Thanks again to reader vao who has been diligently following the sorry tale of how sanctions are hindering the operations of the Rosneft refinery in Schwedt, which provides a meaningful portion of total German refining capacity. His impressively detailed update yesterday includes a discussion of the legal row between Rosneft and the German government over the latter’s efforts to execute a non-expopriation expropriation:
I had previously reported on the difficulties piling up on the Rosneft refinery in Schwedt. It is time for an update — it is a bit long, and references are in German, sorry.
1. The refinery can process 11.5 M tonnes crude per year, which till the end of 2022 it received from Russia via the Druzhba pipeline. For technical reasons, it cannot operate below 50% capacity, and must ensure at least a 70% load for medium-term viability. It was placed under fiduciary administration by the Bundesnetzagentur in September 2022.
As the EU embargo came into effect in January 2023, Germany decided to stop buying crude from Russia entirely. Finding substitutes has proven challenging, with none of the three solutions being sufficient by itself: oil unloaded from tankers in Rostock and then delivered via a pipeline to Schwedt; from tankers to Gdansk and then via another pipeline; Kazakh oil transferred through the network of Soviet-era pipelines with Druzhba as the last leg.
The pain is completely self-inflicted:
1.a) The EU oil embargo does not apply to Russian oil delivered via pipelines. This explains why the Slovaks, Hungarians and Czechs continue receiving oil through the Southern branch of the Druzhba pipeline.
1.b) It is not a matter of price either: the EU price cap on Russian oil only affects seaborne deliveries.
1.c) The fact that Rosneft was a sanctioned entity right from the start is also no issue, as the EU carefully crafted specific exemptions to allow payment for oil deliveries.
1.d) The most recent EU package lengthened the list of sanctioned Russian financial institutions; this may make payments more cumbersome, but not impossible.
2. Currently, Schwedt is supplied at a rate equivalent to 6 Mt/y — just above the minimum required. Most crude is delivered via Rostock; capacity is limited both by the 54-year old pipeline and by the restricted facilities of the Rostock harbour. Germany has a plan to overhaul the pipeline and upgrade the port so that they will be able to fulfil 70%-75%of the needs — but the new infrastructure will only be ready in two years.
The Kazakh alternative is promising: the initial discussions revolved around deliveries of 5-6 Mt/y, with the Kazakhs being ready to send up to 7 Mt/y. Transneft, the Russian pipeline operator, officially agreed to the utilization of its infrastructure. The ramp-up takes time though: a first test delivery of 20000 t took place in February, with another of 100000 t taking place in March. There is also opposition to the deal (including from German trade unions), because it maintains the dependency on Russian infrastructure managed by Transneft, a sanctioned entity.
The Polish route has proven unsatisfactory. Poland has not yet committed to precise figures for oil deliveries; it also blocks them as long as Rosneft remains officially owner of the Schwedt refinery. So far, the crude of just two tankerswas unloaded in Gdansk and forwarded to Schwedt — and this was possible because their cargo had been bought by Shell, a minority partner in the Schwedt refinery.
3. The fastest way to ensure sufficient provisioning of Schwedt would be to bow to the demands of Poland and expropriate Rosneft. This is easier said than done.
3.a) The Bundesnetzagentur is entitled to sell assets in order to maintain the viability of the refinery. However, the point is not to, say, divest a bit of real estate, or dispose of part of a vehicle fleet, but to transfer the entirety of the refinery as an on-going concern to another party. A trustee is not allowed to do this.
3.b) Nationalization is the obvious solution — but it would require a proper appraisal of the refinery and a corresponding compensation for Rosneft. The expropriation process takes long and is fraught with legal stumbling blocks (what if Rosneft contests the evaluation?) Besides, I suspect that the very ordoliberal Germans are put off by the idea of State-owned enterprises.
3.c) Letting the Land of Brandenburg become shareholder of the refinery, as proposed by “Die Linke”, was categorically rejectedby its parliament and government, which consider the scheme “too risky”, taxpayers being potentially on the hook for unforeseen costs. This attitude does not show much confidence in the future of the refinery, and this is no surprise: 9 months ago, regional authorities urged the German government to diligence and there is considerable discontent about how things have been handled. Representatives in the regional parliament decried the actions of the German ministry of economy as a “bad cabaret show”, marred by “confusion” and “dilettantism”.
