Germany is trying to pivot from Russian oil. It’ll struggle

Expect more of these on Germany’s railways.Photographer: Krisztian Bocsi/Bloomberg

On Friday, Germany announced plans to switch away from Russian oil. It's a laudable goal, but the logistics of doing so present an immense hurdle.

With (almost) no oil production of its own, Germany depends on imports. Those come in two forms — crude oil for processing in the country's refineries and finished products such as the diesel fuel that powers German industry and freight transport. Russia holds a big slice of the pie of Germany's imports, sending in almost 550,000 barrels of crude and 100,000 barrels of diesel each day. Pivoting away from these supplies will leave Germany with big holes to fill.

Replacing Russian diesel requires identifying new suppliers and beating out other buyers looking to make a similar switch. It's likely to be costly, but it's not impossible. Replacing Russian crude, however, is a different story.

A quick look at a map shows that Germany is really three distinct markets when it comes to crude oil supplies.

The western and northwestern parts of the country rely on links to ports on the North Sea and Baltic Sea, both to Wilhelmshaven in Germany and to Rotterdam in the Netherlands. Refineries in the south depend on crude shipped by pipeline from Marseille in France and Trieste in Italy. On the country's east, though, refineries depend on crude delivered by pipelines from the oil fields of West Siberia. These latter flows will be most difficult to replace.

The refineries of eastern Germany were designed to run on a diet of Soviet, now Russian, crude. Every crude oil is different and plants are designed to maximize the benefits of processing particular feedstocks. Replacing Russian oil will require refiners to seek alternatives with similar characteristics. They certainly exist in the Middle East and elsewhere. The problem is that everybody else who is trying to avoid buying from Russia is also seeking them out. Competition is fierce.

But even when alternatives are found, an even bigger problem will be getting them to the east German refineries where they're needed.

The pipeline from the Baltic port of Rostock could deliver less than one-third of the combined requirements of the eastern refiners of Schwedt and Leuna. That would leave close to 300,000 barrels a day of seaborne crude to be moved by other means.

The German government is in talks with neighboring Poland to secure supplies through the port of Gdansk and the Polish section of the pipeline that currently carries Russian crude. The problem is that Poland is already using that line for its own diversification away from Russia. A deal signed with Saudi Aramco earlier this year will see the Middle Eastern company supplying as much as 400,000 barrels a day of its crude to Poland. That's going to leave little, if any, spare capacity in the pipeline from Gdansk to Plock for onward delivery to Germany.

Pipeline capacities can be increased, but that's not an overnight job. Germany must find other solutions to its logistics problem.

Rail will undoubtedly be part of the solution, but it will struggle to handle the volumes required. The biggest rail tank cars for crude typically hold about 100 cubic meters, or 630 barrels. Supplying the required 300,000 barrels a day of crude to the Schwedt and Leuna refineries would require the plants to be able to handle about 480 rail cars a day and a fleet probably at least five times that size to conduct the delivery operation. Lined up end to end, the rail cars needed to deliver a month's worth of replacement crude would stretch from Berlin to Hamburg — or from Houston to Austin, if you prefer a Texan equivalent — a distance of about 150 miles, or 240 km.

I'm not convinced the rail networks of Germany and the Netherlands could handle the increased traffic, nor that the port of Rostock could cope with its share of the flow.

In the longer term, more storage tanks can be built at Rostock, the capacity of the pipeline to Schwedt can be increased and the redirection of flows achieved. But doing it by the end of the year looks infeasible.

Julian Lee is an oil strategist for Bloomberg First Word. Previously he worked as a senior analyst at the Centre for Global Energy Studies. @JLeeEnergy

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.