Energy Sector: After rent. Better than expected
In 2021, the oil and gas sector, which used to generate windfall profits for the ruling class, was mostly trying to stay profitable. Belarus faced a number of obstacles and risks in the export of oil products due to the Western sanctions imposed on its oil refining industry.
The events of 2020 weakened Belarus’ bargaining position on oil and gas supplies, and the foreign policy situation of 2021 weakened these positions even more. Belarus classified the statistics on oil imports from Russia, so the volumes can only be estimated based on indirect parameters.
- No new consensus in relations with Russia that could change the terms of oil and gas supplies, or the format and content of tax maneuver compensation arrangements;
- Preservation of the previous terms of natural gas supplies and their rescheduling from 2021 to 2022;
- Sharp increase in losses and potential risks for the oil refining sector due to the present and future Western sanctions;
- Gradual rejection of Belarusian electric energy by the neighboring countries.
In 2021, Belarus imported 19.78 billion m3 of natural gas from Russia, thereby increasing supplies in volume terms by 5.5%. The price per 1,000 m3 thus rose insignificantly against 2020 from USD 127 to USD 128.5. It was also said at the end of 2021 that Russia would not adjust the gas price rate in 2022, which formally and actually means its invariability in comparison with the previous year.
Over the past three years, Belarus has been failing to achieve a lower price of Russian gas. Given the domestic socioeconomic and political situation, Belarus has virtually no leverage in negotiations on a new gas price formula, while integration and acceleration of the Eurasian Economic Union’s common oil and gas market launch have moved to the back burner after the beginning of the war in Ukraine.
Table 1 shows the dynamics of the average annual prices of Russian natural gas for Belarus and benchmark gas prices at the German border. As can be seen, although the gas price for Europe was even slightly lower in 2020 than the price for Belarus (for the first time ever), the price difference in 2021 increased significantly because of the sharp rise in gas prices for European countries (Table 1).
|Average price of Russian gas at the German border, USD per 1,000 m3||386.00||268.63||160.63||197.90||269.42||156.00||111.00||519.00|
|Price of Russian gas for Belarus, USD per 1,000 m3||170.00||144.00||137.00||130.00||129.00||127.00||127.00||128.50|
|Price difference, USD per 1,000 m3||216.00||124.63||24.63||67.90||142.42||29.00||–16.00||390.50|
Table 1. Dynamics of Russian gas prices for Belarus and at the German border, 2014–2021
It should be kept in mind that for the first time in a very long while, this difference in the price of natural gas for Belarus and European countries was not a consequence of structural changes in the European gas market or some special gas preferences for Belarus. First of all, it is a combination of several factors: the cold winter of 2020–2021 and the resulting low gas stocks in European underground gas storages, the accident at Gazprom’s large gas chemical plant in Novy Urengoy, and the possibility that for the first time in many years, Gazprom resorted to the gas blackmail strategy (which, however, is not supported by concrete facts, and is somewhat speculative). To be more exact, by refusing to reserve gas transportation capacities of the Yamal-Europe pipeline (or to decrease the reserved volumes compared with the previous periods), the Russian gas monopolist pushed European gas prices up amid the low European stocks, forcing European bureaucrats to license as soon as possible the Nord Stream 2 pipeline, which could provide additional capacities.
Given the restrictions on the consumption of Russian energy imposed since the beginning of the Russian-Ukrainian war, the price of gas for Europe is likely to rise significantly in 2022. However, it is very hard to predict how much (and in what way) the price difference would affect the competitive advantages of Belarusian enterprises, taking into account the export restrictions in force.
The unavailability of detailed statistics on the crude oil import to Belarus and the export of oil products from Belarus is a distinctive feature of the period under review. To put it more exactly, the available statistics only cover a short period of time. Throughout almost the entire year, the data on foreign trade in oil and oil products (in value and volume terms) were classified due to the sanctions imposed on the Belarusian oil industry, in particular, on the Novopolotsk refinery. Indirect estimates of foreign trade in oil and oil products can be made based on some data from sources other than the official ones, for instance from the UN Comtrade database.
