Diesel and autogas prices might rise at Ukraine’s gas stations soon. Blocking of the Glusco filling station network by the security forces forced the Swiss trader Proton Energy Group S.A. stop fuel supplies to Ukraine from April 1. The retail price for autogas, which was already growing following the trends in Eastern Europe, may reach 0,63 USD / l by the end of April - the beginning of May. The rise in prices for diesel fuel will remain within the limits of one hryvnia per liter of fuel if the missing volumes can be quickly replaced. But if this does not happen, prices will soar even higher.
Security forces might check everyone
A few days ago, the Swiss trader Proton Energy Group announced that from April 1 it would stop deliveries of diesel fuel and autogas to Ukraine.
"In early March 2021, the company received information from one of the members of the Oil and Gas Association of Ukraine that the Security Service of Ukraine strongly recommends that participants in the Ukrainian fuel market not cooperate with Proton Energy Group SA and refrain from buying oil products from the company," the company said in a letter. counterparties. Proton warned contractors in Ukraine that as a result of the actions of the Ukrainian authorities, they may have "delays or refusals in customs clearance of oil products supplied by the company to the Ukrainian border."
“Market participants confirm that they receive recommendations from the SBU not to cooperate with Proton. They are seriously afraid that the contracted volumes will get bogged down at the border, they will not be able to be cleared through Rosneft. Now they will need to look for an adequate replacement for this resource," A-95 analyst Artem Kuyun confirmed.
In the letter, the company recalls the situation in relation to Glusco Energy S.A. Glusco filling station network. On March 11, the Security Service of Ukraine and the State Tax Service carried out a large-scale special operation at the facilities of the Glusco filling station network, which led to a complete halt in the supply of petroleum products.
Glusco was able to restore work at 88 out of 105 filling stations. Today, they can only buy gas and related products. The company cannot conduct wholesale trade under the current conditions. Glusco has obligations to Ukrzaliznytsya, Kyivpasstrans, Centrenergo, Ukrposhta, Energoatom, State Emergency Service, and a number of other enterprises in the public sector of the economy. "It is now difficult for us to calculate the reputational damage, as well as to predict the penalties that may be imposed on the company for failure to fulfill its obligations to supply fuel to its customers, mainly government agencies," CEO of Glusco Ukraine Borys Gandzha notes. He clarified that network losses amount to about 70,000-140,000 USD per day or about 3,6 million USD per month.
Glusco Ukraine appealed to President Volodymyr Zelensky and MP Shmyhal with a request to intervene in the situation of destruction by the security forces of a transparent business, "which provides decent salaries for more than 2,000 people and pays 110 million USD in taxes to the state budget annually." Despite the absurdity of the charges, the company "does not ask to stop the investigative actions or the investigation", only demands to give the opportunity to continue working.
"On the one hand, the neutralization of a strong competitor did not upset anyone, and maybe even pleased. But on the other hand, the market continues to watch this story with alarm: everyone understands that with court decisions can come to everyone," Serhiy Kuyun, director of the A-95 Consulting Agency, assures.
In the letter, Proton also mentions the situation with the illegal seizure of a technological volume of diesel fuel with a market value of about $ 75 million, blocked by NABU at the Ukrainian section of the Samara – Western Direction oil product pipeline, owned by the PrykarpatZakhidtrans company.
Recall that the pipeline until mid-2019 played a key role in providing Ukraine with imported diesel fuel. Pumping diesel through PrykarpatZakhidtrans was the most profitable way to transport it to Ukraine. Deliveries were cheaper than rail logistics and expensive sea transshipment.
The pipeline resumed operations in 2017 thanks to Proton Energy Group S.A., which signed a fuel supply contract with the Hungarian concern MOL. Then Proton and other European companies invested more than 550 million USD in the restoration of the Ukrainian pipeline project. The fuel it supplied was also bought by the giant Orlen. A significant part of the pumped fuel was shipped in Ukraine, which contributed to the stabilization of prices and an increase in tax revenues.
Despite the fact that the Ukrainian Ministry of Finance noted a significant increase in fuel excise receipts, which was due to a reduction in smuggling and "whitening" of receipts thanks to the pipe, one of the first decisions of Zelensky’s power was the decision to establish a special duty on pipeline supplies of Russian diesel fuel. Since its introduction in mid-2019, it has already been extended twice.
Prices for diesel fuel and autogas
The share of Proton supplies in the total volume of diesel fuel imports to Ukraine decreased from 43% in 2018 to 23.4% in 2020. According to the A-95, in 2020 the volume of supplies of liquefied gas by a trader to Ukraine amounted to 1.74 million tons of diesel fuel (23.4% of the market) and 443,000 tons of autogas - 22.3% of the total supply market to Ukraine. This is a solid volume that can seriously destabilize the price situation on the auto fuel market. "Research shows that in order to influence the price situation, market participants need only have a 5% share," Serhiy Sapegin, director of the Scientific and Technical Center "Psyche", Chairman of the Committee for the Development of Economic Competition at the Ukrainian Chamber of Commerce and Industry, told.
