Since the beginning of the Russian-Ukrainian war, ORLEN has become a strategic fuel supplier for Ukraine. The events in Ukraine have a significant impact on the European fuel market, especially on Eastern Europe and the Baltic region. NaftoRynok asked Radoslav Mishtalevski, CEO of PC ORLEN Lietuva, about the current state of the company's key asset, the Mazeikiai Oil Refinery, and its prospects.

What is the throughput of Mažeikiai refinery in 2023 and what is the throughput plan for 2024?

The only crude oil refinery in the Baltic States processed 8.87 million tons of feedstock in 2022. We expect that the throughput in 2023 will not differ significantly from the result of 2022. In 2024 the refining capacity should be very similar number, but finally depends on many factors like macro-economic environment, crack margin (refining profitability), mechanical unit’s availability, crude supply and etc

What crude oil is the refinery buying in 2022-2023? How much the logistics of crude changed during the last year due to sanctions imposed since 5 Dec 2022?

With the outbreak of the war in Ukraine, the Company completely abandoned Russian crude oil, reoriented its production technology and shifted to crude produced in Saudi Arabia, the North Sea, USA, N. Africa and other regions. Currently we process Arabian Crudes, WTI, Johan Sverdrup, Brent, Ekofisk, Saharian crude and others types.

How did the logistics of supply of Lithuanian petroleum products to Ukraine changed since 2022?

Before 2022, the natural route to supply petroleum products to Ukraine from Lithuania was using rail network via Belarus. Shortly before Russian invasion, this route became blocked due to transit ban for oil products loaded in Lithuania introduced by Lukashenko Regime. ORLEN Lietuva re-directed deliveries to Ukraine using longer route via Poland. In addition, it opened its Lithuanian fuel terminals for Ukrainian auto-cisterns starting from one depo operating in March 2022 up to 5 depo’s serving Ukrainian clients today.

ORLEN Lietuva currently execute investment programs aiming in increasing rail network transit capacity to Ukraine. We believe that option of oil products supply from ORLEN Lietuva refinery to Ukraine, not limiting to road fuels like gasoline or diesel, but also JET A1, bitumen, LPG will have positive impact on Ukraine market competitiveness, reliability and safety of supply.

What is the average yield of light petroleum products and what is the average monthly production of gasoline, diesel, and liquefied gas?

ORLEN Lietuva is processing approximately 600 to 880kt of sour crude every month. Amount depends on macro situation, market demand, maintenance schedule and availability of crudes.

From particular portion of crude oil, we receive following basket of products:

  • 30% – gasolines + LPG; 
  • 50% – diesels + kerosene; 
  • 20% – fuel oil + bitumen.

Of course this is only approximate figures that various for different crude types and refining mode, but that gives a rough idea how the crude oil is converted in to oil products.

How are the sales of different petroleum products distributed for different markets, i.e. what volumes go to internal Lithuanian market, to Latvia and Estonia, Poland, Ukraine and other countries (could you provide a table or diagram indicating volumes by different petroleum products)?

Home market for ORLEN Lietuva products are Baltic countries (Lithuania approx. 19 percent, Latvia – approx.10 percent, Estonia – approx. 8 percent) due to location of refinery and logistic advantage. Significant markets from quantity point of view are also Ukraine (approx. 8 percent) and Poland (approx. 10 percent). Everything beyond that is exported via seaports to world markets (approx. 43 percent).

What volumes by types are sold on long-term and spot contracts (average for 2023, in percentage)?

The TERM/SPOT contract split varies from market to market. In Inland markets, like Lithuania, Latvia, Estonia the preference lies on TERM contracts as main our customers are retail chains and big end users. Their preference is to secure supply and have constant conditions, scheduled deliveries and clear pricing rules. From other hand in Seaborne market, we operate mainly with SPOT contracts due to market nature and emerging opportunities..

In 2022, ORLEN declared to Ukrainian clients that ‘newcomers are not taken aboard’, i.e. new clients had no possibility to enter into direct contract. However in the meantime, as far as we understand, the volumes of fuel sales to European traders who were further reselling these volumes, including to Ukrainian companies, increased. How should a Ukrainian company become a new counter party in 2024? Should these companies be traders or just end users (network of fuel stations or industrial company)?

We started 2022 as regular year with contracted a long living, well-known client pool in Ukraine. However, the war turned the table and ORLEN Lietuva had to face new reality of sales to Ukraine. Establishing new routes and opening deliveries to country that is on war we preferred to go with tested and trusted clients we had relations before, let us name them “old” client. To manage the risk of payments, customs clearance and excise tax, as oil product bought was in transit via European Union country in client truck, we introduced stricter “know your client” procedure before entering the contract with new entrances from Ukraine.

We started just from 10-15 a week in 2022 March and developed to 500-600 truck a week served in a peak season in 2023. We developed our service capacity in times and number of clients soured. We have standard procedure and each and every application is verified according KYC rules and it would be wrong stating any preference in client type or its activity. Your statement about traders, no matter European or Ukrainian registration, is true only in terms of their activity, which is naturally – traders earn their money from finding supply for market shorts, but wrong assuming the ORLEN Lietuva preferences to sell via trader.

What is the sales plan (by types of fuel) to Ukrainian counter parties for 2024?

All the plans are subject to market demand and price and may be impacted by logistical constrains. As for example Polish drivers blocking Ukrainian – Polish cross border points reduced our sales more than twice, compare to weekly nominations received from our customers. Other oil products, like JET A1 aviation fuel, LPG, Bitumen will be supplied using emerging opportunities and balance of local demand. Final quantities are still under negotiations between sales division and customers.

NaftoRynok has captured that some Lithuanian and Latvian companies, using quality certificates issued by Mažeikiai refinery, were supplying gas of Russian make to Ukraine disguised as produced in Lithuania. How was ORLEN addressing illegal trafficking of gas to Ukraine in 2022-2023?

LPG is very niche product for ORLEN Lietuva. In 2021, we have sold just around 19kt of LPG to Ukraine comparing to 682kt of diesel or 265kt gasoline. Nowadays the situation is similar.

Unfortunately, but there are companies that used burden of war to benefit and increase their profit even using illegal ways of doing business. We have experienced the same situation not only with LPG but with road fuels as well. ORLEN Lietuva fully cooperate with Ukraine Government authorities on this matter and provide all necessary commercial and technical information regarding transactions in order to prevent any cases of document falsification in the future.

What is the impact of the strikes of Polish carriers on the border with Ukraine to the sales of petroleum products from Mažeikiai refinery and ORLEN group as the whole?

ORLEN Lietuva operates with a dual-channel approach for supplying petroleum products to the Ukrainian market, utilizing both auto-cisterns and RTCs (railroad tank cars). These disturbances at the border crossings, particularly affecting truck movements, directly affect ORLEN Lietuva's product flow into Ukraine. We are actively monitoring the situation and seeking solutions to mitigate these challenges and ensure continued supply to our customers.

Interviewed by Oleksandr Sirenko