(Bloomberg) – There are growing concerns that Europe will run out of diesel after Russia invaded Ukraine – and no wonder given that the continent has historically taken around 20% of its imports from the country.
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European oil companies are shunning oil supplies from Russia as fighting drags on into a second month, and instead seek shipments from as far away as the Middle East, Asia and US oil majors including Shell Plc , BP Plc and TotalEnergies SE are already restricting fuel deliveries to Germany.
Alarmed by the outlook, traders are paying steep premiums to stock up now rather than wait. Companies including Trafigura Group have warned that some sites could dry up. This echoes gloomy predictions by politicians in Moscow that Europe is facing shortages. There is even talk of an outright ban on buying.
To get an idea of the real scale of the problem and how quickly there could be stockouts, here are some underlying numbers.
According to the International Energy Agency, 247.4 million barrels of middle distillates – the fuel category that by far counts diesel as its main component – were stored in European countries at the end of January. That’s enough to meet about 40 days of demand, even if the region didn’t produce or import a single additional barrel of fuel.
European countries will continue to produce diesel and import it from their traditional non-Russian sources. How quickly stocks are depleted will depend on their success in replacing supplies that are currently coming in from Russia.
However, these stocks are not evenly distributed and tensions will appear sooner in some places than in others. While Finland and Denmark hold enough private and government-controlled inventory to keep the industry running for more than six months, the UK and Norway hold enough for just over 30 days.
Before the pandemic, the UK relied on imports to meet around half of its demand for middle distillates, with around a third of those supplies coming from Russia, according to Eurostat data. The country is going to have to find alternative sources for around 100,000 barrels of diesel per day, one mid-size ocean tanker per week, if it is to avoid running out of stocks.
But the UK may be in a relatively favorable position in other respects. It traditionally depends on imports from various crude and diesel suppliers.
Countries, or even regions within countries, that have traditionally relied on non-Russian supplies — either crude for their refineries or diesel fuel — will fare better than those with close ties to Moscow. The biggest diesel consumer in Europe, Germany, is a good example.
The southern part of the country is connected to the Mediterranean Sea by pipelines from Marseilles in France and Trieste in Italy which supply its refineries in Karlsruhe, Vohburg-Ingolstadt and Burghausen. As such, it is relatively independent of Russian supplies.
Likewise, the west of the country is connected to the ports of Rotterdam and Wilhelmshaven, which protects it from the impact of possible sanctions and the “self-sanction” that has appeared in recent weeks. However, its reliance on imported Russian diesel still makes it vulnerable.
But it is the eastern part of the country, where refineries mainly process Russian crude, that would come under the greatest pressure if the flow of that oil stops.
Germany’s emergency stocks are distributed over the territory of the Federal Republic in such a way that in each of the five defined supply regions there is at least 15 days of immediately accessible stocks, according to the German Association of oil stocks, known as EBV. The five regions “essentially correspond to the logistics environment of refining centers”, indicates the association in its latest annual report.
These stocks would be depleted much faster in eastern Germany than in the south, and the region’s ability to cope will depend to a large extent on how easily supplies can be moved across the country.
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It will be the same elsewhere on the continent. A heavy reliance on Russian crude will make refineries in the Czech Republic, Poland, Slovakia and Hungary relatively vulnerable to any supply cuts or purchase restrictions. This could quickly have a ripple effect on diesel supply.
There are already disruptions in the supply of wholesalers in parts of Germany. Others will follow if the products cannot be moved to where they are needed. Wherever possible, these trips will depend on trucks, trains and barges.
Prices could also do much of the work long before there are shortages of materials, reaching levels that destroy demand.
But any noticeable fuel shortages at filling stations would be a blow not only for drivers, but also economically devastating for industries – logistics, construction and agriculture – which rely heavily on diesel.
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