FREE: Petrojam Rules Out Oil Imports From Russia. Its Two Biggest Customers Are Restricted Because of Western Sanctions.
FREE: Petrojam Rules Out Oil Imports From Russia. Its Two Biggest Customers Are Restricted Because of Western Sanctions.
The decision highlights the complex web of potential economic benefits versus geopolitical implications that the state-run refinery would have encountered importing Russian oil products.
Jamaica’s state-run refinery Petrojam has made a decision not to buy oil products from Russia.
In an email dated July 31, 2023, the refinery’s General Manager Telroy Morgan confirmed to 18º North that Petrojam’s “bankers and insurers strongly advised against such arrangements.”
The decision comes as the general manager for Sol Jamaica SRL (Texaco Licensee), Karoline Smith, recently confirmed to 18º North that the company “does not do any business with Russian fuel and oil, point blank.” Sol Jamaica is owned by the Parkland Corporation, which is based in Canada, a country that has imposed sanctions against Russian oil following the invasion of Ukraine. After an acquisition last year, Sol Group also controls Gulfstream Petroleum SRL, which is Petrojam’s biggest customer.
Petrojam's second-biggest customer, fuel retailer TotalEnergies Marketing Jamaica Ltd., also told 18⁰ North that it had made clear in a letter dated May 26, 2023 to the refinery that it would not purchase “white products”, an industry term for products like gasoline and ultra-low sulfur diesel (ULSD), “if those products are imported from Russia.” TotalEnergies’ headquarters are in France, another G7 member that has sanctions against Russian seaborne oil.
Mr. Morgan insisted that the decision not to import Russian oil products was made prior to the letter from TotalEnergies but didn't provide any evidence supporting that timing.
The letter from TotalEnergies was sent a few weeks after the Petrojam chairman confirmed to 18º North that the refinery was weighing whether to purchase Russian petroleum products through Jamaican private energy supplier, West Indies Petroleum Limited (WIPL). According to Jamaica’s Energy Minister Daryl Vaz, it was WIPL that had approached Petrojam with the idea. 18º North had previously reported that WIPL was the consignee for a fuel shipment from Russia that was delivered to Jamaica in May
In an interview on May 2nd, the refinery’s Chairman Wayne Chen said that “Petrojam is currently weighing…” to which 18º North interjected “whether to import Russian oil?” Mr. Chen said, “Yes, if we can get our oil cheaper and it has no negative implications then sure that’s an easy answer.”
But Mr. Chen had also warned that there were diplomatic relations to consider, as well as relations with Petrojam’s bankers. There was also the question of whether Petrojam’s refinery could technically refine Russian oil.
In a phone interview on May 10, Mr. Morgan, who was then Petrojam’s Manager of Strategic Planning and Business Support, had said that based on the preliminary analysis of the Russian crude, “the fit, in terms of volume and quality, is not ideal.” He had said then that he would need to be exposed “to the full slate of what Russia has to offer” in order to make a final determination.
On May 15, in response to what it said was information being circulated on social media, Petrojam then released a statement refuting that it had purchased petroleum products or crude oil from Russia and that it had merely received correspondence with a proposal to do so from a third party. However, there has been no communication from the company to the public since.
Then, in a response to a question from 18º North, Mr. Morgan on July 31 wrote that Petrojam has “no intentions to neither deal with Russian imports i.e. crude nor finished products.”
How High Energy Prices In The Wake Of The Russian-Ukraine War Hurt Jamaica
The decision comes at a time when Jamaica could use cheap oil imports.
At the onset of Russia’s invasion of Ukraine in 2022, Petrojam, anticipating a disruption in oil supplies, bought oil at US$120 a barrel to build up its inventory to about 1 million barrels. But the world price of oil later fell to around US$80 per barrel, leading to a J$5 billion (US$32.4 million) impairment on its books and a need for a loan from the central government, as Petrojam’s financiers were reluctant to continue supporting the refinery.
When asked if the decision of its financiers was in any way tied to Petrojam weighing whether to buy Russian oil products, Mr. Morgan said the “answer is categorically NO, as we have NO Russian volumes as part and parcel of our current/neither previous stock. Also, we have NO intention of purchasing Russian Volumes.”
