LITHUANIAN OIL REFINERY CONTINUES SEARCH FOR CRUDE

C O N F I D E N T I A L SECTION 01 OF 02 VILNIUS 000645

SIPDIS

SIPDIS

DOE FOR HARBERT
DOC FOR 4231/IEP/EUR/BOHIGIAN
NSC FOR GRAHAM, MCKIBBEN AND COEN
TREASURY FOR LOWERY, LEE AND COX

E.O. 12958: DECL: 07/10/2021
TAGS: EPET PREL ECON LH RU
SUBJECT: LITHUANIAN OIL REFINERY CONTINUES SEARCH FOR CRUDE
SUPPLY

REF: VILNIUS 618 AND PREVIOUS

Classified By: Economic Officer Scott Woodard for reasons 1.4 b and d


1. (C) SUMMARY: Well-placed GOL officials told us July 10
that Lithuania's Mazeikiu Nafta oil refinery (MN) was on the
brink of signing a contract with TNK-BP to bring a shipment
of crude from Primorsk via tanker to MN's Baltic Sea
terminal. MN's general manager (protect) says that MN is
still receiving supplies of crude, but at a rate lower than
anticipated for July. Barring further supply cuts, he says,
MN will have enough crude to supply the Baltic republics, but
its exports will be severely cut. One of the GOL officials
said that "someone from the Kremlin" had told TNK-BP to
cancel its July contract to supply MN. Both officials
agreed, however, that the signals from Russia were mixed, and
that it was not clear who was trying to cut MN's supply or
why. END SUMMARY.

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SUPPLY SLOWS BUT STILL FLOWS
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2. (C) MN's Amcit general manager, Nelson English (protect),
told the CDA on July 4 that the current flow rate of crude to
MN suggested a delivery of 600,000 tons for July. This is
less than the 800,000 tons MN had contracted before two of
the suppliers canceled (reftel),but more than the 400,000
tons that MN has still contracted after those cancellations.
He said that Transneft had promised to try and help locate
and deliver an additional 200,000 tons. He surmised that the
current flow rate suggested that Transneft felt confident it
could deliver on that promise. Barring further supply cuts,
English said, MN would have enough crude to supply the Baltic
republics, but its exports would be severely cut.


3. (C) English also clarified that the two companies that
canceled their July supply contracts were Vitol and TNK-BP
(not RosNeft, as reported reftel). He said that the
additional 200,000 tons was likely to come from RosNeft,
which has long wanted to increase its supply to MN.


4. (C) English opined that "political motives" were
undoubtedly at work in the two contract cancellations, whose
abruptness made it unlikely that they resulted from purely
commercial considerations. July, he noted, was a time when
MN could earn particularly high margins on its products.

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NEW SUPPLY OPTION: RUSSIAN OIL BY TANKER
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5. (C) Nerijus Eidukevicius, an Economy Ministry Under
Secretary who sits on MN's Board of Directors, told us on

SIPDIS
July 10 that MN was on the brink of signing a supply contract
with TNK-BP for a shipment of 100,000 tons, possibly for a
July delivery. He said that this delivery to MN's Baltic Sea
terminal in Butinge would come by tanker loaded in Primorsk,
adding that this would cost only about USD 1 or 2 per barrel
more than delivery by pipeline. He also said that MN has
brought in oil by tanker only once before, in 2002, when MN's
Butinge terminal off-loaded two tankers. At that time, he
said, Butinge required a week's worth of engineering work to
convert from a loading to an off-loading facility.
Renovations undertaken since then, he added, allow the
terminal to make this switch now in a matter of hours.

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GOL WONDERS WHAT THE KREMLIN IS UP TO
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6. (C) We also spoke July 10 to Saulius Specius, an adviser
to the Prime Minister and one of the GOL's main negotiators
on the recent deal to sell MN to PKN Orlen. Specius, just
back from a trip to Warsaw, reported that TNK-BP officials
had told the Lithuanian Embassy in Moscow that "someone from
the Kremlin" had told TNK-BP to cancel its July contract to
supply MN. He said that it was not clear to him, however, if
that person was acting on direct orders from the top of the
Russian government or was freelancing. Perhaps, he said, one
of TNK-BP's rivals had encouraged the official to pressure

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TNK-BP to cancel so that the rival could ship more of its own
product. Specius said that this kind of explanation,
although still unsettling, was ultimately less worrisome than
a top-of-the-Kremlin decision to squeeze the refinery.


7. (C) Eidukevicius said he was unsure why TNK-BP and Vitol
canceled their July contracts. He did not discount the
possibility that the companies came under pressure from the
Kremlin, but also said that various Russian interests might
have engineered the cancellation at a lower level to scare
off PKN Orlen from its purchase of the refinery, enabling a
Russian company like RosNeft to swoop in and buy MN.

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PKN STILL ONBOARD
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8. (C) Both Eidukevicius and Specius were in Poland last
week, visiting several PKN Orlen facilities. They said that
PKN Orlen was concerned about the supply situation but did
not consider the situation to be a crisis at present.

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COMMENT
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9. (C) The worst-case scenario for MN -- a complete supply
cut-off -- has not happened, but both MN and the GOL still
see this as a possibility and are doing their best to brace
themselves. It is interesting to us that the two people in
the GOL most familiar with MN's operations are not leaping to
the conclusion that a Putin-level Kremlin decision led to the
cancellation of the July supply contracts. That said, even
the more "innocent" explanations -- like infighting among
various Russian crude suppliers -- are still unsettling to
the Lithuanians because they illustrate the problems of
relying on Russia as the sole source of its oil.
KELLY