The remnants of the Cold War threaten Europe’s plans to cut off Russian oil

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(Bloomberg) – Berlin runs the risk of running out of fuel unless German authorities find a way to protect the remnants of the Cold War from falling victim to geopolitics.

A refinery on the Polish border, which supplies large quantities of jet fuel for the German capital’s airports and gasoline for vehicles in the region, fell into the EU’s stalemate with Moscow over the war in Ukraine. A plan to ban Russian oil imports by the end of the year threatens to cut off small-town Schweidt’s facilities, crippling Berlin and much of East Germany in the process.

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The PCK refinery is directly connected to the Russian crude pumping pipeline from the other side of the Ural Mountains. Because the facility is so far from a major port, there is no easy alternative, and the complexity is multiplied by the fact that it is controlled by the Kremlin’s oil champion Rosneft PJSC.

From Berlin to the Baltic coast of Germany and parts of western Poland, “every aircraft, police car, fire truck and ambulance are powered by Schwartz,” said Annekathrin Hope, the mayor of the 34,000-strong Oder River town. Closing the refinery “would be a disaster.”

Covering more than twice the size of New York’s Central Park, the facility was built in 1960 to cement the former communist East Germany’s dependence on the Soviet Union. The struggle to find a solution shows that those links are still strong more than three decades after the fall of the Berlin Wall.

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Read more: Europe’s hard way to work a Russian oil ban

To comply with the EU’s planned oil embargo, Chancellor Olaf Schulz’s government is working on some heavy-handed solutions, including taking control of refineries such as Gazprom’s PJSC’s German unit. But a change of ownership would not solve the main problem: replacing the 12 million tons of untreated Druze pipeline pumped into the refinery each year, named after the Russian word for “friendship.”

“The refinery is not configured for anything else,” said Ben Van Bourden, chief executive of Russia’s high-sulfur crude oil company, Shell plc, which owns a stake in PCK that is trying to sell it. The refinery declined to comment for this story.

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German Economy Minister Robert Habeck visited Schweid last week to address concerns about the future of the refinery. Under pressure to listen to hundreds of workers, he climbed to a table to better convey his message on how the government could continue to work if Russian oil was banned.

“We need your production, your job to secure Germany’s supply,” Habeck told PCK staff. “I don’t want to fool you or draw too pink.”

German authorities are scrambling for alternatives and have determined that an old pipeline connecting Schweidt to the Baltic port of Rostock could be used to deliver crude goods by tanker. But its relatively small size means it can cover about 60% of normal volume. Plans are afoot to increase supply, increase pump pressure and modernize infrastructure, according to officials familiar with the matter.

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Another option is to dock the tanker to Godansk in Poland and send crude oil through a pipeline connecting to Druze Bar. This will require the help of Warsaw, which has its own supply problems because it periodically confronts Russian power.

Read more: Germany to suspend Russian oil imports despite EU sanctions

Poland’s climate minister, Anna Moskva, has said the government, which is already helping to provide another German refinery in Luna, wants to remove Rosneft from ownership of PCK. He indicated that the country could demand more in return.

“We are working with the German side on a new joint model of refinery management so that it is best for both Polish and German society,” he said. “I can assure you that this is a business model. It’s not a charity. “

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Read more: How Poland’s plan to stop buying Russian oil affects Germany

Locals in Schwartz, which boasts of a 13th-century church, are skeptical that decades-old infrastructure connections can be successfully re-routed in more than six months.

Gundolf Schweil, head of the regional chamber of industry and commerce, told Reuters that “there have been several crises with Russia since the plant was established, but they have never affected supply relations.” “This conflict – with its huge scope and sanctions as well as counter-sanctions – is unprecedented.”

Berlin had already tasted what could happen if Russian crude oil dried up. In 2019, supplies through the Druze Bar were found to be contaminated. In just a few weeks, Berlin was getting smaller and needed to ensure an emergency supply of heating oil, diesel and petrol from Hamburg.

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In that case the matter was short-lived. Now, a more structural change is underway, and PCK has done little to prepare for a period without access to cheap Russian crude – or the end of the fossil-fuel era.

In the long run, city officials are pushing for change in the local economy, not just refineries, by creating an “innovation campus” to attract startups and sustainable industries.

Hamburg-based Bio-Lutations International AG is setting up a plant that will convert straw and tomato stalks as an alternative to plastic packaging. Leipzig-based Verbio Vereinigte BioEnergie AG is already producing biodiesel, biothanol and biomethane at the PCK site and has shared its huge pipeline, rail and processing infrastructure.

But these efforts are not an immediate replacement for the refinery, which employs about 1,200 people and retains at least many more jobs for local partners. Also, the heat generated by the plant keeps 80% of Schwedt’s house warm in winter.

“If PCK stops production, there will be no more fuel in East Germany and Berlin,” Claus Sauter, Verbio’s chief executive, said in a conference call last week. “An entire region will die.”

© 2022 Bloomberg LP



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