3.d) In the end, the German government resorted to tweaking the lawso as to allow the direct sale of shares in a firm under fiduciary administration, without a formal expropriation procedure.
Rosneft did not take this move lying down. It sued the German government, demanding back the full control of the refinery on the following grounds:
3.e) The refinery was placed under fiduciary administration without Rosneft being granted a proper hearing.
3.f) The legal conditions for a fiduciary administration are not met anyway. As there is no legal basis to embargo Russian oil via the Druzhba pipeline, the supply of the refinery could continue unimpeded as before. The existence of the refinery is therefore not at risk. In any case, Rosneft had already declared its readiness to operate the refinery with crude from a provenance other than Russia. As for the difficulties with hesitant subcontractors and financial partners during the first half of 2022, they were being brought under control.
3.g) The suspicion of the German government that Rosneft would siphon off equity from the refinery, thus endangering its future, is unfounded. Even if Rosneft did it, this would be of no consequence given the unprecedented profits the refinery is generating. Truly, in 2022, thanks to the high prices of oil products and the favourable cost of Russian oil acquired under long-term contracts, the Schwedt refinery booked € 1B in profits — a multiple of its yearly income in the past. Notice that as long as the fiduciary administration lasts, these profits are placed under escrow; nobody can access them.
Today (14th March), after spending four days hearing the arguments of the parties and the testimonies of witnesses, a tribunal in Leipzig rejected Rosneft’s complaintand confirmed the legality of the fiduciary administration, which will be probably extended beyond the 15th March. Now, Poland will again insist on expropriating Rosneft and granting a participation in Schwedt to the Polish oil firm Orlen.
4. On top of procurement and legal entanglements, there are thorny technical issues: the refinery is specifically designed to process Russian oil, but the crude it has been receiving since January, whether via Rostock or Gdansk, exhibits markedly different characteristics — with serious consequences.
4.a) The refinery used to produce 90% of the diesel, petrol, and heating fuel, as well as 80% of the jet fuel consumed in the Land of Brandenburg and the Land of Berlin. It is now unable to yield the required quantities, because intermediate products necessary for the diesel and gasoline production plant cannot be adequately generated out of non-Russian oil.
4.b) The Schwedt refinery was the source for one third of the bitumenproduced in Germany; under the current circumstances, it cannot generate any. Left unaddressed, the resulting shortage will render road construction and upkeepin the Eastern part of Germany significantly costlier.
4.c) The refinery burns residual fuel oil for its power, heat and steam needs — but is struggling to generate enough of it with the current crude qualities.
4.d) Finally, controlling emissions has become more difficult — again, because the refinery is configured to process crude with very different chemical properties.
None of this should come as a surprise: last year, the management of the refinery had already warned the authorities about the unavoidable trouble should crude not satisfy the specifications for refining in Schwedt.
Not only does the refinery currently operate barely above the minimum capacity, it operates very poorly at that. The (Green) officials at the German ministry of economy would initially not allow the director of the refinery to report on those problems in an expert meeting; they relented after an intervention by members of the party “die Linke”.
Oil from Kazakhstan would really help, since its characteristics are closer to Russian oil. Unfortunately, Poland is itching to sanction the Druzhba pipeline — now that Tatneft (an unsanctioned Russian entity that replaced Rosneft as supplier since the beginning of the year) interrupted oil deliveriesto Poland via Druzhba, reportedly because of a dispute regarding payment (according to the Russians), as political retaliation for the new EU sanctions package (according the the Poles).
Meanwhile, discussions started regarding the “grüne Transformation”, i.e. converting the Schwedt refinery into a hydrogen fuel plant. An explanation of how this has anything to do with decarbonisation and sustainability would be welcome.
Leuna (owned by Total-Energies) is another refinery on former GDR territory, located at the end of the Druzhba pipeline and designed to process Russian oil. It managed to fully switch to crude from Norway and the Near East in late 2022 after a lengthy and costly reconfiguration. However, it struggles to maintain a minimum workload, because it is not receiving enough oilvia the Gdansk route, the only one available…
Two refineries where Rosneft is a minority (albeit substantial) shareholder, Vohburg (Bavaria) and Karlsruhe (Baden-Württemberg) do not face such technical and commercial difficulties. They handle a mix of crudes from the Persian Gulf, Africa, Russia and Venezuela, delivered via the Transalpine Pipeline (from Trieste in Italy), and, for Karlsruhe, the Southern-European Pipeline (from Fos-sur-Mer in France) too. The participations of Rosneft were of course placed under fiduciary administration. Interestingly, Rosneft also has a participation in the Transalpine Pipeline since 2017.
