Grupa Lotos estimates it will receive 10 to 15 % of its total crude oil supplies from sources other than pipelines and its own production next year, Lotos CEO Pawel Olechnowicz told reporters Wednesday. Olechnowicz did not provide details on the alternative sources envisaged, but Lotos is currently awaiting a tanker delivery later in December of one million barrels of crude from Kuwait following a similar such delivery in October.
Our view: Currently, 5% of Lotos' oil supplies come from its subsidiary Petrobaltic, 2-3% comes from Kuwait, while the remaining volume is obtained from Russia via the Druzhba pipeline. Lowering the share of Russian Urals type of crude in the total throughput, Lotos will reduce its exposure to the Brent-Urals price differential (4.5 US$/bbl) as well as to so called pipeline discount. However, the Arab crude, which probably will be used instead of Urals, have similar quality and also lower price, but higher transportation costs. In general, we think such a switch will have minor negative to neutral impact on Lotos’ earnings. We expect neutral market reaction to the news as Lotos has already indicated that it is going to push up the ratio of imports from the Middle East.