By Vladimir Socor;
On May 31, Gunvor oil-trading company, 45% owned by Gennadiy Timchenko, announced its full acquisition of the Ingolstadt oil refinery in Germany, the top-performing plant of the insolvent Petroplus concern. The acquisition price is not disclosed.
Russian President Vladimir Putin paid a working visit (the first since his re-election) to Germany on the same day, May 31. The Ingolstadt takeover, a major event in Germany's oil industry - and a business issue of great interest to Putin - did not come up at Putin's brief joint news conference with German Chancellor Angela Merkel. Instead, Merkel praised the Gazprom-led Nord Stream pipeline and waved off the notion of German gas dependency.
On the day of the Ingolstadt takeover, no doubt fortuitously, The Financial Times listed Timchenko at the top of its "Putin's People" feature, while the Moscow Times ascribed Timchenko to a select group of "Putin cronies". International media often refer to Timchenko as Putin's "friend" or "acquaintance". The Economist describes Gunvor as, "the most important trader of Russian oil". Timchenko holds both Finnish and Russian citizenship. Gunvor forcefully denies being either Russian or an oil company.
Only three months ago, Gunvor took over the Antwerp oil refinery in Belgium from the Petroplus concern. That plant seems set to re-start production. The Ingolstadt refinery is Gunvor's second acquisition from Petroplus and in Western Europe generally. Petroplus Holding was Europe's largest independent oil-refiner (ie, not involved in oil extraction or trading) as well as Europe's largest by processing capacity (totaling 33.5 million tonnes annually), until as recently as late 2011, early 2012. Petroplus's five West-European refineries have each filed for insolvency and halted their operations in February.
Ingolstadt is a choice morsel from Germany's oil sector. With a crude-oil processing capacity of 100,000 to 110,000 barrels per day, or 5 million to 5.2 million tonnes per year, the Ingolstadt plant is located on the Danube River in an advantageous position to deliver its products by river transport.
The refinery is a major supplier of oil products in some of Germany's most lucrative markets. In the Land of Bavaria alone, the Ingolstadt refinery holds market shares of 30% for gasoline, 25% for diesel fuel and 22% for heating oil (prior to the February 2012 halt in operations). This refinery boasts a high Nelson complexity index [a gauge of its secondary conversion capacity] of 7.3.
Prior to its recent halt, Ingolstadt was achieving gross margins of US$8.5 per barrel - the best average of all Petroplus refineries. The American company ExxonMobil built the Ingolstadt refinery during the 1960s, upgraded it continuously, and sold it to the Swiss-based Petroplus in 2007 for $630 million.
The Ingolstadt plant traditionally receives crude oil mainly from the port of Trieste via the Trans-Alpine oil pipeline (TAL), which runs from northern Italy to Austria, Bavaria, and onward to the Czech Republic (www.petroplusholdings.com). Ingolstadt also processes some crude volumes originating in Kazakhstan, but re-sold in Germany by the Russian state-controlled Rosneft.
Under the agreement just signed, Gunvor is taking over both the Ingolstadt plant and the associated marketing operations - mentioning both wholesale and retail. Gunvor pledges to retain the refinery's entire workforce of more than 400.
The official announcement does not reference investment commitments. It also omits stating whether Gunvor would start delivering Russian oil volumes to replace volumes traditionally delivered via the TAL pipeline from Trieste to Ingolstadt. This takeover (as that of the Antwerp refinery) reflects Gunvor's vertical integration strategy in its oil business, seeking to combine oil trading with refining operations. While most of its crude oil seems to originate in Russia, Gunvor targets refining capacities in Western Europe.
Gunvor consummated the acquisition swiftly. With Petroplus no longer able to pay for crude supplies, and the refinery on stand-by mode since February, the insolvency procedure elicited bids from two European financial groups as well as from the Swiss-based Vitol oil trading company (a worldwide leader by volume). In April, each of these expressed interest in acquiring the Ingolstadt refinery. There was, however, no public bidding or information about the offers. Gunvor won the assets for an unknown purchase price. The price it paid for the Antwerp refinery is also undisclosed.
In the vicinity of Ingolstadt along the Bavarian Danube, Russia's Rosneft acquired 25% of the Bayernoil refinery in 2010. Bayernoil consists of two oil-processing plants with a total capacity of 10 million tonnes per year.
In Germany's west, along the Rhine River, Rosneft acquired 50% of Germany's largest oil-refining conglomerate, Ruhr Oel, in 2010 (BP holds the other 50% in Ruhr Oel). That conglomerate includes five refineries with an overall processing capacity of 23 million tonnes of crude annually, amounting to 20% of total refining capacities in Germany.
With that acquisition, the Kremlin-controlled Rosneft holds 10% of Germany's total refining capacity. With this, 18% of Rosneft's own refining capacities are now located in Germany. Meanwhile, Germany is nearly 40% dependent on Russian and Russian-mediated deliveries of crude oil.
In February, Russian Lukoil increased its stake to 80% in the giant ISAB refining complex, on the island of Sicily, acquired from the financially strapped ERG Group. In the Netherlands, Lukoil acquired a 45% stake in the Vlissingen refinery from French Total in 2009. In these cases as well, Russian companies are taking over the marketing operations along with the processing plants. Both BP and Total failed to exercise their pre-emption rights vis-a-vis Rosneft in Ruhr Oel and vis-a-vis Lukoil in Vlissingen, respectively.
The acquisition prices are rumored to be well below the pre-crisis market value of these refineries. Some West-European refiners are unable or unwilling to incur temporary losses during the crisis while awaiting the recovery. Russian companies (a category into which Gunvor explicitly says it does not fit), however, can acquire crisis-hit European refineries cheaply, accept low profit margins for the duration of the European recession, and possibly invest in reconfiguring some refineries for Russian crude.
Planning for the long-term, they seem willing to await Europe's eventual recovery and return to higher profits in oil-refining. Thus, Russian oil companies (a category into which Gunvor explicitly says it does not fit) have begun absorbing revenue streams from European end consumers of oil products. This revenue flow from Europe to Russia can only increase with the post-crisis recovery in Europe.
Some of these takeovers are welcomed in Europe as crisis-relief measures to rescue jobs and prop up the local economies. In Ingolstadt, according to German press reports, the work force and municipal authorities are "elated" and "breathed deep sighs of relief" at the takeover by Gunvor. The Antwerp refinery's takeover recently prompted similar reactions. In Germany's case, the oil sector adds to the natural gas sector in creating structural inter-dependencies between the Russian and German economies and business.
Vladimir Socor is a Senior Fellow of the Washington-based Jamestown Foundation and its flagship publication, Eurasia Daily Monitor, and is an internationally recognized expert on the former Soviet-ruled countries in Eastern Europe, the South Caucasus and Central Asia. Socor is a regular guest lecturer at the NATO Defense College and at Harvard University’s National Security Program’s Black Sea Program. He is a Romanian-born citizen of the United States based in Munich, Germany.
(This article first appeared in The ZIO-CON Jamestown Foundation....