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

The Hungarian oil and gas giant, MOL, was 402nd on the Fortune Global 500 list of the world’s largest companies in 2013. Their revenue was equal to one-fifth of Hungary’s GDP at the time. Now it can buy cheap Russian oil through the Friendship pipeline, which grants the company extraordinarily high profits. Provided the EU bans the import of Russian oil, the company will lose a lot of money. But there are already possible loopholes in the initiative. If the company can play its cards right, a new golden age might come for them.

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 process almost only Russian Ural-type crude oil. Provided the European Commission bans that type from EU markets, MOL can be in serious trouble. Though the President of the European Commission and her proposal is a threat to MOL’s profitability, she offers a solution with her other hand, hvg.hu writes.

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

Read also: Can Hungarian households substitute Russian gas?

Hungarian prime minister refused to support the EU ban

The Hungarian foreign minister said that the government could not support von der Leyen’s initiative even with the exemptions because it would destroy the safety of Hungary’s energy supply. Zoltán Kovács added that Hungary would veto the embargo on Russian oil. PM Viktor Orbán 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. Changing that would cost EUR 500-700 million and 2-4 years. Furthermore, CEO Zsolt Hernádi stated that even if they could process other crude oil types, 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 leading analyst of Concorde Securities Ltd., told HVG that oil prices in the region are linked to Brent, but the Ural is cheaper. Furthermore, it comes through pipes, which is also the cheapest transport option. As a result, MOL has very high profits, and their products are cheaper than their competitors’. It is not by chance that the firm did not publish its May refining margin even though they did so in the last ten years consecutively.

Read also: Government officials, Hungarian energy industry heads meet to discuss Brussels oil sanctions

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

Gaál thinks the 1.5-year transition period, on the other hand, could be enough for MOL to find new oil sources and optimise production on them. As a result, they could gain a significant market advantage. Lajos Török, a leading analyst of Equilor Investment Ltd., said that the profit of MOL would increase in the next 1.5 years. That is because cheap Russian oil will continue to come, while Brent’s price will increase.

Török believes that MOL has to store as much Russian oil as possible. Then they will have two options. They can either change to technologies enabling them to process other types of crude oil or preserve existing capacities and launch projects for adapting other technologies parallelly.

HVG said they asked MOL about their plans, but the company did not reply by the time their article was published.