Polish exam for the Ukrainian fuel market

Strikes by Polish carriers significantly destabilized the Ukrainian market and prices, forcing traders to remember the difficult time of 2022, when the country lost 100% of its fuel supply sources.

Polish carriers blocked the three largest checkpoints: "Dorohusk – Yahodyn", "Korchova –Krakivets" i "Khrebinne – Rava-Ruska". The main demand is the cancellation of the visa-free transport regime, which Ukraine received from the European Union in 2022. The strikers believe that Ukrainian carriers are unfairly competing with them, taking over part of the cargo flow. The Polish government agreed to the strike.

Problems arose not only when leaving Poland, but also when entering Ukraine.

"If the gas tanker managed to pass through Rava-Ruska, then all the trucks are standing on Yahodyn," one of the traders commented on the situation.

Last week, the Ministry of Communities and Territories Development of Ukraine reported that there are more than 20,000 vehicles on both sides of the border. Ukrainian border guards said that their Polish colleagues allowed a maximum of two cars per hour in Krakivets and Rava-Ruska.

It should be noted that tension at the borders began to grow in October, when the volume of agricultural exports increased sharply. The "eTurn" mobile application fixed the queue in all directions in 9-14 days, while in the summer it was 3-4 days. 

 

Weak link

Due to complications on the Polish border, such a type of fuel as liquefied gas was the most painfully affected. The reason is that more than 30% of imports, or 20% of the entire market of this fuel, enters Ukraine precisely through the Polish section of the border.

Some imbalance began to be observed in October, when changes to the Customs Code came into force. In particular, the control of documents regarding the origin of the resource was strengthened. It was previously reported that fuel mixes based on Russian LPG were sent to Ukraine from the Baltic countries and Poland. From October 17, the importer must provide customs officials with a package of documents for the entire supply chain of the resource, starting with the manufacturer. Despite the changes announced in advance, not all fuel companies were ready for the new rules, which led to an increase in the time for customs clearance of the resource, and in some cases even to the refusal of customs clearance. Currently, the market has already entered a new phase, although it notes the slowness of fuel clearance due to the insufficient number of customs personnel.

Therefore, starting from October, gas imports from Poland and the Baltic countries began to decrease (see Fig. 1). On average, during the nine months of 2023, 52.7 thousand tons of LPG were delivered from these directions per month, and in October already 35.3 thousand tons.

The strikes further reduced the supply of fuel from this direction: from November 6 to 12, gas imports from this direction decreased by 55%, to 4.7 thousand tons, compared to a week earlier.

The failure of imports has led to shortages and hyped demand for domestically produced gas. Since the beginning of November, the average price of LPG at the Ukrainian Energy Exchange auction has increased for some lots to UAH 64,000/ton, or by more than 30% compared to the beginning of October.

The problem also lies in the limited number of gas carriers, which are significantly fewer than gasoline carriers. According to market participants, if earlier a gas carrier traveled abroad four times a month, now it travels abroad once. Accordingly, proportionally less fuel can be delivered.

"We don't have time to bring the required volume, so our gas stations are forced to stand still without resources," one of the fuel companies complains. In mid-November, the lack of gas for cars at gas stations was recorded not only in small, but even in well-known gas stations.

Search for alternatives

Problems in the west pushed the market south. As expected, this direction was not very ready for this.

"Currently, in Romania, gas is sold out a month in advance," one of the importers commented on the situation. In addition, gas carriers also have to wait at Ukrainian-Romanian checkpoints: according to the "eTurn" mobile application, as of November 17, the queue was ten days long.

The blockade of road transport automatically led to an increase in demand for rail deliveries (see Fig. 2). Those who focused on railway transportation even earlier found themselves in an extremely profitable situation in this situation, because the purchase prices for gas increased insignificantly, and on the domestic market they soared to unprecedented heights. According to the information of market participants, currently the volumes of railway consignments of gas for which the contract was signed have increased from 20 to 35 thousand tons.