The situation may worsen in connection with the planned shutdown of the Mozyr refinery from May 15, the press service of the Oil and Gas Association (NAU) notes. "Although the refinery promises to fulfill all nominal contractual obligations, there can be no talk of additional volumes in May and June. There is no understanding whether Ukrainian oil refineries will cope with the additional load," the press service of the profile association said in a statement today. NAU emphasizes that the Association is interested in the market being as diversified as possible and as many suppliers as possible working in it. "Under such conditions, prices are always minimal. Any restrictions or reductions in sources of supply always lead to higher prices," the NAU press service said.
It is noteworthy that the autogas market has already reacted to the changes. "We see the reaction of wholesalers: yesterday at the auctions of Ukrainian producers, liquefied gas rose by more than USD 57,81/ t,” says Artem Kuyun.
The expert emphasized that today it is difficult to predict the price of autogas for April. The market was already expecting a rise in prices due to trends in Eastern Europe, and now the effect of Proton's decision will be added to this.
The wholesale autogas market, unlike the retail one, reacted instantly. "All players focused on holding and replenishing stocks in anticipation of the April deficit, which naturally led to an increase in prices," Vladyslav Kolodyazhny, CEO of GT group, told.
He predicts that autogas prices in wholesale by the end of April-beginning of May might jump to 1,000 USD / t. At the same time, the maximum retail price can reach 0,63 USD/t (in the networks of the middle price range). Now retail autogas costs 0,58 USD/l, depending on the network.
The situation with diesel fuel is even more complicated. “Despite the fact that there are reserves in the amount of at least a two-week demand for diesel fuel in Ukraine, certain turbulence with prices cannot be avoided. I think this will happen in the second half of April and will last until the end of May. It takes time to reorient supplies from other directions - no one does not sit and wait for Ukrainian buyers, everything is scheduled. It takes time to search for volumes, to sign contracts, to work out logistics. A very bottleneck is Ukrzaliznytsia: port capacities for receiving oil products from the sea are excessive, but the railway is on its blades. But in 2019 I could not lend a shoulder for unloading at least some volumes. The situation has definitely not improved since then,” says Serhiy Kuyun to 112ua.tv.
At the same time, it cannot be ruled out that producers from alternative directions, from which we will acquire the missing volumes, will want to “play” on our resource difficulties by increasing the selling prices. This happened more than once even with our closest neighbors, warned Serhiy Sapegin. According to him, to a large extent, the price situation with diesel after Proton leaves Ukraine will also depend on oil prices on the world market.
It is possible that Ihor Kolomoisky's Privat group, which has long sought to impose restrictions on Russian supplies, will take advantage of the situation. The Kremenchuk refinery must have its say. It has long openly lobbied for the restriction of Russian supplies and now there may be an excellent chance to show itself in work. It is unlikely that the plant will be able to dramatically increase production, but it is quite possible to make 20-30% of the current level.
At the same time, the main question is at what price the auto fuel will be sold to consumers in the network of Privat gas stations.
Will Russia close?
In connection with the events taking place, market participants are seriously afraid of a complete stop of auto fuel supplies from the Russian direction. In the case of the worst-case scenario, this would mean a complete collapse of the autogas market. "If the Russian side decides to answer, several scenarios are possible. The first is that only the Russian volume, represented by Proton, Lukoil, and other smaller traders, will go away. This means minus 50,000 tons of autogas from the Ukrainian market per month or 30% in the past. Another scenario, more tangible, is adding a blockage of supplies from Belarus, the Russians have such leverage. The third stage is blocking transit from Kazakhstan. Also absolutely real leverage - a couple of years ago, the Kazakhs faced difficulties due to the tightening of Russian policy with regard to the export of energy resources to Ukraine. If the third scenario is implemented, 70% of the total volume leaves the market. In this case, it will not be profitable to buy or sell autogas," Artem Kuyun told.
"In the market of diesel fuel and autogas, the share of Russia is very large, you cannot ignore it. Last year, 2.6 million tons of diesel fuel came from the Russian Federation with a balance of 7.4 million tons, which is about 33%. If the share of Russia had less, at least 10-20%, this volume could be quickly and painlessly replaced," emphasizes Sergei Kuyun.
So far, these are just the worst assumptions. Today we are dealing with the decision of a trader, not a resource holder - Rosneft.
“I am inclined to think that this is a local problem that has arisen at one of the links in the supply chain of Russian fuel to Ukraine. I do not exclude that Proton in this chain can be replaced by other international traders such as Vitol, Trafigura, Mercuria, etc. I think there are enough people who want to work with the premium Ukrainian market," Serhiy Kuyun noted.
He notes that if it was a global problem and the task was to destabilize supplies to Ukraine, no one would have warned in advance about stopping supplies.
The government has no plan "B"
In such situations, the role of the state and the professionalism of the government come to the fore, which should not only promptly offer, but also implement a package of timely and effective anti-crisis measures, says Serhiy Sapegin.
At the same time, the Ukrainian authorities not only lack the tools to influence the market situation, but they do not even have an understanding of what tools they might be, the expert says. "The issue of creating minimum reserves of oil and oil products is hanging in the air. There is no discussion even theoretically about the creation of stabilization reserves of oil products and market instruments of resource interventions to prevent speculative and explosive growth in prices for oil products. In such conditions, non-market influence on the price situation cannot be ruled out, in particular, that price regulation on the market will be introduced and the amount of profit will be simply limited administratively," Sapegin says.
According to him, there is not even a body to control the market, a system for monitoring the price situation, which would make it possible to understand what is happening on it and take proactive steps to stabilize it.