Fitch warns Ukraine's sanctions on Russia’s Lukoil risk for refineries in Hungary, Slovakia
Date
7/25/2024 9:13:36 AM
(MENAFN) Fitch Ratings warned on Wednesday that Ukraine's sanctions on Russian energy giant Lukoil present a substantial risk to refineries in Hungary and Slovakia. The sanctions have halted the shipment of crude oil from Lukoil through the Druzhba pipeline, which has been in place since last month. This oil is crucial for Hungarian and Slovakian refineries, and while it does not affect the overall European oil supply balance significantly, it poses a potential disruption to energy supply in these two countries over the medium term.
Refineries in Slovakia and Hungary, particularly those operated by MOL Hungarian Oil and Gas plc, are facing increased credit risk due to their reliance on Russian crude. As of May, MOL was using about 65 percent to 70 percent of Russian crude in its refining processes. The company has set a goal to reduce this dependency to 50 percent to 55 percent by the end of the year through ongoing upgrade projects. However, a complete replacement of Russian crude is not anticipated until 2026, according to Fitch.
Despite MOL’s strong financial position, which provides some buffer against the immediate impact of the crude oil supply interruption, the agency notes that long-term solutions are necessary if the situation persists. Hungary and Slovakia maintain strategic reserves of oil and oil products equivalent to at least 90 days of average net imports, which can help mitigate the effects of an extended supply disruption.
Currently, both countries have managed to offset the shortfall by sourcing additional volumes from alternative suppliers. However, Fitch cautions that a prolonged and widespread interruption of Russian oil supplies could significantly jeopardize refining operations and overall energy supply in Hungary and Slovakia. Lukoil, being the second-largest energy company in Russia after Gazprom, plays a pivotal role in the regional oil supply chain.
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