How will the introduction of the EU embargo affect the Czech Republic?
Not overnight, as Europe has stocked up quite nicely. It was preparing for the embargo and stocked up on Russian products. In the last few months, purchases from Russia have increased compared to the previous period. The embargo is coming now, but when the statistics of imports of Russian fuels to Europe are made for the second half of 2022, there will be a quite respectable figure. Due to the fact that the introduction of the embargo was known in advance, the market was prepared. So it will not be like the games with Russian gas, when it was not known whether Nord Stream would start or not, and then there was panic.
Nothing much will happen during February and, in my opinion, March. The economy, both in the European Union and worldwide, is not doing very well, and the demand for fuel is rather below average. On the other hand, Russian oil will be absent from the market. Inventories will be depleting and in my opinion around the middle of the year this will have an impact on the overall market situation and push prices up.
Russia will not reduce the production of oil products due to the embargo
Now, diesel is sold for 37.67 CZK per liter (since the interview, the price has dropped to 36.94 – note editor). How big is the price increase?
I think the price will go over 40 crowns. However, traders will try to buy everywhere possible in the world, so it will be seen how successful they will be in replenishing stocks and building new business contacts. However, an increase in diesel prices can easily be triggered by an increase in world demand. When the Asian market, which is a big consumer of gas, oil, petroleum products and so on, takes off, diesel will be harder to find on the global market.
It is quite clear that prices will go up. After all, about half of the total imports of petroleum products into the EU came from Russia, mainly to the northeast of Europe.
How long can the increased price last?
Nothing takes years, there are always commercial contracts with producers from other parts of the world. However, it is difficult to predict how long the higher prices will last. But I don’t expect it to be a long-term increase.
And what about refinery production in Europe? Is it possible to expand their capacities?
There are always certain reserves, in power plants or refineries it is not the case that they are used 100 percent. In the liquefied natural gas (LNG) trade, even before the war in Ukraine, the terminals were running at about half capacity, and now they are running at full capacity. All refineries will therefore use their capacity to the full, and thus can increase production a little.
The Czech Republic reduced gas imports from Russia to four percent last year
However, increasing capacity is an investment matter and takes some time.
With LNG, we were pleasantly surprised that the floating terminals were quickly mobilized, while the construction of the fixed terminals continues and will be completed sometime in 2024 or 2025. But I can’t imagine that European refineries could do something similar. Unfortunately, the investment actions there cannot be accelerated so efficiently and I see it rather taking years. I do not believe in a miracle that the capacity of the refineries could be significantly increased this year.
According to some statements, the refineries do not even want to increase capacity, because as a result of the EU Green Deal, they intend to focus in a different direction…
This is a general problem. Europe is unwilling to sign long-term contracts to import LNG, and the same applies to the refining industry. We want to reduce the share of classic fossil fuels, increase the share of biofuels, electromobility, hydrogen. This does not sit well with someone spending billions of dollars in investments to increase the capacity of fossil fuels.
The EU is preparing to ban Russian oil products. There will be enough diesel in the Czech Republic, says the analyst