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Share Price: 486.90
Bid: 486.85
Ask: 486.95
Change: -4.35 (-0.89%)
Spread: 0.10 (0.021%)
Open: 488.80
High: 489.40
Low: 486.00
Prev. Close: 491.25
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UPDATE 1-Germany, Poland halt oil imports via Russian pipeline over quality concerns

Thu, 25th Apr 2019 07:11

By Dmitry Zhdannikov, Olga Yagova and Olesya Astakhova

MOSCOW, April 25 (Reuters) - Poland and Germany havesuspended imports of Russian oil via a major pipeline, citingpoor quality, triggering a rare crisis over supply from theworld's second-largest crude exporter.

The halting of imports from the Druzhba pipeline couldstarve European refineries belonging to Poland’s PKN Orlenand Grupa Lotos as well as German plantsbelonging to Total, Shell, Eni andRosneft of most of their crude intake.

The suspension could trigger legal claims by Western buyersagainst Russian suppliers, who would in turn seek compensationfrom Russian pipeline monopoly Transneft, threetraders with Western oil buyers said.

On Wednesday, Polish pipeline company Pern told Transneft itwas suspending purchases, a letter seen by Reuters showed.

Belarus said its neighbour Poland stopped acceptingdeliveries of Russian crude via the Soviet-built Druzhbapipeline at 2000 GMT on Wednesday, Belarusian state news agencyBelta reported.

Druzhba, meaning "friendship", can ship up to 1 millionbarrels per day, or 1 percent of global crude demand. Itsupplies Poland and Germany via a northern spur and the CzechRepublic, Hungary and Slovakia via a southern leg.

If crude ceases to flow through Belarus and Poland, itcannot reach customers further west, in Germany. Traders fromoil majors operating the German refineries said flows viaDruzhba had stopped.

Two trading sources said the Czech Republic had haltedpurchases, although the Belarusian pipeline company saidcustomers along the southern leg were still receiving oil.

The quality problem arose last week when an unknown Russianproducer contaminated the oil with high levels of organicchloride.

The material is used to help boost oil output but must beseparated from oil before shipment as it can destroy refiningequipment.

According to traders with several European majors, levels oforganic chloride have fluctuated at 150-330 parts per million(ppm) instead of the 10-ppm maximum norm and the usual level ofaround 1-3 ppm.

The Russian energy ministry said Transneft was trying to fixthe problem as soon as possible, giving no timeframe.

A Russian energy source familiar with the situation said theproblem could be fixed by the end of the week. Two Russianindustry sources said top government officials would meet onThursday to discuss the problem.

BUYERS REJECT CARGOES

Crude contamination is rare in Russia. Traders said oil waslast contaminated with high levels of organic chloride around 10years ago, but on a lower scale.

This time, flows have been contaminated along the Druzhbapipeline as well as from the Baltic port of Ust Luga.

From Ust Luga, at least five contaminated tankers havesailed belonging to oil firms Rosneft, Surgut andKazakh producers and bought by traders and majors such asEquinor, Vitol, Trafigura, Glencore andTotal, trading sources said.

On Thursday, two industry sources said several Westernbuyers had started rejecting cargoes loading at Ust Luga.

Buyers have filed pre-claims to Russian oil sellers,indicating they may seek compensation, two traders familiar withthe developments said.

"No one wants to stop the refineries in Germany. They willbe operating at lower capacity now and may import some crudefrom the sea,” a trader with a Western oil major said.

"Stopping a refinery is expensive. But repairing it will beeven costlier."(Additional reporting by Andrei Makhovsky and Andrey Ostroukh;Editing by Dale Hudson, Christian Lowe and Mark Potter)

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