Does KMG need to buy another refinery in Europe?

KazMunayGas (KMG) was named among other companies to acquire a stake in the largest oil refinery in Germany.

This year, the Kazakh national company started to export oil to the PCK Raffinerie refinery in the German city of Schwedt. The company did not have a permanent supplier after the German government decided to stop importing Russian energy resources and took control of Rosneft Deutschland GmbH, a subsidiary of the Russian oil and gas giant Rosneft.

The German authorities explained the decision to take control of the Rosneft subsidiary by the fact that the main suppliers of critical services, such as insurance, IT companies, banks and other companies no longer want to cooperate with the Russian company and its German subsidiaries.

Rosneft Deutschland GmbH is Germany’s third largest oil refining company with a volume of approximately 13.2 million tons of crude oil per year, equal to more than 12% of the country’s total refining capacity. The company has interests in three large refineries: PCK in Schwedt (54.17%), MiRO in Karlsruhe (24%) and Bayernoil in Vohburg (28.57%), and it is responsible for the supply of oil to these refineries. Rosneft annually imported about 20 million tons of oil to Germany.

After abandoning Russian oil, German authorities turned to Kazakh producers. At the end of last year, they agreed with KMG to supply 1.2 million tons of oil to the refinery in Schwedt. This is a small volume considering refinery’s annual capacity of 11.6 million tons. Previously, the refinery received Urals oil. The location of the refinery allows supplies to be carried out via the Druzhba pipeline. KazTransOil, a subsidiary of KMG’s has agreed with the Russian Transneft on the volume of pumping through the pipeline since January of this year but export to Germany began only in February.

In June, KMG and Rosneft Deutschland signed an agreement to supply 100 thousand tons of crude oil to the PCK refinery monthly. In total, this year, at least 890 thousand tons of oil from the Karachaganak field will be shipped to the refinery.

On October 27, Energy Minister Almasaadam Satkaliyev said that Kazakhstan plans to increase the volume of oil supplies to Germany to 2 million tons per year. According to him, negotiations and agreements are underway with the Russian side regarding the provision of transit of Kazakh oil through the Russian Federation.

The previous minister of energy, Bolat Akchulakov stated that theoretically Kazakhstan could increase supplies to 7 million tons per year which would suit the German authorities. Germans want to load the Schwedt refinery at at least 75% of capacity and are ready to sell Rosneft’s share in the refinery to an investor who could guarantee such a volume of supplies.


Meanwhile, the Polish PKN Orlen is also claiming a share in the RSK refinery. Poland is pushing Germany to oust Rosneft. After abandoning Russian oil, the refinery was partially supplied with Norwegian oil which was supplied through the Polish seaport of Gdansk in the Baltic Sea.

The British Shell which owns a 37% stake in the Schwedt refinery is also looking for buyers for its share. Considering that the refinery is also supplied with Kazakh oil, KMG and KazTransOil which are interested in acquiring Shell’s share may become co-owners of the refinery. Kazakh companies could get an advantage in supplying the refinery with the oil which is most suitable for this refinery since it has the same characteristics as the previously supplied Russian Urals.

However, Poland, through the private company Unimot wants to take over Shell’s share. The company previously stated its desire to expand international trade and supply diesel fuel to Germany.

Poland does not have large oil reserves (only about 100 million barrels). Its advantage is that it can purchase Norwegian or other imported oil, receive it through its Baltic port and supply via pipeline to neighboring Germany. PKN Orlen has the capacity to process 42 million tons of oil annually.

There has been a wave of discrediting of Kazakh oil supplies in the Polish and German media which may be due to the companies’ struggle for the share of Rosneft and Shell. For example, on October 18, Germany’s reported that Kazakh oil shipped via Druzhba was believed to be Russian.

The article also notes that the oil field Karachaganak (from where Kazakh oil is supplied) is partially owned by the Russian Lukoil. German journalists and experts sent a request to the German Ministry of Economy on how to prevent the flow of funds into Russia but received no response.

Anna-Maja Mertens of the non-governmental organization Transparency International said that there is evidence that Kazakhstan plays a role in avoiding sanctions by Russia and there should be particular attention to oil imports from Kazakhstan.

Journalists as well as representatives of the Polish pipeline company should know that Kazakh oil entering the Transneft pipeline system is mixed with Russian oil and becomes identical to it. As for the presence of Lukoil in the Karachaganak project, the Italian Eni, the British Shell, and the American Chevron are also participating in it. What about their income? Can they be suspected of helping a Russian company? It is obvious that the problem is fictitious and has no basis for serious discussion, except perhaps for the formation of negative public opinion in relation to Kazakh oil.

Second after USA

Meanwhile, the volume of Kazakh oil supplies to the EU is growing and this trend will continue for a long time. Over half a year the export increased by 40% from 700 thousand to 1 million barrels per day. In June, Kazakhstan was second among major oil suppliers to the European Union behind the United States.

According to the Kazakh Bureau of National Statistics, over 47.5 million tons of oil were exported from Kazakhstan in January-August, 32.4 million tons or more than 68% were exported to the European Union.

It is obvious that Western countries will not soon resume purchasing Russian oil. According to experts, the war between Ukraine and Russia could last for many years and even decades. Currently, a new geography of energy supply and consumption is being formed in the global energy market. Kazakh exporters are also involved in this process and for any oil producing company who owns an oil refinery means a guaranteed market for its products.

KMG already has its own large oil refinery in Europe where it supplies about 5 million tons of oil annually. It is Rompetrol Rafinare, 54.63% belongs to the Kazakh national company through its subsidiary KMG International. 44.7% of the company’s shares are owned by the Romanian government. previously published a publication about KMG’s share and control over two refineries: Petromidia and Vega. The article can be read at the link (Russian version).

Last year, the Rompetrol Group celebrated the 15th anniversary of being part of KMG. The Kazakh national company invested billions of dollars in the acquisition and modernization of this refinery. From 2007 to 2022, the Petromidia refinery alone processed more than 65.3 million tons of crude oil. The oil refineries’ needs were covered mainly by supplies from Kazakhstan.

During this period, Rompetrol paid $20 billion to the budget of Romania and exported $18.3 billion worth of petroleum products. Its products are mainly supplied to Moldova, Georgia, and Bulgaria where KMG International has subsidiaries and a network of gas stations as well as to traditional partners in the region (Turkey, Serbia, Greece, etc.).

At the same time, the company remained unprofitable for a long time. Fires periodically occur refineries, causing them to fail and remain closed. It could be said that this KMG asset exists only to generate expenses and not to generate profit. Therefore, a reasonable question arises: does the Kazakh national company need to buy another refinery in Europe which will probably also require fixed costs?