Finally, further refineries owned by Lukoil are causing headaches in Bulgaria and Italy because of EU sanctions, as I reportedbefore.
It almost seems as if European politicians are intent on plunging their countries into scarcity by turning vital energy infrastructure into stranded assets.
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I believe it was the Grayzone that had a piece about the transformation of the German Green party into a group of raving lunatics, it was eye-opening to say the least.
These kind of deep dives into ‘how the world works’ really shows that the collective West really is just making it up as they go along. I’m not sure how any rational person could have confidence in Western policy-creation when this is the kind of detail that needs to be considered before ‘big’ stuff happens.
One of the possible translations for the word “Establishment” in German is “die Anstalt”. Which in common parlance usually means “asylum”. Just sayin’.
What I am able to grasp: Germany and the collective West defend their rules-based order by breaking themselves the rules. Is this correct?
Not necessarily. After all, there are several meanings to the word “rule”, and it seems that the collective West only cares about acception 3.a according to Merriam-Webster:
rule: 3 a) the exercise of authority or control : dominion.
Very good. So when somebody says “I am defending the rules” this person can be indeed meaning to say “I am the boss here” but not wanting to be heard saying so.
I like this a lot. It feels like the last piece of a puzzle I have been struggling with.
For all the talk of a a “rules-based order”, no one seems to be good at (or even concerned with the need for) explaining what the rules are. We already have, however flawed, international law-based order. The consistency in the use of the term “rules-based order” indicates that it is not that, and meant to be different from that (in some (intentionally?) hazy, unspecified manner).
The problem I had was the interpretation of the word “rules” in that phrase from the most common definition, such as “The rules of Monopoly state that, unless otherwise indicated, you collect $200 when you pass Go” as opposed to the alternate definition of “The king rules over everyone and every thing is his domain”.
I will now consistently transpose the word “dominion” for “rules” in that statement whenever I read or hear or write or say it.
Alternatively stated: The rules are unimportant. The only thing you need to concern yourself with is that it is I who rules.
Take “rules-based order” as a branding exercise, a piece of PR. Parsing something so shallow is not going to get too many returns.
The phrase holds out the prospect that the old term stability had, before the US destabilized the world with the Terror War. Regularity is hinted at by the use of rules-based, to acquire some of the glow of international law, without the pesky war crimes charges that annoy those imposing the order. That’s it, that is all there is to it — it is just a noise they make while they take control.
The “rules-based order” is much worse (!) than a mere PR exercise. It is out right, in your face, shameless, lying. I truly wish that this was not happening in my world. But, here we are……
An off the cuff example of the Modus Operandi;
“EcoHealth (lie) Alliance (lie) is a US-based non-governmental organization with a stated mission of protecting people, animals, and the environment from emerging infectious diseases. (lie, lie. lie………)
https://en.m.wikipedia.org/wiki/EcoHealth_Alliance
The rules of Monopoly, as in every other game and sport, are somewhere written down, authoritative, agreed-upon and accessible. Can someone enlighten me as to where the rules of the ‘rules-based order’ are written down, authoritative, agreed upon and accessible?
Ye gads – a most useful acceptance of even the bodged Brexit we have in the UK.
As the saying goes ‘ with friends like these’ 😏
I don’t see it that way. It is that the rules can simply be changed at a moment’s notice.
Ursula Le Guin’s Wizard of Earth Sea series had a saying, “Rules change in the reaches.” I take that to mean that some unseen power exercises whimsy.
The ‘rules’ are only a means to an end – or perhaps two ends: a) to provide an excuse for beating a non-western country over the head, and b) to provide cover for taking any particular course of action desired by the west, although really, b) incorporates a).
As Ben Norton is wont to observe, the “rules based order” is one where the US makes up the rules and orders everyone around.
Exactly. Really, only one rule is needed – “Do as we say not as we do”.
That pretty much covers all of the bases.
Now what does that remind me of? Just as well that the US don’t have Sauron technology yet, but don’t buy any rings from the US Gov. :-)
I suppose that the assumption was that when the Sanctions from Hell collapsed the Russian Federation and that the US/EU would be able to move in to take up control of Russia’s “patrimony”, that any supply problems for Rosneft refinery would only be temporary. Months at most with oil being sourced from elsewhere to help them over the bumps. And when it was all said and done, they would enjoy a solid flow of oil at a much discounted price as they would basically own it. Well that idea did not work out and by the sounds of this excellent post, Rosneft refinery has been scrambling for solutions ever since. Certainly I do not think that they would have taken into account Poland being a spoiler to some of those plans for no other motive but to put the boot into Germany.
