Coming up to speed: Eastern Europe

Defining Eastern Europe today is a wide ranging exercise in politics, geography, history, economics and culture. This article covers the Eastern European countries that are situated more or less between Western Europe and Russia. In the energy sector, many of these countries relied upon access to Soviet resources at controlled prices. As the Soviet Union dissolved into a variety of sovereign nations, many of the energy trade patterns and infrastructure links remained, but there has been a lessening of Russian willingness and ability to provide low cost resources such as crude oil.

At the heart of the issue, some of the more antiquated Eastern European refineries have been having difficulties staying in operation, with or without favourably priced crude feedstock. A number of Eastern European countries have been working to improve their fuel quality to conform to Euro standards, which is an expensive process even with inexpensive crude. Moreover, many refineries were in the process of modernisation when global economic conditions worsened in 2008. The crisis in credit made it difficult for some companies to purchase crude feedstock. Demand for fuel has fallen, and Europe as a whole is suffering from overcapacity. In general, the most competitive refineries are those that have been fully exposed to international market conditions. Quite a few Eastern European refineries operated under strict government control for many years, with a variety of price controls and subsidies that delinked them from the international market within which they now must compete.

The changes in the refining sector have been enormous, though the response has varied greatly from country to country. The process and timing of privatisation has varied, as has the ability to attract private investment. Some of the existing refineries were antiquated and in need of major investment. Yet a number of highly sophisticated refineries have emerged, and are emerging, in Eastern Europe. As this movement continues, the distinction between ‘Western Europe’ and ‘Eastern Europe’ will have less and less relevance: ultimately, all of Europe will move forward to consistently high standards for their refineries and fuels. Not all refineries will, or should, survive, and some have closed already. Others operate sporadically, seeking investment and perhaps new owners.

Albania

Albania has two small refineries, Ballsh and Fier, in the southern part of the country. They are operated by Albanian Refining and Marketing of Oil Sh.A. (ARMO), founded in 1999 as a state run enterprise. ARMO was privatised in 2008 and 85% of the shares were sold to a US-Swiss consortium, with the government retaining 15% ownership. A third refinery at Cerrik, close to the town of Elbasan, is noted as the oldest state owned enterprise, and the government has listed it for privatisation. However, the facility is in poor condition and has not operated for over a decade.

Bosnia and Herzegovina

The sole refinery in Bosnia and Herzegovina is the Brod, or Bosanski Brod, refinery owned by Russian firm Zarubezhneft. Standard Oil purchased the refinery from the state in 1927, but left with the outbreak of World War II. The then government of Yugoslavia proceeded to nationalise the refinery and begin expansion. The first significant expansion to 24 000 bpd was completed in 1968. This section of the refinery is called the ‘old processing line’, with the ‘new processing line’ being completed in 1990. This expansion added 60 000 bpd capacity, bringing the total capacity to 84 000 bpd.

Bulgaria

Bulgaria has a single refinery, the 177 000 bpd Lukoil Neftochim facility located at Burgas on the Black Sea. The refinery’s capacity is widely reported at 115 000 bpd or 142 000 bpd, but Lukoil now reports a nameplate of closer to 190 000 bpd.

Croatia

Croatia has two fuel producing refineries at Rijeka and Sisak. Sisak is located inland, approximately 50 km from Zagreb, which is the country’s main centre of demand. This refinery has access to Russian crude via the Druzhba pipeline, but it also processes local crudes. The Rijeka refinery has access to a deepwater port and the Adriatic Sea. Both refineries have access to the JANAF pipeline system, which links an oil terminal on Croatia’s Krk Island with the two Croatian refineries, then moves inland to connect with refineries in Bosnia and Herzegovina.

Czech Republic

The Czech Republic has two fuel oriented refineries at Kralupy and Litvinov, run by the Czech Refining Company (CRC), and a smaller refinery oriented toward asphalt and lube oil at Pardubice, run by Paramo AS.

Hungary

Following the dissolution of the Soviet Union, Hungary established a vertically integrated energy company dubbed the Hungarian Oil and Gas Company (MOL) in 1991 by merging nine separate state run enterprises. In 1995, the country passed a Privatisation Act. The MOL Group now includes a number of key relationships and activities in neighbouring Eastern European countries. In 2000, MOL acquired 36.2% of Slovakia’s Slovnaft company, before purchasing a controlling share (70%) in 2002. Shortly afterward, it purchased 98.4% of Slovnaft’s shares and fully integrated the two companies. MOL routinely transfers feedstocks between its Duna refinery in Hungary and the Slovnaft refinery at Bratislava, Slovakia, via a ‘refinery shuttle’. In 2003, MOL purchased 25% of Croatia’s INA, creating another important regional partnership. MOL also worked with Austria’s OMV to build a natural gas pipeline from Austria, linking Hungary with Western European natural gas.

Poland

Poland has two significant refining centres: the 210 000 bpd Grupa Lotos SA refinery at Gdansk and the 363 000 bpd Polski Koncern Naftowy (PKN) Orlen, SA, refinery at Plock.

Romania

Romania’s move toward privatisation has been relatively slow. The restructuring of the energy industry in 1990 and 1993 created a number of state owned entities, including Rompetrol, which covers licensing of foreign companies and oil and gas imports; Petrom, which oversees oil exploration and development; and Rafirom, which oversees refining.

Serbia

Serbia operates two refineries under Naftina Industrija Srbije (NIS), which was established as a vertically integrated company in 1991. Oil Refinery Novi Sad (ORNS) is located in Volvodina province in northern Serbia. Oil Refinery Pancevo (ORP) is located near Belgrade. Both refineries were commissioned in 1968.

Slovakia

Slovakia has a single refinery located at Bratislava, which is listed under the country’s oil company, Slovnaft.

Slovenia

Slovenia has very little domestic fuel production capability. There is a 12 000 bpd refinery at Lendava, near the border with Hungary, operated by Nafte Lendava.

Slovenia

Slovenia has very little domestic fuel production capability. There is a 12 000 bpd refinery at Lendava, near the border with Hungary, operated by Nafte Lendava.

Conclusion

This article has taken a broad definition of Eastern Europe in order to shed some light on changes in the refining industries. Essentially all of the countries in this survey have taken steps to open their economies and move toward privatisation of their state run industries. This has been a difficult process in many cases, since many state run endeavours were inherently inefficient, relying on support from the former Soviet Union. A number of refineries were linked to crude pipelines from Russia, for example, and were accustomed to receiving inexpensive crude feedstocks. Moving to international market pricing has been a severe trial in many markets.

In many cases, Eastern European refineries have found investors in neighbouring Eastern European countries, including those with whom past relations have been tumultuous. From a practical and logistical standpoint, it makes enormous sense to cooperate across borders on energy sector development, extending all the way down the supply chain. A key challenge has been moving all refineries toward Euro standards, not only for the fuel produced, but also for refinery emissions and other environmental considerations. Enormous progress has been made in this area, despite the global economic downturn, the troubled Euro, the slump in demand, and the regional overcapacity in refining. Many refineries have achieved Euro V standards, and plans remain on the books for additional refinery investment and upgrading. In this respect, the distinction between ‘Western Europe’ and ‘Eastern Europe’ will continue to diminish, as all refineries in Europe work to improve their efficiency, fuel quality and environmental standards.

The full article by Nancy Yamaguchi can be found in the November 2012 issue of Hydrocarbon Engineering. Subscribers can login here to view the full version.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/31102012/eastern_european_refining_402/