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MOL: Immediate Withdrawal from Russian Oil Would Create Supply Problems

Hungary Today 2022.04.02.

There is growing international pressure on EU countries to extend sanctions against Russia, for example by cutting off imports of Russian gas and oil. The Orbán government is fiercely opposed to these proposals, arguing that without Russian energy imports, the Hungarian economy would grind to a halt. Hungarian oil company MOL also says the switchover to other types of oil would require huge investments and years to complete.

It would take hundreds of millions of dollars in investments and several years for MOL Plc. to completely switch from Russian oil to other types, the Hungarian oil company said in a statement, adding that they are still investigating exactly what investments would be needed.

Hungary’s sole crude oil distillation plant, the Danube Refinery, is designed to process a blend of crude oil from Russia; currently, MOL can use up to 35 percent of other types of crude oil, according to the statement.

An embargo on Russian crude oil would have a significant impact on the refinery’s operations and security of supply, with the different quality of the blend causing a reduction in output and refinery breakdowns, MOL says.

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The Danube Refinery could be converted to process 100 percent alternative crude oil, but the lead time could be up to 2-4 years, with risks being kept to a minimum, and would involve hundreds of millions of dollars in additional costs.

The technical barriers to the immediate replacement of Russian oil are due to the fact that the chemical compositions of the different types of oil are completely different. MOL’s refineries are designed for the so-called Russian Export Blend (REB). It is possible to prepare a refinery to use a different blend of crude than REB, but the changeover is a time-consuming process based on strictly controlled protocol. In addition, different types of crude oil have different refinery product outputs (diesel, gasoline, and chemical product ratios are converted) i.e. the amount and type of product that can be produced from a unit of crude oil varies.

This change in product exports would create supply problems for some products in the short and medium-term.

MOL says that they have so far invested USD 170 million to reduce the share of Russian crude oil being processed in Hungary, increased the capacity of the Adriatic pipeline, and expanded maritime transport options.

The company also notes in their statement that in the absence of a Russian export blend, achieving the required feedstock quality would require the blending of several alternative grades of crude oil, which are partially substitutable, and would require a significant expansion of oil storage capacity.

This development would also require several years of work.

In addition, in the event of a Russian oil embargo, the oil trade would also have to be reorganized, as new suppliers would have to be found and new contracts acquired.

Recently, Viktor Orbán also said in an interview that it would take years for Hungary’s oil refineries to switch to a different kind of oil.

The Prime Minister said:

“In Hungary, for example, more than 60 percent of all the oil we use can only come from Russia. Oil is important, because that’s the material from which we produce chemical products, and it’s processed into fuel. Hungary’s refineries are designed for this type of oil; if we wanted to switch to some other kind of oil and were able to bring it in by some means that no one’s been able to specify, we’d still have to rebuild the refineries in Hungary. That work would take us several years to complete. So what the Ukrainians are asking us to do would result in the disappearance of 61 percent of the oil used in Hungary. That would mean that there would be no fuel in Hungary. The same would be true for gas.”

Most recently, Orbán said that “Hungary won’t have any energy at all if supplies from Russia are cut,” and the Hungarian economy cannot function without those supplies. Orbán stressed that Hungary could not “turn off cheap Russian energy and buy expensive American energy instead,” which he said was an “absurd” proposal.

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However, oil and gas industry analyst, Tamás Pletser, told 24.hu that a complete and immediate divestment from Russian Ural oil would indeed be impossible for MOL Group. However, in his opinion, it would not take more than a year to switch. It is also true that the company might need to invest in logistics and build storage facilities. However, these investments are not a burden that the company could not bear in the current environment, its annual investment rate would not increase drastically, the analyst argued.

Featured photo illustration by Tamás Sóki/MTI 

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