Yeah, with friends like these (Poland complicating their oil refining needs; the US/Norway blowing up Nord Stream), who needs enemies? Plenty in your own back yard….
Now that electric vehicles reduce the need for oil products in Europe, I hope that they are configured to tolerate potholes caused by the shortage of bitumen (filled with loose gravel when large?). Eventually, neither gasoline, nor diesel nor bitumen will be needed.
That gravel must be mined, processed, and transported from somewhere. Doing that requires fuel of some kind to run the excavators, sieves, pumps, crushers, loaders, conveyors, trucks, trains, etc.
Unlike voluminous pavement, gravel isn’t waterproof and water infiltration into a pavement is what causes potholes.
“11.5 M tonnes crude per year” means nothing to me. I tried to convert this quantity to something that has meaning, namely gigawatts, which is roughly a power plant. Here I read that 1 metric tons of crude is about 7 barrels. The US Energy Information Agency tells me that 1 barrel of crude is worth 6 gigajoules. Therefore, 11.5 M tonnes crude per year corresponds to about 15 gigawatts.
The Sacred Muses only know how many zeros I’ve dropped. If none, I may know something, because I can compare “11.5 M tonnes crude per year” to the German power consumption, 600 gigawatts (?), US power consumption, which is about 3,500 gigawatt, or the global one which is 20,000 gigawatt.
Without a sane (Standard International) unit of power, I cannot a real grip on anything. Is that just me?
The energy yield of crude oil varies with the type and grade. Heavy crude is more energy dense than lighter grades, so for this refinery the original grade oil (that fractionates into bitumen, fuel oil, diesel) is more energy dense than the current oil (gasoline, benzene).
Well done, Peter. I applaud your efforts to scale, and make more tangible, the amount of energy that our current design of an economy uses.
Please take it to the next logical step, and analyze where the energy is being used. Here in the U.S., transport and HVAC use the most, and are – conveniently – the most amenable to design changes in how much energy we use, and for what.
Transport and HVAC are incredibly wasteful of energy; they leak like sieves. Design changes – what we transport, how we transport, how often we transport…..and for HVAC, how we insulate, how we design a building to collect and store solar energy…how we design the building envelope to reduce wind-caused heat loss…these are neither complex nor terribly difficult to implement.
Our transport and building systems turn over (get junked or major upgrades / make-overs) every 20 (transport) and 50 (buildings) years.
Thanks, Tom! The work for the next step is done every year by Lawrence Livermore Lab; follow this link. Why they express the usage in in Quads per year I don’t know. They may be stupid or evil; the devil may know.
Fortunately, the total is close to 100 Quad per year, which means that you can read all the numbers in the flow diagram as if they are percentages. I guess that within the error bars, which if course are nowhere to be found, that’s OK. 100 Quad per year is about 3,400 gigawatt. I wrote 3,500 gigawatt for the U.S. because only orders of magnitude are relevant for our understanding.
Notice the enormous amount of rejected energy about two thirds. That’s basically the second law of thermodynamics which says that things like internal combustion engines cannot do work without rejecting heat. Renewable energy will reduce the waste considerably. Don’t ask by how much …; I have no clue.
It always trips me up that oil is talked about in terms of tonnes and barrels rather than say liters. But then it seems that when it comes to certain products, old customs never quite die. Just watch how gold is still talked about in terms of troy ounces.
Seems to me Russia still has plenty of arrows in the quiver regarding its supply of energy and other critical resources to Europe, should it decide to use them. After the West’s sanctions and asset seizures, high seas piracy of seizing Russian oligarchs yachts, and the Nordstream sabotage, not to mention its undisguised intention of regime change, Putin has been eerily patient and calm. I can’t imagine this will last.
“Nationalization is the obvious solution — but it would require a proper appraisal of the refinery and a corresponding compensation for Rosneft. The expropriation process takes long and is fraught with legal stumbling blocks (what if Rosneft contests the evaluation?) Besides, I suspect that the very ordoliberal Germans are put off by the idea of State-owned enterprises….”
