Russian oil ban costs Polish oil company PKN Orlen millions a day, says boss

The ban on Russian crude oil is costing Poland’s state-controlled oil company millions of dollars a day as it struggles to find alternative supplies for its Czech refinery.

Daniel Obajtek, chief executive of PKN Orlen, described losing Russian oil as a forfeit of about $27mn a day because of the price difference of about $30 per barrel between the cheaper Russian oil and alternative supplies.

“I wouldn’t call it [a] loss: this is a matter of not supporting Russia,” he said. “This is a market cost that applies to every company that does not import oil from Russia.”

However, he said his company was still using Russian oil piped through the Druzhba network for the group’s Czech refinery in Litvínov, which has not been covered so far by sanctions even as the government in Warsaw pushes for tougher EU sanctions against Moscow.

“The complete replacement of Russian oil requires an improvement in the logistics of oil supplies, which we are working on with the Czech government,” he said in an interview with the Financial Times.

Despite Poland’s initial pledge to stop imports of Russian oil by the end of last year, Orlen also continued to import Russian oil into its domestic market until February.

Orlen announced last month that it had ended its last contract with Russian company Tatneft, saying it could not have done so earlier without risking a Russian lawsuit for violating the terms of the contract.

Last year, the EU forbade seaborne oil imports from Russia, but it exempted oil transported overland through the Druzhba pipeline network, which links Russia to Poland and a handful of other EU countries.

While Orlen has itself struggled to wean itself off Russia, Obajtek said that Russian oil companies were still “flooding Europe with petrochemical products” and other oil derivatives despite EU sanctions designed to reduce Russia’s ability to finance its war in Ukraine.

He listed several loopholes that had allowed Russia’s oil sector to continue to earn “decent money” from the EU, without offering concrete evidence of sanction violations.

“To sum up, I think that sanctions should be more severe. It shouldn’t be just a gimmick to improve Europe’s media image,” Obajtek said.

“Russia is not selling oil and natural gas but still trades petrochemical products in Europe. It generates margins not only on hydrocarbons but also on processing. Not to mention fertilisers and other products.” 

His criticism comes as the European Commission also considers new restrictions on certain EU exports to countries that it suspects are re-exporting sanctioned products to Russia.

Asked whether he was concerned about countries such as Germany getting access to re-exported Russian crude oil via recent supply deals with Kazakhstan, Obajtek said “the German side should better rethink the morality of what they are doing”. 

Others have also questioned Brussels’ enforcement of its own sanctions, saying EU exports could also be reaching Russia through countries such as Armenia, Kazakhstan and Kyrgyzstan.

This past year’s trade data was “suggestive of sanctions being evaded through intermediated trade”, said Beata Javorcik, chief economist of the European Bank for Reconstruction and Development, in a separate interview with the FT.

As an example, she noted that about 200 Russia-linked companies were set up in Kazakhstan in the three months after Moscow’s invasion of Ukraine last year. “In terms of volume, this does not compensate for the direct trade that disappeared, but in some products, it is higher,” she said.

Orlen dominates the market in Poland and also has refining operations in Lithuania, but Obajtek said that he saw the potential to expand abroad, notably in Germany.

“We are very interested in the German market, particularly since we know it. We have already 600 stations there and we do not intend to stop there, but we can also offer a kind of diversification alternative for the German refinery sector.”