 

A slight fright

On the eve of the announced strikes, importers of light petroleum products were also noticeably nervous, but quickly stabilized the situation. First of all, because, unlike gas, the relative imports of gasoline for cars and diesel fuel across the Polish border in 2023 will not exceed 10%.

Yes, the gasoline market did not experience any problems at all. Only a few players who bet on the supply of fuel for cars faced them.

"We are trying to make sure that part of the product starts to be supplied by rail, but gasoline from the north of Poland has to be transported in a big circle through Slovakia and Romania," said a source at the company UPG, which is the largest auto importer of gasoline.

In the beginning, the diesel suppliers seemed a bit tense, but that feeling quickly passed. A large car park and diversified channels helped immensely in solving this issue. In addition, the Ukrainian market benefited from the decrease in European quotations. This made it possible to pass a short period of turbulence without a sharp increase in prices, which later turned into a decrease. In mid-November, the market was already in its usual surplus status. It is characteristic that this situation developed despite the problems with the Poles, as well as the actual closure of supplies from Moldova and Bulgaria, which came to light in connection with Russian fuel.

The logical way out of the situation was reorientation to railway transport (see Fig. 3). According to enkorr data, diesel deliveries by rail increased by 37% in October.

 

Price reduction, despite the blockade

Currently, the Ukrainian government is trying to resolve the situation.

"We are trying to find compromises in order to increase throughput and fulfill the already concluded memoranda, but it is difficult. They proposed to the Polish authorities to open lanes for empty trucks on the Ugryniv-Dolhobychiv and Hrushiv-Budomezh highways. We are waiting for an answer soon," said Deputy Minister of the Ministry of Communities and Territories Development of Ukraine Serhii Derkach.

It is known that one of the proposals of the Ukrainian side was the unhindered movement of fuel tankers, because they work exclusively to ensure the internal needs of Ukraine and even theoretically cannot compete with Polish carriers. But it was rejected, like the rest of the proposals.

At the moment, Ukrainian officials believe that the only way to unblock the border is for Warsaw to cancel the strike permit. The situation is worsened by turbulence in the power structure, as the old Polish government has already left, and the new one has not yet been formed.

Meanwhile, the Ukrainian market does not stand still. More and more importers are changing routes, going from Poland to Slovakia and Romania. The business environment is favorable, because the extremely high logistics costs are covered by a decrease in purchase prices.

Moreover, there are currently all prerequisites for reducing prices at gas stations for both gasoline and diesel fuel. This process has already started, some chains have reduced gasoline prices by UAH 1-2/l. Obviously, the trend will continue.

But we will have to wait longer for the reduction of extremely inflated prices for liquefied gas. The deficit is expected to disappear within one to two weeks, after which prices should decrease significantly. And if the price reached UAH 34.5/l at some gas stations, then the objective level is a maximum of UAH 27/l, which corresponds to 50% of the price of gasoline.

 

To be continued, or Slovak lessons

The Ukrainian fuel market has experienced worse situations, such as in the spring of 2022, when we lost 100% of our supply sources. As we can see, the market has retained its flexibility even now. But it seems that the exam will continue in the future.

On November 16, Slovak carriers declared their solidarity with their Polish colleagues and dissatisfaction with their Ukrainian colleagues. An hour-long warning strike was held, which may develop into an analogue of the Polish one. Transport representatives have already sent a corresponding request to the authorities.

Meanwhile, the Romanians and Moldovans are taking full advantage of the situation and are announcing the resumption of transportation, including rail transportation.

In general, the situation with Polish strikes never ceases to amaze. First of all, because this strike brings harm to Poland itself. After all, Ukraine gave Poland huge transit flows, loaded ports, railways and manufacturers of various products. If the strike continues, it may lead to losses for Polish traders who bought fuel for Ukrainian needs today, but are forced to suffer losses. In the medium term, Ukrainian suppliers may reorient themselves to new sources of imports, which they are now forced to look for. In addition to the well-known Romania, it can be Croatia, Serbia and other countries.

Read this article in Ukrainian and russian.