Viewing cable 06VILNIUS645
Title: LITHUANIAN OIL REFINERY CONTINUES SEARCH FOR CRUDE

IdentifierCreatedReleasedClassificationOrigin
06VILNIUS6452006-07-11 13:55:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Vilnius
VZCZCXRO5585
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHVL #0645/01 1921355
ZNY CCCCC ZZH
P 111355Z JUL 06
FM AMEMBASSY VILNIUS
TO RUEHC/SECSTATE WASHDC PRIORITY 0372
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHEHNSC/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 VILNIUS 000645 
 
SIPDIS 
 
SIPDIS 
 
DOE FOR HARBERT 
DOC FOR 4231/IEP/EUR/BOHIGIAN 
NSC FOR GRAHAM, MCKIBBEN AND COEN 
TREASURY FOR LOWERY, LEE AND COX 
 
E.O. 12958: DECL: 07/10/2021 
TAGS: EPET PREL ECON LH RU
SUBJECT: LITHUANIAN OIL REFINERY CONTINUES SEARCH FOR CRUDE 
SUPPLY 
 
REF: VILNIUS 618 AND PREVIOUS 
 
Classified By: Economic Officer Scott Woodard for reasons 1.4 b and d 
 
¶1. (C) SUMMARY:  Well-placed GOL officials told us July 10 
that Lithuania's Mazeikiu Nafta oil refinery (MN) was on the 
brink of signing a contract with TNK-BP to bring a shipment 
of crude from Primorsk via tanker to MN's Baltic Sea 
terminal.  MN's general manager (protect) says that MN is 
still receiving supplies of crude, but at a rate lower than 
anticipated for July.  Barring further supply cuts, he says, 
MN will have enough crude to supply the Baltic republics, but 
its exports will be severely cut.  One of the GOL officials 
said that "someone from the Kremlin" had told TNK-BP to 
cancel its July contract to supply MN.  Both officials 
agreed, however, that the signals from Russia were mixed, and 
that it was not clear who was trying to cut MN's supply or 
why.  END SUMMARY. 
 
---------------------------- 
SUPPLY SLOWS BUT STILL FLOWS 
---------------------------- 
 
¶2. (C) MN's Amcit general manager, Nelson English (protect), 
told the CDA on July 4 that the current flow rate of crude to 
MN suggested a delivery of 600,000 tons for July.  This is 
less than the 800,000 tons MN had contracted before two of 
the suppliers canceled (reftel), but more than the 400,000 
tons that MN has still contracted after those cancellations. 
He said that Transneft had promised to try and help locate 
and deliver an additional 200,000 tons.  He surmised that the 
current flow rate suggested that Transneft felt confident it 
could deliver on that promise.  Barring further supply cuts, 
English said, MN would have enough crude to supply the Baltic 
republics, but its exports would be severely cut. 
 
¶3. (C) English also clarified that the two companies that 
canceled their July supply contracts were Vitol and TNK-BP 
(not RosNeft, as reported reftel).  He said that the 
additional 200,000 tons was likely to come from RosNeft, 
which has long wanted to increase its supply to MN. 
 
¶4. (C) English opined that "political motives" were 
undoubtedly at work in the two contract cancellations, whose 
abruptness made it unlikely that they resulted from purely 
commercial considerations.  July, he noted, was a time when 
MN could earn particularly high margins on its products. 
 
----------------------------------------- 
NEW SUPPLY OPTION:  RUSSIAN OIL BY TANKER 
----------------------------------------- 
 
¶5. (C) Nerijus Eidukevicius, an Economy Ministry Under 
Secretary who sits on MN's Board of Directors, told us on 
 
SIPDIS 
July 10 that MN was on the brink of signing a supply contract 
with TNK-BP for a shipment of 100,000 tons, possibly for a 
July delivery.  He said that this delivery to MN's Baltic Sea 
terminal in Butinge would come by tanker loaded in Primorsk, 
adding that this would cost only about USD 1 or 2 per barrel 
more than delivery by pipeline.  He also said that MN has 
brought in oil by tanker only once before, in 2002, when MN's 
Butinge terminal off-loaded two tankers.  At that time, he 
said, Butinge required a week's worth of engineering work to 
convert from a loading to an off-loading facility. 
Renovations undertaken since then, he added, allow the 
terminal to make this switch now in a matter of hours. 
 
------------------------------------- 
GOL WONDERS WHAT THE KREMLIN IS UP TO 
------------------------------------- 
 
¶6. (C) We also spoke July 10 to Saulius Specius, an adviser 
to the Prime Minister and one of the GOL's main negotiators 
on the recent deal to sell MN to PKN Orlen.  Specius, just 
back from a trip to Warsaw, reported that TNK-BP officials 
had told the Lithuanian Embassy in Moscow that "someone from 
the Kremlin" had told TNK-BP to cancel its July contract to 
supply MN.  He said that it was not clear to him, however, if 
that person was acting on direct orders from the top of the 
Russian government or was freelancing.  Perhaps, he said, one 
of TNK-BP's rivals had encouraged the official to pressure 
 
VILNIUS 00000645  002 OF 002 
 
 
TNK-BP to cancel so that the rival could ship more of its own 
product.  Specius said that this kind of explanation, 
although still unsettling, was ultimately less worrisome than 
a top-of-the-Kremlin decision to squeeze the refinery. 
 
¶7. (C) Eidukevicius said he was unsure why TNK-BP and Vitol 
canceled their July contracts.  He did not discount the 
possibility that the companies came under pressure from the 
Kremlin, but also said that various Russian interests might 
have engineered the cancellation at a lower level to scare 
off PKN Orlen from its purchase of the refinery, enabling a 
Russian company like RosNeft to swoop in and buy MN. 
 
----------------- 
PKN STILL ONBOARD 
----------------- 
 
¶8. (C) Both Eidukevicius and Specius were in Poland last 
week, visiting several PKN Orlen facilities.  They said that 
PKN Orlen was concerned about the supply situation but did 
not consider the situation to be a crisis at present. 
 
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COMMENT 
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¶9. (C) The worst-case scenario for MN -- a complete supply 
cut-off -- has not happened, but both MN and the GOL still 
see this as a possibility and are doing their best to brace 
themselves.  It is interesting to us that the two people in 
the GOL most familiar with MN's operations are not leaping to 
the conclusion that a Putin-level Kremlin decision led to the 
cancellation of the July supply contracts.  That said, even 
the more "innocent" explanations -- like infighting among 
various Russian crude suppliers -- are still unsettling to 
the Lithuanians because they illustrate the problems of 
relying on Russia as the sole source of its oil. 
KELLY