Russian companies, so the competition for leadership in this sector is going to be extremely rough.

Market Players in Belarus

At present, eight Russian companies supply crude oil to Belarus. Rosneft has the strongest position, being the major supplier (including the former TNK-BP's share).  In May, Sechin claimed that his company accounted for approximately half of oil processed at Belarusian refineries.

Besides, it owns 42.58 percent of shares of Mozyr Oil Refinery (via Slavneft – a common asset with Gazprom Neft) and more than 40 fuel filling stations. This is the only company that cooperates with two refineries at