In 2021, Belarus imported oil from Russia alone, unlike 2020, when small amounts of oil came from Norway, Saudi Arabia, the United States, and Azerbaijan. Deliveries from Kazakhstan, planned for the autumn of 2021 under bilateral agreements on cooperation in the oil sector never started. Belarus announced supplies of 360,000 tons of Azerbaijani oil, but there is no information about it in international statistics, so the volume or the very fact of supplies cannot be confirmed.
In money terms, Belarus imported USD 1.99 billion worth of Russian crude oil, which is almost half as much as in 2020 (Table 2). The decreased import was most likely compensated by the reduced export of domestically produced oil (USD 343 million in exports in 2020 against USD 237 million in 2021). In general, this was linked either with the actual Russian oil import cuts (as confirmed by official open sources for 1Q21), or with possible distorted statistics provided by Belarus and Russia because of the sanctions against Belarusian Naftan refinery.
Statistics on the exports of Belarusian oil products were classified in mid-2021, so only the limited data published before the sanctions imposed on Belneftekhim and Naftan in June are available. The Belarusian oil refining sector’s performance in 2021 (with corrections and clarifications) are presented in Table 2.
|Physical volume of the import of oil, million tons||22.5||22.9||18.1||18.0||18.2||16.0||N/A|
|Cost of import, USD billion||5.663||3.745||5.292||6.800||6.580||3.890||1.991|
|Oil price, USD per ton||247.30||192.00||294.00||373.60||365.50||243.12||N/A|
|Russian oil price on the world market, USD per ton||720.00||363.90||388.70||513.70||468.50||305.88||476.80|
|Physical volume of the exports of oil products, million tons||16.580||13.000||12.300||11.900||10.500||8.487||3.3902|
|Proceeds from the exports of oil products, USD billion||6.830||4.040||5.340||6.500||5.200||2.747||1.4703|
|Price of oil products, USD per ton||403.50||311.00||434.14||546.20||495.23||323.70||433.624|
Table 2. Indicators of the exports and imports of Russian oil and Belarusian oil products to world markets, 2015–2021
Notes: 1UN Comtrade data, which may be incomplete; 2data of January-April 2021; 3data of January-April 2021; 4calculated based on the data of January-April 2021.
Source: Belstat3, IMF4, UN Comtrade Database5, author’s calculations.
The available information is not enough to estimate the volume of oil imported to Belarus and its cost per ton, or the oil discount for Belarus compared with the prices of Russian oil on the world markets. Belarus managed to significantly increase its oil product exports to Ukraine and Western Europe in 2021 before the sanctions: in January-April alone, oil product exports almost reached the volume of entire 2020. The price per ton also rose.
The oil product exports increased so much, probably, because the Belarusian authorities were expecting sanctions against the national oil industry. Given the sanctions and new information, Belarus will probably apply schemes of gray re-export of oil products via third countries in 2022. This is quite possible, considering that following the imposition of the sanctions on the oil industry, Belarusian refineries reoriented it oil products to Russian ports, where they can be re-labeled.
In the electric energy sector, the termination of purchases of Belarusian energy by Ukraine was the most important challenge to Belarus. Some volumes were purchased early in the year, which was dictated by the cold winter. Ukraine prohibited the import of Belarusian electricity in May, citing national interests and the need to synchronize its national power grid with the European Union’s energy system. Nevertheless, the import resumed under short-term contracts in early November, and the volumes almost doubled during the heating season. The import stopped again in February 2022.
Apart from the end of the heating season, the import was stopped, among other things, because Ukraine started testing its grid in view of the complete disconnection from the Belarusian and Russian grids and synchronization with the European Union’s system. Although the cessation of imports is not always dictated by political considerations, it has an important symbolic meaning: Ukraine will finally stop importing electricity from Belarus by 2023, and Belarus will lose the last buyer of its electricity.
The year 2021 turned out to be a slack period with regard to the changed terms of supplies of Russian energy commodities to Belarus. Overall, the forecast made in the previous Belarusian Yearbook6 worked well: given the foreign policy environment, Belarus made no visible efforts to achieve better terms of Russian oil and gas supplies, accepting them, as they are “still better than expected”.
The events of 2021 threw the Belarusian energy sector development, investments and exports into turmoil. The sanctions against the Belarusian oil industry will significantly reduce its profitability. It is difficult to make any forecasts, since the data is under lock and key, and new sanctions may well be imposed.