Belarus’ Energy: moving from politics to economics
Pyrrhic victory in the three-month war with Russia for oil prices
On April 8th, 2020 Press Club Belarus, the website of Belarus’ expert community of Our Opinion and the Belarusian Institute for Strategic Studies (BISS) held a regular meeting of the Expert and Analytical Club to discuss Belarus’ energy system.
The main speakers were experts and analysts from four countries:
- Tatsiana Manionak - an economic observer who specializes in energy and petrochemical industry;
- Alexander Chubrik – Kastry?nicki Economic Forum’s Academic Director, Director of the IPM Research Center;
- Kamil Klysinski - a senior analyst at the Center for Eastern Studies (Poland);
- Gennady Ryabtsev - Doctor of Sciences, Professor, Director of Special Projects of Psychea Scientific-Technical Center (Ukraine);
- Vytis Jurkonis - lecturer at the Institute of International Relations and Political Sciences of the Vilnius University, head of Freedom House’s Lithuanian office;
- Vladimir Rak - Interaction Foundation, Center for Environmental Solutions, energy specialist.
Besides, the representatives of the diplomatic corps, analysts, and journalists participated in the meeting of the expert and analytical club: Siarhei Chaly, Valer Karbalevich, Ryhor Astapenia, Artyom Shraibman, and others.
The discussion was moderated by Vadim Mojeiko (BISS), Valeria Kostyugova (Our opinion), and Anton Ruliou (Belarus in Focus).
The participants have discussed the following questions: 1) What is the situation with oil and gas now for Belarus after three months of negotiations with Russia? 2) What are the prospects for the alternative routes of oil supply to Belarus via the Baltic and Black Seas? Are there any real prospects for the statements by US Secretary of State Mike Pompeo on the possible supply of 100% of oil Belarus needs from the United States? 3) How will the launch of the Astraviec NPP and the development of renewable energy affect Belarus’ energy market? 4) What are the implications of all this for the Belarusian economy?
There is no clarity on oil, and it would be better if there was no clarity on gas
‘Belarus’ three-month fierce struggle for the supply of oil without a premium is close to its end,’ says Tatsiana Manionak. However, it is doubtful whether this can be considered a victory, as the external factors such as the world crisis, coronavirus pandemics, OPEC+ deal breakdown followed by a fall of oil prices played a major role here.
The price of oil declared by the Belarusian authorities – $ 30 per ton – looks excellent compared to the price at which Belarus bought Russian oil in January – $ 360 per ton. But this price is unlikely to be static. It is unclear how the mechanism of inter-budget transfers will work which is supposed to compensate for the very same premium (and whether it will work at all). There is also uncertainty both in terms of supply (1 or 2 million tons per month), and other contract terms as parties contradict each other in their statements.
At the same time Siarhei Chaly notes that to meet the demand of the domestic market and execute long-term export contracts, it is enough for Belarus to process 1 million tons of oil per month.
Things don’t look so good when it comes to the price of natural gas. Currently Belarus has a contract with a fixed price of $127 per thousand cubic meters, which is much higher than the market price. The Belarusian authorities declare a fair price of $ 40-45. Just like other buyers of Russian gas, Belarus is interested in lowering this price; however, there are no clear mechanisms to force Russia to abandon current contracts which are so favorable to it.
A limited stock up for future use
The Belarusian authorities have already announced that they plan to buy more Russian oil while it is cheap. How realistic are these plans?
The storage facilities in Belarus make sense to fill. Tatsiana Manionak reminded the participants of the discussion about the possibility to replace the previously used technical oil from pipelines. At the same time, the total volume of such storage units is relatively small.
However, there are difficulties with external storage. Alexander Chubrik notes that based on the crossover statistical analysis of the sales market, in Europe it was the tankers who were the final recipients of the petrochemicals from Belarus. And nowadays the tankers are in great demand. Siarhei Chaly noted a simple correlation: the lower the price of oil, the higher the price of freight for tankers. Valeria Kostyugova sums up, ‘While the oil storage facilities and tankers are full in Europe, Belarus loses its market and ceases to be a petroleum state – at least this year.’
Alternative deliveries: it all depends on the seriousness of the intent
All the alternative oil supply routes (i.e. tankers and ports) have their specifics and limitations. However, all the suppliers need to be sure that Belarus has long-term plans to buy oil this way.
