Serbia delays US sanctions on refiner NIS by another month

Serbia has negotiated a fifth delay to US sanctions on the Russian-backed Naftna Industrija Srbije, owner of its sole refinery, officials announced July 28.

Speaking on the eve of the sanctions deadline, Serbia's Energy Minister Dubravka Dedovic Handanovic told national media that incoming sanctions from the US Treasury were delayed by 30 days after a "difficult and arduous diplomatic struggle."

NIS, which operates the 96,000 b/d Pancevo refinery and a vast retail network, continues to regularly supply the domestic fuel market with its full suite of oil products, she said.

"This is important and useful news for the citizens of Serbia because they will not suffer any consequences, as they have not done so far," she said.

Serbia was previously given a July 29 deadline before US sanctions would be brought into force, a move that officials have warned could prevent the Pancevo refinery from operating and severely disrupt supply chains.

The imposition of sanctions would suspend access to critical payments system for the refiner, preventing it from keeping up its payments to Croatian pipeline operator Janaf, the sole crude supply link for the landlocked refinery.

Without the refinery operating, Serbia would lose access to the main source of its fuel and could be forced to boost imports from neighboring countries like Hungary. The country is already a net importer of middle distillates but could see its diesel deficit grow from around 2,000 b/d to 46,000 b/d without domestic production, according to analysis from S&P Global Energy.

NIS was first targeted by the US Biden administration on Jan. 10, when new sanctions targeted its Russian owner Gazprom Neft and companies in which it held a 50% stake or more.

Gazprom Neft has subsequently reduced its stake from 50% to 44.85%, but together with its parent company Gazprom, it holds a 56.15% share in the business. The Serbian government has a 29.87% stake.

Serbia has ruled out nationalizing NIS assets and has instead emphasized its strong relationship with Russia and pursued closer energy ties.

The Pancevo refinery has historically sourced all of its crude from the Adria pipeline, which runs from the Croatian port of Omisalj through to the Serbian facility in Novi Sad.

Starting January 2024, the refiner entered a three-year "take or pay" contract with the Adria pipeline operator Janaf for 10 million mt, or 73.3 million barrels, of crude oil for the refinery, expiring December 2026.

Janaf has expressed concern that NIS would be unable to uphold its contractual commitments once sanctions are enforced and has lodged its own appeals to the US for extended sanctions deadlines.

After EU sanctions targeted seaborne Russian crude imports in December 2022, the Adria has exclusively delivered alternative crude supplies, such as Kazakh and Iraqi grades, to Pancevo via the pipeline. However, the refinery is taking measures to restore its Russian supplies, which once made up roughly half its feedstock.

Serbia and Hungary have fast-tracked a joint pipeline project that would extend Russia's Druzhba pipeline system from Hungary's Szazhalombatta into Novi Sad, where the Pancevo refinery is located, providing it with a second crude connection.

With the support of the Russian government, both countries are targeting a 2027 completion date for the 190 km pipeline. The project would be jointly developed by Hungary's integrated energy company MOL and Serbian pipeline operator Transnafta and would have a capacity of 5 million mt/year.

Serbia's Dubravka Dedovic Handanovic met with Hungary's Minister of Foreign Affairs Peter Szijjarto and Russia's Deputy Energy Minister Pavel Sorokin in Budapest on July 21 to discuss the development and investment from the three countries.

Szijjarto, who has firmly opposed EU proposals to suspend pipeline imports of Russian oil and gas, backed the new link as a hedge against future price spikes.

"Brussels wants to reduce the sources and close the pipelines; this would lead to a price increase. We will not allow this; we will build a pipeline, open new sources and thus preserve the lowest utility costs in Europe for the Hungarian people," he told Hungarian news agency MTI.

Platts, part of Energy, last assessed Urals FOB Primorsk at $11.50/b below the Dated Brent strip on July 28, its narrowest discount since January.