The litany of the energy crisis opens its umpteenth chapter.
First it was natural gas, the king fuel for industry and heating in the Old Continent;
then came the turn of the almighty oil;
and now, it is diesel, the fuel par excellence on European roads.
The EU, the largest importer of diesel in the world, will face the umpteenth bottleneck in its energy supply chains starting this Sunday, with the veto on imports of this fuel from Russia.
The objective is as laudable —to make things even more difficult for the Kremlin and indirectly stop financing its military operations in Ukraine— as the challenge is enormous.
Europe has to replace, in record time, almost a third of the diesel it buys abroad: more than 400,000 barrels a day in these early stages of 2023. This is less than in November and December, when the bloc devoted all its efforts to making collection - paradoxically, with more purchases from Moscow - to anticipate the cut for the losses with Russia.
And, above all, it is much less than before the war, when practically half of the diesel that the EU brought from abroad came from the Eurasian giant.
They have been cutting ties, yes, but the dependency continues to be maximum.
The head of the International Energy Agency (IEA), Fatih Birol, abandoned his usual caution last week to warn of what may be to come in the coming weeks: “It is worrying;
right now there is more uncertainty about diesel than about natural gas ”, he slipped in an interview with EL PAÍS.
"Diesel consumption must fall."
With the latest improvements in economic growth forecasts, Esteban Moreno, a fossil fuel analyst at Kpler — a consultancy specializing in energy and raw materials — believes that European diesel demand will contract by 1.5% this year, less than expected. planned so far.
That would leave a substantial deficit of 770,000 barrels per day in the first quarter of 2023, which is said soon.
“European diesel markets will tighten significantly in the coming weeks.
Europe has, on paper, three ways to deal with the situation: reduce its diesel consumption, as requested by Birol;
increase its internal production;
or import more from the rest of the world.
The first two options, however, are not enough by themselves.
The first, because despite the growing electrification, diesel fuels the engine of four out of ten cars that drive in Europe and, above all, it is essential for the transport of goods: the vast majority of trucks are diesel.
The second is because, far from increasing, the number and total capacity of European refineries has not stopped decreasing in recent years, leaving the continent increasingly at the mercy of Russia and the rest of the large exporters.
In the last two years, Western countries have seen their refining capacity shrink by two million barrels a day.
"And in the case of Europe, practically all the reduction in capacity has been diesel, which puts even more pressure on the market," says Luisa Palacios, a professor at Columbia University (New York) and former president of Citgo, by phone. one of the largest US refining companies.
China, India and the Gulf
"The only possible way is to bring more diesel from other large producers," summarizes Jorge León, senior vice president of the energy consultancy Rystad after several years in OPEC.
There are several countries that apply as alternative providers, but Europe does not have much choice.
Although since the start of the war the United States has greatly increased its sales of diesel to the Old Continent, the idle capacity of its refineries is less and less.
So the EU will have to look a little further: to the East.
China and India, paradoxically the two largest buyers of Russian crude oil and with vast refining capacity, are the most plausible option.
An old-fashioned oil tanker, Kuwait, has just inaugurated a gigantic refinery capable of meeting the strict requirements of community environmental regulations, which require a much lower sulfur content than in other markets.
And the Gulf countries will also be ready to seize this opportunity, the umpteenth for them since the start of the energy crisis.
“The recent oil sanctions, in December, have been the trailer for the movie we are about to see: just as the crude market was reoriented, with Russian exports going to China to India so that other countries could free themselves and sell more to Europe, it will happen now”, emphasizes Palacios, from Columbia University.
The result of the veto will therefore be a profound reconfiguration of global diesel flows.
A change, which actually began weeks ago, when the market began to discount the embargo.
The countries of North Africa, led by Morocco, and the Middle East have greatly increased their purchases of Russian diesel.
It was fuel mainly destined for the EU, which now has to find new recipients in exchange for juicy discounts.
In exchange, all the diesel that they previously imported from other geographies will be released so that Europe can dispose of it.