In one sense, it is the obvious solution.
But I also think about the Green Party’s hold on their govt and previous discussions I’ve seen on NC regarding that party’s cluelessness about many energy matters.
Bayer shutdown is related. Heavy oils provide the building blocks for many pharmaceutical, agriculture, electronics, and other high-end organic compounds. Expect shortages of same to become much worse, and of course for food production, electronics and other downstream.
#vao,
Great piece as always.
Could you please throw some light on German politics. Have you guys already reached the UniParty nirvana.
Or can the “troublemakers” like AfD still stir any trouble? I liked AfD, they seemed to make sense but have kinda disappeared lately.
Genuine question and a kind request.
Posting from U.K. Earlier today we had the pantomime of one very rich guy from This party saying he will save everyone some money with his brand new spanking Budget, and another even richer guy from That party saying it’s not good, or maybe he said it was too good, or maybe not diverse enough…don’t know, the translation subtitles fell off to make space for adverts. Gotta make sure the punters can choose best second hand cars selling outfits.
I am not following German politics closely.
With the war in Ukraine, parties in the government and in the opposition are seemingly united regarding policies (diplomatic attitude with respect to Russia, massive increase in weapons procurement for the Bundeswehr, primacy of NATO and weaponry from the USA rather than European projects for armament and common defense, massive investments in LNG, etc).
Divergences persist, though. In particular, the FDP keeps throwing spanners in the wheels: increasing the budget for the Bundeswehr, yes — but the State deficit must not increase. Abandoning fossil fuels from Russia, yes — but no restrictions on fossil fuel usage, no limits to road construction, and no ban on ICE in favour of EV. They are a bit like some of the British Tories or US Conservatives: less taxes, no budget deficit, less regulation, no pesky laws for nature protection, etc. They do not represent the industry though: the head of a corporation will rather vote CDU/CSU, but his dentist might vote FDP. As a matter of fact, the FDP was always considered an insufferable bunch by the CDU/CSU, SPD and die Grünen, and it is member of coalitions only when nothing else works.
Die Linke has drifted away from (some of) its roots as a working class party and is now increasingly riding on societal, identity, minorities issues. Because Russia is perceived as imperialistic, being anti-Russia is being anti-imperialistic, and hence left-wing, and therefore die Linke is largely anti-Russia. Sahra Wagenknecht was always very critical of the bellicose, russophobic frenzy, of the blinkers regarding NATO imperialism, and of the most exarcebated minority / identity ideology; she is now shunned by most of her party colleagues — and she has decided no longer to be a candidate for “die Linke” in the next elections.
Die Grünen have become rabid war mongers, ride roughshod over every nature conservancy and landscape protection law just to avoid Russian fossil fuels, and exhibit a pathological russophobia. Thus, Antje Vollmer, an important historical personality in the party, just died, increasingly dismayed because of the abandonment of pacifism by her party since the war in Yugoslavia, and distraught by its current ideological bend.
The SPD and the CDU/CSU are exhausted and haemorrhaging members. The SPD for having spend the last 25 years implementing a neo-liberal economic and social policy (sometimes in coalition with the CDU/CSU). The CDU/CSU for the long period of stagnation, absence of initiative and failed emergence of new figures under the Merkel governments.
I cannot say anything about the AfD, I just do not understand where it is headed to.
Thank you vao, this was very informative.
Much appreciated.
As I mention, we have a well developed UniParty in U.K., neoliberal neo-colonial racially enhanced set of people who have taken control of absolutely all levers of power and mind control.
I wonder if any of the co-commentators from France and Italy and so on could chip in
“Could chip in with their local experiences”.
The last bit fell off.
Thanks for the excellent update. Shoot in foot springs to mind.
Shot in the foot? It is starting to look as if they were aiming for their collective head, but somehow missed, hit their foot, and are now reloading.
FWIW the “tribunal in Leipzig” is not some obscure provincial court but the Bundesverwaltungsgericht: the highest court for administrative cases involving the German government. It is one of the grandest buildings in all Germany.
Damn, I forgot that one when rewriting one of the paragraphs. My fault.
Cannot prove it but my current view is that the West is being deliberately taken down by its own elites using first a pandemic and now a military confrontation (and soon a financial crisis?) as cover. The result will be some sort of One World CBDC linked system making most common law sovereignty-based polities obsolete. Accurate or not, when viewed through this lens, most of what is now unfolding kinda sorta makes sense.