Gennady Ryabtsev notes, ‘Ukrainian suppliers are always open for Belarus, but in our country, we also count money and we don’t open the pipe for only one tanker.` According to him, the port of Odesa, taking into account its technical capabilities, can unload a tanker per week for 80-100 thousand tons of oil. Thus, the limit of oil supplies to Belarus by sea through Odessa is 3.8-4.8 million tons per year (subject to uninterrupted contracts and navigation).
At the same time, such delivery remains less attractive for Belarus in comparison with the supply from Russia – both Russian oil and its transportation is cheaper. However, this is also a matter of national security. Mr. Ryabtsev reminded, ‘Cheap oil seems to be very expensive for Belarus.’ That’s why Ukraine is ready to purchase around 3 million ton petrochemicals in Belarus, and it is unlikely that against the background of current Ukraine-Russia relations Russia’s share on the Ukrainian market rises.
Kamil Klysinski assesses Mike Pompeo’s statements about the US willingness to supply oil to Belarus as only a political declaration of support for the Belarusian independence. There is a lot of doubt regarding the actual oil supplies from the United States. Mr. K?ysi?ski thinks that the Belarusian authorities are passing a sort of a test this year as to whether they are interested in alternative oil supplies or whether they are just bargaining with Moscow (as has already happened with the supply of the Venezuelan oil). Besides, PERN, the Polish oil operator is not technically able to transport oil through the pipeline from Gdansk in reverse flow to Belarus – this requires investments in the development of the infrastructure. There are political statements on this issue, but there are no detailed business calculations.
Vytis Jurkonis agreed with Mr. Klysinski as Lithuania too has reasons to doubt the seriousness of Minsk’s intentions to diversify supplies. At the same time, the tanker deliveries are already underway, and the representatives of Klaipedos Nafta and Lithuanian Railways spoke about their readiness to transport about 3 million tons a year to Belarus. Lithuania’s position on the Astraviec NPP which, according to Mr. Jurkonis, “does not change and will not change”, will not interfere with such a development of trade.
Belarusian Nuclear Power Plant - help or burden?
In 2020, the launch of the Astraviec NPP was announced. However, it is questionable whether it will be able to have a positive impact on the energy system of Belarus against the background of oil and gas disputes with Moscow.
No matter what, Lithuania will not purchase electricity from the NPP. Gennady Ryabtsev notes that Belarus should not rely on the Ukrainian electricity market either. According to its Association Agreement with the EU, Ukraine will synchronize its energy system with the EU in the coming years, which implies a physical disconnection of the Ukrainian energy system from Belarusian and Russian energy systems.
Belarus will not become more independent from Russia in terms of energy supply. Vytis Jurkonis notes that from Lithuania’s point of view a nuclear power plant using Russian fuel is not diversifying energy supply at all.
Tatsiana Manionak expressed an interesting opinion as to why the full-fledged operation of the nuclear power plant was postponed, `It is unprofitable for Belarus to rush to launch the nuclear power plant - after all, Belarus will have to make payments on its loan in 6 months after the launch, and the loan terms were not revised`.
Renewable Energy: Limited Potential
According to Vladimir Rak the two main directions of the development of renewable energy in Belarus are thermal and electric, and both of these types of energy mainly replace the consumption of gas, not oil.
Thermal energy (primarily biomass and solar energy) is developing actively. Both the World Bank and the European Bank for Reconstruction and Development support the development of the thermal energy in Belarus. Belarusian state Department of Energy Efficiency is also interested.
As to electric power, the main obstacle to its development is the fact that the consumption of green electric power should be equal to its production. In such a manner, it is not practical to start using renewables when launching a nuclear power plant – when the energy is overproduced, the wind-driven generators need to be turned off which dramatically reduces the economic efficiency of their work.
However, the estimated potential share of renewable energy in Belarus’ energy after the launch of the nuclear power plant is not more than 10%. The actual approximation to this 10% bar will not have a significant impact.
How long does Belarus have gold and forex reserves for?
In any case, the three-month struggle over the price of Russian oil that has already taken place will take its toll on the Belarusian economy.
Alexander Chubrik notes that the Belarusian budget is completely devoid of the foreign exchange earnings for oil and oil products so far, which reduces the budget’s ability to service external debt.
Siarhei Chaly is even more fervent, ‘The foreign exchange markets will have to shut down at the end of the year at the current a rate of spending of [gold and forex] reserves… I can well imagine the March 2011 scenario when it becomes clear that the gold and forex reserves are sacred, and both population and enterprises can go to hell’.