Something similar is beginning to take place on the other side of the world: Latin America, a large buyer of US diesel, has already set its sights on Russia as an alternative supplier of all the diesel it previously bought in the US. Again, that US diesel and therefore acceptable to the EU— will travel to the Old Continent.
"The position of the chairs around the table has changed, but in the end everyone will still have a place to sit when the music stops," says Francisco Blanch, global head of commodities and derivatives at Bank of America, pulling simile with the popular children's game.
"The only thing is that some will have to walk further to find their chair."
In silver: although the tension has grown and will grow, there will be diesel for everyone.
Of course, Europe, but it will have to look for it much further than up to now.
And, therefore, you will have to pay a premium.
Exactly the same as with gas.
"The market is discounting that the EU, with the help of the US, is doing the impossible to avoid problems," completes Blanch.
Raad Alkadiri, Henning Gloystein and Ayham Kamel, from the risk consultancy Eurasia, exude less optimism, who in a recent analysis for clients described the embargo as "disruptive" and predicted a "greater" impact on the markets than the one experienced with the raw.
However, both they and the long half dozen specialists consulted for this text agree on something: the greatest risk is price and not so much security of supply.
"There will be no diesel rationing, as was said a few months ago, but there will be more tension in the diesel price," says León, from Rystad.
It's not just a matter of distance: "Ships of greater capacity will be needed," predicts David Wech, chief economist at sector analysis firm Vortexa.
More overprice.
As in the case of natural gas, the primacy of Russia as the main European supplier of diesel was due, above all, to its proximity.
"Unlike these new routes, it was a very efficient flow," says Palacios, from Columbia.
“The good thing is that diesel is easier to transport by ship than gas.
The bad thing is that it is a complex product, which cannot be processed in all the refineries in the world”.
Even less what Europe needs, which has to be low in sulfur.
Spain, more protected
In energy matters, Spain is more of an island than a peninsula: it has been seen with gas —the enormous draft power of its regasification plants has allowed it to live quite apart from German, Austrian or Czech nervousness—, with electricity —the famous The cap on gas would have been impossible without its traditional isolation from the rest of the continent—and, now, with diesel.
With a refining capacity well above that of most neighboring countries—even at a time of tension like this, it remains a net exporter of gasoline and diesel—it is much better protected than its peers in the center, north, and east. of the EU.
"We are calmer," acknowledges Inés Cardenal, from the Spanish Association of Petroleum Product Operators (AOP), which brings together the main names in the sector: from Repsol to Cepsa, from BP to Galp.
"Our refineries are among the most flexible and competitive in Europe: they can process crudes of very different qualities and origins."
A very important factor from the point of view of security of supply which, however, does not protect Spain on the price side.
“They are international and affect all countries equally.
How expensive can it be?
It is impossible to know, but there is a good deal of consensus that this is going to produce an increase in international diesel prices”, predicts the oil employers.
many millions in the fray
Whether the price at the pumps ends up rising a lot or a little, one thing is certain: the refineries that have survived the recent closure process in Europe will continue to make a killing in the coming months.
After a period in which the refining facilities were the weakest link in the income statement of the oil companies, in a few months it has become a powerful fishing ground for profits.
The veto further reinforces its position of strength: endogenous production —although dwindling— will be more important than ever to be able to move forward with this match point.
The companies and countries called upon to fill the gap left by Russia in the continental market will also get their share of the pie.
"India, for example, is facing a golden opportunity: it has a huge refinery park, it is being able to buy Russian crude at a discount of close to 50%, and it is going to sell it to Europe with enormous margins," León illustrates.
“There are so many middlemen making a real fortune from these sanctions, especially in China, India, the Middle East and Turkey.
They are distributing the order of 250 million a day ”, ditch Blanch.
On the contrary, European consumers have every chance to be the main pagan: if the price goes up, they will have to pay more both when they refuel their car -if it is diesel- and when they go to the supermarket, because any increase in the price of this fuel sooner or later ends up moving to the already battered shopping cart.
Pocket and geopolitics are closer than ever.
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