Page 8 - FSUOGM Week 26

FSUOGM COMMENTARY FSUOGM
Druzhba flows restored, claims Transneft
RUSSIA
The process of compensating the buyers of contaminated supplies has barely started.
RUSSIA’S Druzhba oil pipeline into Europe fully resumed operations on July 1, following one of the worst ever disruptions to Russian crude exports.
“As planned, as of July 1, crude supplies have resumed in the full volume applied for,” Trans- ne representative Igor Demin announced this week, without specifying this volume.
e so-called dirty oil crisis began in late April, when it was discovered that millions of barrels of oil in Druzhba had been contami- nated with organic chlorides – chemicals that are used to boost oil eld production but cause damage to re ning equipment if le in the oil. e 1mn barrel per day (bpd) transportation system was shut down, with re neries across Central and Eastern Europe (CEE) le scram- bling to secure alternative feedstock, with some having to resort to strategic reserves to continue operating. Supplies bound for Russia’s Baltic Sea port of Ust-Luga were also a ected, with some making their way onto tankers for shipment across the world.
Estimates vary over the total amount of oil that was contaminated, although Transne has placed the volume at 3mn tonnes (22mn barrels).
Deliveries via Druzhba’s southern line, which serves re ners in Ukraine, the Czech Republic, Slovakia and Hungary, were partially restored in late May. e more badly a ected northern line through Belarus, Poland and Germany did not come back online until early June, following extensive clean-up work.
Transneft has downplayed the impact on Russian output, stating that much of the oil that would have been pumped via Druzhba over the past two months was diverted to non-a ected ports. But there has been a noticeable decline in national production since the onset of the crisis.
Under the global OPEC+ deal on output restrictions, Russia is required to keep its pro- duction at a level 228,000 bpd lower than an October 2018 baseline level of 11.41mn bpd, or 11.17-11.18mn bpd. According to Energy Min- ister Alexander Novak, however, production was 278,000 bpd below the baseline in June, or 11.13mn bpd. It averaged 11.11mn bpd in May,
down from 11.23mn bpd in April.
e process of compensating the buyers of
contaminated supplies has barely started, with only one agreement so far having been reached between Russia and Kazakhstan. Sources told Reuters last week that Transne had agreed to fork out $15 per barrel for Kazakh oil that was tainted when it passed through Russia, with the total sum amounting to $76mn. Much of this volume had been bought by trading house Vitol, the news agency reported.
Belarus is also preparing to sue Russia over losses, its deputy PM Ihar Lyashenka said at a government meeting on June 28. The Mozyr oil re nery in southern Belarus was the rst to receive the contaminated oil, which caused an estimated $30mn in damage to its equipment according to Lyashenka. Mozyr and Belarus’ other re nery in Novopolotsk will also le claims relating to production outages, as well as for losses from the purchase of the tainted oil itself. Belarusian President Alexander Lukashenko has claimed that total losses may run into the hun- dreds of millions of dollars.
e crisis has exacerbated an existing dispute between Belarus and Russia over oil and gas supplies. Minsk is already seeking redress from Moscow for changes in Russian oil taxation that have driven up the cost of its imports, as well as a reduction in Russian gas prices.
Many traders are yet to take action, as while Transne has already pledged to compensate Russian oil producers, these have refused to compensate their customers until the contam- inated oil is sold so that losses can be calculated. According to recent Reuters reports, this is prov- ing di cult, as many re ners are unwilling to buy the oil even at he y discounts through fear of damaging their equipment. Meanwhile, China has gone as far as to ban imports of oil containing more than 10 parts per million of organic chlo- ride, its General Administration of Customers (GAC) told the news agency last week.
In Europe, Spain’s Repsol, Sweden’s Preem and Finland’s Neste Oil are among the re ners that have dared to process the spoiled volumes, by rst mixing them with other shipments.™
P8
w w w . N E W S B A S E . c o m Week 26 03•July•2019