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Compensation for tainted Russian oil to be decided company by company

June 17/2019

MOSCOW (MRC) -- Compensation for the tainted Russian oil supplied to Europe earlier this year via the Druzhba pipeline and in cargoes will be decided company by company, Russias Deputy Energy Minister Pavel Sorokin told Reuters.

Russia halted some oil supplies in April after excessive levels of organic chloride were found in the million barrel-per-day Druzhba pipeline that crosses Belarus and serves customers as far west as Germany.

Russian oil pipeline monopoly Transneft put the volume of oil affected at 3 million tonnes, or nearly 22 million barrels.

Frances Total and Russias Lukoil have both said compensation per barrel of tainted oil should stand at around USD15.

Belarus has said the volume of contaminated crude could be as high as 5 million tonnes, equivalent to a months exports via Druzhba of about 1.2 million barrels a day and worth USD2.3 billion at current prices. However, not all that will be subject to compensation.

Asked about compensation, Sorokin, who is holding talks on the contamination on behalf of the Russian energy ministry, said: "Each (company) has its own situation. There are different schemes of work for oil supplied by the pipeline and in cargoes."

"This means different approaches and, as a result, completely different costs of eliminating the consequences." He said his team had suggested an algorithm for calculating costs.

The compensation will take into account the time needed to mix tainted oil with clean volumes to keep chloride levels within allowed limits, as well as the cost of storage, freight costs, and other expenses, Sorokin said.

He said no foreign buyers of Russian oil have yet calculated the exact amount of compensation they are seeking, though talks were expected to conclude in the near future.

"Russia is and Russia will be a reliable supplier," Sorokin said. "Compensation will be fair."

Officials have said Transneft is to pay compensation rather than the state.

They said while it will compensate oil producers for their losses from the tainted oil, oil firms should in turn talk to their customers about losses further down the supply chain.

Druzhba splits into the two routes in Belarus. Russia has managed to restore some supplies of clean oil to Poland via Druzhbas northern leg and to Ukraine, the Czech Republic, Hungary and Slovakia in the south.

Russia has put some tainted oil into storage in Europe, including in Hungary, and has agreed to pump some volumes back from Belarus to mix them with clean crude at home. It can then be refined domestically and re-exported.

Sorokin said Russia will be pumping oil back from the Unecha-Polotsk line in two weeks and for now, the contaminated oil is being stored at the Naftan refinery in Belarus. In the south, all tainted oil has been put into storage, he said.

Some Russian ports which were not initially affected by the crisis have seen an increase in chloride levels as Russia has been diluting the tainted oil with clean volumes, he said, though they remained within permitted levels.

Sorokin said chloride levels at Russian ports would not be higher than at Ust-Luga, where the energy ministry said on Monday organic chloride levels in oil cargoes stood at 2.7 parts per million (ppm).

He said the level would remain in a range of 2.5-4 ppm, while for pipeline supplies to Europe, oil will have minimal chloride content. "(European customers) will mix it (with clean oil) according to their own plans," he said.

Russia is still studying other options for cleaning the oil other than mixing it, Sorokin said. Tainted oil can affect refining equipment, but oil products are unaffected and there will be no impact on end-users such as motorists, he said.

Druzhba accounts for around a quarter of oil exports from Russia, the worlds second biggest oil exporter after Saudi Arabia.

As MRC wrote before, in early June 2019, the Czech oil refinery at Litvinov, owned by PKN Orlen unit Unipetrol,  started receiving oil from state emergency reserves due to halt in Russian supplies via the Druzhba pipeline.

We also remind that the impact on European refinery throughput in the second quarter of 2019 from contaminated crude on the Druzhba pipeline is seen at roughly 250,000 barrels per day, under 2% of the continents product demand, as per the International Energy Agency.
Author:Margaret Volkova
Tags:Europe, crude and gaz condensate, Transneft, PKN Orlen, Total Petrochemicals, Unipetrol, Lukoil, Belarus, Russia.
Category:General News
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