Hungarian MOL can continue to grow despite possible Russian oil ban, with EU help

Hungarian oil and gas giant MOL ranked 402nd on the Fortune Global 500 list of the world’s largest companies in 2013. Its revenue was equivalent to one-fifth of Hungary’s GDP at the time. Now she can buy cheap Russian oil through the Friendship pipeline, which assures her extraordinarily high profits. If the EU bans the import of Russian oil, the company will lose a lot of money. But there are already possible flaws in the initiative. If the company can play its cards right, a new golden age could be upon it.

MOL – the third most valuable company

MOL is currently the third most valuable company in Central and Eastern Europe, with a Slovak (Slovnaft) and Croatian (INA) branch. However, its refineries almost exclusively process Russian Ural-type crude oil. If the European Commission bans this type from EU markets, MOL may be in serious trouble. Although the President of the European Commission and her proposal threaten the profitability of MOL, she offers a solution with her other hand, hvg.hu writes.

Based on von der Leyen’s initiative, EU member states should stop oil imports from Russia by the end of 2022. The only exceptions are Hungary and Slovakia, two countries where MOL has refineries in Százhalombatta (Hungary) and Pozsony/Bratislava (Slovakia). This initiative can be seen as a rat run for MOL.

Hungarian Prime Minister refused to back EU ban

Hungary’s foreign minister said the government could not support von der Leyen’s initiative, even with the exemptions, because it would destroy Hungary’s security of energy supply. Zoltán Kovács added that Hungary would veto the Russian oil embargo. Prime Minister Viktor Orban wrote to the President of the European Commission on Thursday that Hungary could not support a ban on Russian oil.

A possible ban would harm the Hungarian economy, including MOL. The company says its refineries are calibrated to process Russian oil. To change this would cost 500 to 700 million euros and 2 to 4 years. Furthermore, CEO Zsolt Hernádi said that even if they could process other types of crude oil, the quality of the fuel they make would probably not reach EU specifications. As a result, they could not sell their products on the European market.

Gellért Gaál, the principal analyst at Concorde Securities Ltd., told HVG that oil prices in the region are tied to Brent, but the Urals are cheaper. Moreover, it goes through pipes, which is also the cheapest transportation option. As a result, MOL earns very high profits and its products are cheaper than those of its competitors. It is no coincidence that the firm did not publish its May refining margin, although it has done so for the past ten consecutive years.

Changing the type of crude oil processed can be an opportunity for MOL

Gaál believes that the transition period of one and a half years, on the other hand, could be enough for MOL to find new sources of oil and optimize their production. As a result, they could gain a significant advantage in the market. Lajos Török, a senior analyst at Equilor Investment Ltd., said MOL’s earnings will grow over the next 1.5 years. Indeed, cheap Russian oil will continue to arrive, while the price of Brent will rise.

Török thinks MOL should store as much Russian oil as possible. Then they will have two options. They can either switch to technologies that allow them to process other types of crude oil, or keep existing capacities and launch projects to adapt other technologies in parallel.

HVG said it asked MOL about its plans, but the company did not respond as of publication.

Source: hvg, uh