BAKU, Azerbaijan, June 14. Hungary, similar to other EU countries, would be able to gradually replace Russian supplies over two to three years but there is considerable uncertainty around the adaptability of MOL's operations and liquidity needs during this period, which is reflected in the Negative Outlook, Trend reports with reference to Fitch Ratings.
The rating agency says in its latest report that MOL would also be more reliant on its upstream segment during the adjustment period.
The EU has recently agreed to ban Russian seaborn exports of oil and oil products. Currently around 64 percent of MOL's oil supplies are procured from Russia via the Druzhba pipeline, although those will be temporarily exempted from the ban (timing when the exemption expires is currently unknown). MOL estimates the investments required to diversify oil import infrastructure and overhaul refineries so that they could process lighter types of crude oil at $500 million-$700 million over two-four years. We reflected the capex in our forecasts, which is low relative to MOL's total investment spending.
The EU agreement removes a risk that Russian oil supplies to Hungary would be halted. Nevertheless, we believe that in such a negative scenario MOL could increase supplies via the Adria Pipeline running from Croatia. While capacity utilization at refining assets in such a scenario would temporarily reduce to 70-80 percent, the impact on earnings would depend on the level of refining margins, which could improve further on the likely lower utilization rate of other refineries in the CEE region.
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