Azeri crude supplies to Belarus stall on changes to US sanctions

Moscow — Azerbaijan is not planning to ship crude to Belarus in May, a spokesman for Azerbaijan's state-owned oil and gas company Socar said May 12, in the wake of tightening of US sanctions against Belarus.

The supply cuts come in the wake of a decision April 19 by the US Treasury to revoke waivers on transactions involving certain Belarusian state-owned entities. These include Belneftekhim, which owns the Mozyr and Naftan refineries. Companies have until June 3 to wind down these transactions.

"We are proceeding with our cooperation with Belarus, however at the same time we are not going to break any international sanctions," the Socar spokesman said.

"They didn't order deliveries last month and for this month," the spokesman said, adding that the company had not yet received a request for deliveries in June.

Belarus is already facing a sharp decline in crude imports from this month, with Russia previously announcing that it will halve exports to Belarus in May.

The US initially introduced sanctions against Belarus in 2006 due to concerns over human rights abuses and the electoral process. Temporary waivers to some restrictions were granted in 2015 following improvements related to human rights in the country. Following a harsh crackdown on protests against election results in August 2020, these temporary waivers are being wound down.

"In theory, Belarus can still import Russian crude, using non-US$ for the transaction. But they will have a hard time finding a market for surplus product exports due to sanctions, leading to cut runs," Naing Oo, an oil demand analyst for S&P Global Platts Analytics said.

"Belarus has a CDU capacity of 460,000 b/d, with refinery runs ~360,000 b/d, a large proportion of crude is from Russia. Oil demand for 2021 is forecast at 120,000 b/d, down from 135,000 b/d in 2019. In other words, they are short in crude but long in product," Oo added.

Earlier this year, Socar was shipping crude on a monthly basis to Belarus.

Pipeline politics

Socar's last crude delivery to Belarus was in mid-March, sent via the Odessa-Brody pipeline and the Southern branch of the Druzhba pipeline.

Shipments via the route required suspension for a few days of deliveries of Russian crude to Europe via the Southern branch of Druzbha, which runs through Belarus and Ukraine to Fenyeslitke, and Budkovce. A spokesman for Russian pipeline operator Transneft did not provide details of any suspension plans for May or June when contacted May 12. Transneft said previously that it expected the deliveries to take place monthly in 2021.

In April, Belarus' ambassador to Azerbaijan Andrei Ravkov said Belarus planned to buy 1 million mt of oil, or 7.33 million barrels, from Azerbaijan in 2021, Belarus state news agency Belta reported at the time.

Belarus began importing crude from Azerbaijan as part of attempts to diversify away from Russian crude supplies, after a dispute over supply terms led to disruptions and reduced supplies in early 2020. Last year, Belarus received shipments from Azerbaijan, the US, Saudi Arabia and Norway.

Transneft said May 4 that it will halve its crude shipments to Belarus in May compared with April. May volumes are expected at 610,000 mt, or around 144,235 b/d. Data released by the central dispatching unit of the Russian energy ministry on May 2 showed that April deliveries were 1.325 million mt, or around 323,742 b/d.

Belarus' Belneftekhim said previously that Belarusian refineries are operating normally and will supply the domestic market with sufficient amounts of gasoline and diesel despite US sanctions being re-imposed against state facilities. In early May, the company said the two refineries were operating normally and will exceed planned throughput in May.

However, in its latest monthly report the International Energy Agency revised down its Belarus refinery throughput forecast as the US sanctions are expected to affect oil product exports. The IEA revised its forecast down by 50,000 b/d for May-December.

LPG supplies to Ukraine

Ukraine, meanwhile, expects to get sufficient LPG supplies from Belarus as a refinery maintenance has been postponed, according to consultancy A-95.

Ukraine is projected to import 120,000 mt of LPG in May, and overall supplies are expected at 170,000 mt, which is enough to meet domestic demand, according to A-95.

"The situation has completely changed and the threat of shortages is behind us," A-95 said in a statement.

According to A-95, Belarus' Mozyr oil refinery has rescheduled a planned maintenance and LPG supplies to Ukraine in May are projected at about 10,000 mt.

Belarus gas processing plant, Rechitza GPZ, also changed plans and will actually increase supplies of LPG to Ukraine, a source with A-95 said. However, there is some uncertainty about Rechitza's supplies in June, the source said without elaborating.

In addition, Ukraine will probably get increased supplies from SOCAR of Azerbaijan, which will essentially replace supplies from Proton Energy on the market. SOCAR is expected to deliver 10,000-12,000 mt of LPG in May, traders said.