Russia: the Schwedt refinery, an economic battlefield

Russia: the Schwedt refinery, an economic battlefield

Berlin announced on Friday the trusteeship of the German subsidiary of the Russian giant Rosneft. Behind this decision, it is the battle for Germany’s energy independence that is being played out. In this conflict, the Schwedt refinery, in the east of the country, plays a central role.

Germany continues to gradually cut energy bridges with Russia. The government announced on Friday, September 16, the trusteeship of Rosneft Deutschland, German arm of the Russian oil giant. A decision that marks the takeover of one of the high places of Russian economic presence in Germany.

This measure “counters the imminent threat to the security of energy supply”, Berlin said. The German subsidiary of Rosneft manages three sites in Germany which represent 12% of national oil refining capacity. Located in Schwedt, between Berlin and the Polish border, in Karlsruhe, in the south-west, and in Vohburg, in Bavaria, these refineries will be placed under “trustee administration” of the national energy network agency for a period of at least six months.

The lights of Berlin

Berlin feared that Moscow would use oil as a weapon, as with gas. Gazprom decided at the beginning of September to shut off the Nord Stream 1 gas pipeline tap For an undetermined time. In the context of the war in Ukraine and the Western sanctions against Russia, “it was difficult to let a Russian group manage such important energy installations for Germany”, summarizes Detlef Stolten, director of the research center on the questions of energy in Jülich, western Germany.

The trusteeship of Rosneft Deutschland is part of the race against time to find alternatives to Russian hydrocarbons. In April 2022, the government had already pcontrol of the German subsidiary of Gazprom. In July, the authorities launched a major construction project for a port terminal for the import of liquefied natural gas (LNG) in Wilhelmshaven in order to partially compensate for the cessation of Russian gas imports. Finally, in August, Chancellor Olaf Scholz took advantage of a state visit to Canada to sign hydrogen import agreements that will diversify the German energy mix.

But the supervision of the German activities of Rosneft is of particular importance. It had been in the making for several months and was at the top of the German government’s priorities because of one site in particular: that of Schwedt.

This giant refinery in the Land (German administrative region) of Brandenburg keeps the lights on in Berlin and throughout the north-east of the country, while supplying energy to all the industry in this part of the territory.

“We are moving Berlin and Brandenburg”, can be read on the advertising brochures of Rosneft Deutschland. “It is a bit bombastic but not entirely false”, regrets the German daily Süddeutsche Zeitung.

Without oil from Schwedt, Berlin airport could not continue to operate, there would be no petrol at the gas stations in the region, and all the construction industry in northern Germany – mainly construction roads – would be almost at a standstill.

Who to replace Russian oil?

The Schwedt refinery is controlled by a Russian group and receives only Russian oil. More specifically, this site is one of the main destinations for the black gold which passes through the Druzhba pipeline (Friendship pipeline in Russian), the longest oil pipeline in the world which runs 4,000 km from the south -eastern Russia to northern Germany.

And Berlin no longer wants to hear about Russian oil… from January 1, 2023, according to a law passed last July. The Schwedt refinery thus single-handedly crystallizes all the economic, geopolitical and even technological problems to find alternatives to Russian hydrocarbons.

First of all, the Schwedt site was built to “receive and process Russian oil, which has its specificities”, points out Detlef Stolten. Impossible, for example, to switch overnight to Norwegian oil. “We will have to carry out development work, which will take time and cost money”, recognizes the German expert.

Then, Germany will have to find an alternative supplier to Russia. Berlin has been looking for the rare pearl since May. Rosneft had offered to bring in oil from Kazakhstan, underlines the Mitteldeutsche Zeitung, a regional daily newspaper of the Land of Saxony-Anhalt. But Berlin preferred to turn to countries less close to Moscow.

The German government knocked on Poland’s door this summer, asking Warsaw to send it oil imported from the port of Gdańsk. But the Polish government had no desire to become the supplier of a site operated by a Russian group. “It is clear that Germany is paying the price for letting Russian companies manage our energy supply,” concedes Detlef Stolten.

According to the calculations of the German trade union Fuels und Energie “it will not be possible to entirely replace the oil transported by the pipeline”, points out the Süddeutsche Zeitung. It will be necessary, not only to increase imports, but also to bring in oil by train and tanker from southern Germany, which has a surplus.

A big upheaval that will be expensive. “It would take about 6,000 tankers a day to replace the oil transported daily through the Druzhba pipeline. Even if Germany had the capacity to mobilize such a fleet, it would be excessively expensive to set up,” notes the Süddeutsche Zeitung.

The Ghost of the West German Opposition, East Germany

In any case, “doing without Russian hydrocarbons – which were inexpensive – will increase the bill for the State and the population”, recognizes Detlef Stolten. But in the east of the country, some voices believe that the cost of this transition is not distributed equitably. “The embargo on Russian oil was decided by West German politicians who did not reflect on the fact that it is the eastern regions, more dependent on Russian oil, which will pay the price increase the invoice’s”, complained on Twitter Sören Pellmannrepresentative for the Eastern Länder of the radical left party Die Linke.

The takeover of Rosneft Deutschland by the State will also weigh on public finances. The government has not detailed the cost of this operation, but the trusteeship of Gazprom Germania should cost between 5 and 10 billion dollars, and Berlin is also considering nationalizing Uniper, one of the largest gas operators in Germany , which is on the verge of bankruptcy because of the Russian gas embargo. An operation which, too, should cost several tens of billions of euros.

“It’s the cost of the trade conflict that is being waged by Russia against us,” says Detlef Stolten. For him, the takeover by Berlin of the Schwedt refinery illustrates that since the beginning of the Russian invasion in Ukraine, there has been a military war on the ground, but also – less visible – an economic war. But, for him, if Germany does not pay the price for this independence, “the long-term cost will be much higher because Vladimir Putin will always be able to cast doubt on the security of energy supplies”.

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