The general manager also added that all trade funding lines from financiers are now available to Petrojam.
The G7 Price Cap That Was Supposed To Help Developing Countries
The reason oil prices had surged was that in the wake of Russia’s invasion of Ukraine last year, countries like the U.S. and Canada had imposed sanctions on Russian oil.
Then, to try and stabilize those world prices while still punishing Russia by reducing its oil revenue, in December 2022, the U.S. joined forces with other G7 countries, including France, Canada, and Japan to place a price cap on Russian oil products. Australia and the E.U. also implemented the measure.
This means that while still banning seaborne oil imports from Russia into their countries, nationals of these countries are allowed to engage in certain activities like brokering, trading and insuring vessels transporting seaborne Russian oil products to countries outside of their jurisdictions as long as the goods are traded at or below a certain level.
While the price cap is not imposed on Jamaica, a majority of the vessels in the world use insurers from these developed countries, and around 60% of oil products and chemical shipments out of Russia are covered by the price cap, according to the Finland-registered non-profit think tank, Centre for Research on Energy and Clean Air.
Under the price cap, developing countries, like Jamaica, that do not have sanctions against Moscow, were encouraged to take advantage of discounted Russian oil, which is set at US$60 a barrel compared to the current price for West Texas Intermediate crude of just under US$80 a barrel. The price cap is set at US$100 per barrel for high-value products from Russia, like ULSD, which Petrojam says it’s been importing at US$119.53 a barrel since the 2023-2024 fiscal year. (It wouldn’t say whether freight was included in that cost.) For low-value products like heavy fuel oil (HFO) the G7 price cap is set at US$45 a barrel.
The U.S guidance on the price cap states that “for Russian crude oil, once it is substantially transformed in a jurisdiction other than the Russian Federation, it is no longer considered to be of Russian Federation origin, and thus the price cap no longer applies.”
But even if Petrojam were to refine Russian crude oil into a finished product, thereby making that product Jamaican, TotalEnergies says it made it clear to Petrojam that “No transformation or any sort of blending of Russia origin product is acceptable.” As of May 26, it is also now requiring Petrojam to provide a certificate indicating the origin of all products it supplies to the fuel retailer.
JPS Says It Would Purchase Fuel From Petrojam Even If Imported From Russia
With the unwillingness of TotalEnergies and Sol to buy Russian oil products, this may have left Petrojam reliant on fewer big customers had it chosen to import those products.
Unlike the two fuel retailers that 18º North interviewed, Jamaica’s main power supplier, JPS, which currently buys heavy fuel oil (HFO) from Petrojam to produce about 30% of its power, told 18º North “yes” that it could still have bought from Petrojam even if that HFO came from Russia. Though 40% of JPS is owned by Japanese trading company Marubeni Corporation, Winsome Callum, the Director of Corporate Communications, said, “no,” Petrojam selling Russian fuel wouldn’t impact the company’s relationship with the state-run refinery.
According to Argus Media, earlier this month, HFO was selling on the open market within the US$78 range per barrel compared to a maximum of US$45 a barrel for Russian HFO under the price cap - a difference of about US$33 a barrel. Additional freight and insurance costs would have to be taken into account to know the true savings, if any, but independent energy consultant Bashir Badawi said, “the price difference is an attractive proposition for Petrojam.”
From a purely economic perspective, the potentially cheaper Russian fuel could have been welcome news to Jamaica, which has some of the highest electricity prices in the world, ranking 20th out of close to 150 countries according to Globalpetrolprices. As Jamaicans operate fans and air conditioning units more to cope with sweltering heat, JPS on July 14th, reported that there had been record demand for power.
Though a potential economic benefit for Jamaica, the negative implications of importing Russian oil products became clear after its biggest customers, Sol and TotalEnergies, told 18º North that they won’t deal with Russian oil imports. JPS is Petrojam’s eighth biggest customer.
On Petrojam’s decision not to import Russian oil products, Mr. Badawi said, “I think it’s an understandable choice as the long-term sustainability of Russian fuel is unclear and could sour important relationships and markets like the US, EU, Canada etc.”
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With reporting by Zahra Burton
This story has been updated since its original publication on August 10th 2023, triggered by new information received.