MUTUAL BENEFITS

Belarus is the only CIS country that buys Azerbaijani oil. Despite the absence of direct pipeline or tanker communication between our countries, strong friendly ties in political and economic spheres encourage the parties to overcome any obstacles for extra partner projects. There will be many more to come both in the fuel and energy complex (FEC) and beyond, according to the statements of the presidents of two countries during the recent visit of Alexander Lukashenko to Baku.

Key product

Oil is the main export product of Azerbaijan to Belarus. As noted by the President of Azerbaijan Ilham Aliyev, the trade turnover with Belarus was significantly increased last year due to oil exports. The trend continued in the first quarter of this year as well. It is expected that the total supply of oil will exceed last year's figures. “The route has already been tested. The project is mutually beneficial. Naturally, we are interested in expanding cooperation in this area and also consider cooperation in the energy sector, including not only the supply of crude oil to Belarusian refineries,” President Aliyev said summing up the negotiations with his Belarusian counterpart.

Mr. Lukashenko referred to some ‘sensitive issues’ of bilateral relations, suggesting Azerbaijan to deepen cooperation in the supply of hydrocarbon raw materials. “Perhaps we should consider the issue of deepening relations in this particular area. It is a very delicate and scrupulous issue, since Belarus is located in the epicentre of economic and political events. Nevertheless, there are no issues that we cannot solve,” Mr. Lukashenko said.

Thus, after thoroughly revising the relations between the two states, the leaders signed a number of important bilateral documents, including a memorandum on deepening cooperation in the energy sector. This is a significant achievement for Azerbaijan, as the document, among other things, also will ensure the organisation of the sale of oil products by the Azerbaijani company SOCAR in the Belarusian market. After all, the Belarusian market opens up good prospects for exports through the Baltic Sea.

Interests are set

A memorandum of understanding between the Belarusian State Oil and Chemistry Concern and SOCAR of Azerbaijan was signed by the chairman of the Belarusian concern Andrei Rybakov and the President of SOCAR Rovnag Abdullayev. Parties agreed to expand opportunities for the production and sale of oil and oil products.

The memorandum also provides for the implementation of joint investment projects, cooperation on the sale of oil products by SOCAR in the Belarus market.

In other words, SOCAR will be able to create a network of gas stations in Belarus under its brand. At present, the state-run company Belorusneft is the leader in the retail market of the country, with over 65% of filling stations (573) and a third of wholesale warehouses for petroleum products. In total, Russian capital owns about 200 filling stations - almost a quarter of all facilities in the retail market of Belarus. There are filling stations of the Russian companies LUKOil, Gazprom Neft, Rosneft and Tatneft. Their share, according to Reuters, is about 20% of the total number of filling stations in the republic. LUKOil has the largest network of gas stations among Russian companies in Belarus (more than 80 stations).

Back in 2017, the former ambassador of Belarus to Baku Gennady Akhramovich stated at a press conference that Minsk was open to the cooperation and is ready to discuss this topic with the Azerbaijani side, if SOCAR is interested. Thus, the signing of the memorandum can intensify more detailed discussions on the project.

SOCAR has enough experience in developing networks of filling stations abroad, and its main focus of operations outside Azerbaijan is trading oil and oil products. However, the access of SOCAR to the Belarusian fuel market can be expected only if such a project is commercially attractive.

For example, in Turkey, where SOCAR runs quite a wide business of trading petrochemicals and operating oil refineries, the company has repeatedly studied the possibility of developing a network of filling stations in addition to the existing oil refinery business, but failed to find a profitable solution. SOCAR has so far limited itself to opening gas filling stations in a number of Turkish airports. Perhaps Belarus will be more fortunate, and if it is profitable, SOCAR will gladly enter the retail market of oil products.

Route in action

Cooperation in the fuel and energy complex between Azerbaijan and Belarus is not limited to the export of oil from Azerbaijan only. We also regularly buy oil products from Belarus, in particular, motor gasoline.

According to the Ambassador of Belarus in Azerbaijan by Andrey Ravkov, in early 2020 Minsk began diversifying its oil imports. “We continue to work in this direction. Azerbaijan has become the second largest oil supplier to Belarus after the Russian Federation,” Mr. Ravkov said.

The main consumer of oil in Belarus is its oil refining industry, which also produces automobile fuel.

Traditionally, Russia is one of the main suppliers of oil for Belarusian oil refineries, but recently Minsk has been building alternative economic and transport chains in order to reduce dependence on one supplier.

In early 2020, Belarus faced problems with oil imports from Russia. In the first quarter of 2020, due to the lack of agreement on the terms of supplies, Russia reduced oil transportation to Belarusian refineries.

Belarus authorities tried to compensate for the lack of Russian oil by purchasing it from other countries, including Azerbaijan, as well as by sending oil produced in Belarus for processing, which was traditionally exported for economic reasons. Imports from alternative sources was also possible due to the cheapening of oil on global markets, since refineries had more opportunities to find new sources and routes for the supply of raw materials. Thus, Belarus began an alternative import of tanker oil, including the deliveries from Norway, Saudi Arabia, Azerbaijan and the US.

Belarus resumed oil imports from Azerbaijan in March 2020 – through the Odessa port and the Odessa-Brody oil pipeline. SOCAR supplies oil to Belarus through its trader company SOCAR Trading. Until then, Azerbaijan supplied oil to Belarus through the Odessa-Brody pipeline in 2011 and 2016.

In 2020, Belarus purchased from Azerbaijan about 1 million tons of oil, including about 720,000 tons of Azeri Light, and some non-Azerbaijani oil produced in the third countries.

This year, the bulk of oil imports to Belarus will come from Russia. Nevertheless, Minsk has already announced its intention to continue purchasing raw materials for its refineries from alternative sources, including Azerbaijan. “We have no problems with the volume of supplies. As for the alternative volumes of supplies, they will also be used, as in the current year,” said Prime Minister of Belarus Roman Golovchenko.

According to Mr. Golovchenko, the annual volume of Russian oil at Belarusian refineries is estimated at 18-20 million tons. “The volume of supplies will depend on the potential of enterprises to process them, as well as on the situation in the oil products market,” Mr. Golovchenko said.

This year Belarus signed a contract with SOCAR Trading for the purchase of about 1 million tons of oil. Of these, 4 Azeri Light tanker shipments with a total volume of more than 360,000 tons have already been dispatched during 1Q2021. Although Belarus announced its intention to conclude a long-term contract with Azerbaijan, it should be understood that the route used for such exports is much more costly than pipeline supplies from Russia.

Additional features

Cooperation between our countries in the oil sector is not limited only to the supply of raw materials. This year, SOCAR Construction has successfully completed the installation works as part of the construction of a heavy oil residue hydrocracking complex at the Mozyr Oil Refinery.

Qualifications and competence of the personnel of the Azerbaijani company in the industrial construction of potentially hazardous facilities and industries in Belarus were highly appreciated. Therefore, SOCAR Construction received an additional order for thermal insulation works at the refinery.

In addition, SOCAR seems also interested in the construction of a new complex for the production of nitrogen fertilizers at Grodno Azot OJSC and the upgrade of Naftan OJSC in Belarus.

In general, the experience of Azerbaijan and Belarus in oil refining and petrochemicals creates a solid foundation for the development of mutually beneficial and long-term cooperation. The potential is great, there is mutual interest, and the necessary legal and organizational bases are available for the implementation of joint projects.