Corrosive Russian Crude Removal a Logistical Nightmare
(Bloomberg) -- How do you get millions of barrels of dirty Russian oil out of the pipelines? Eastern European nations are working on an unprecedented logistical operation to do just that.
Russian crude flows to Europe are said to have been suffering from high levels of organic chloride since at least April 21. About 30 million barrels -- enough to fill 15 supertankers -- could have been contaminated, according to Energy Aspects analyst Christopher Haines.
The range of solutions involved will include drip feeding the tainted barrels into clean crude supplies in order to dilute down the contaminant and deploying thousands of railcars to move the crude to other locations in Russia. In addition to the release of strategic oil reserves, crudes will probably be pulled from other parts of the world in order to keep refineries running.
“This is a huge logistical issue,” Haines said by phone from London. “It is on the biggest oil pipeline that comes into Europe. There could be anywhere between 20 and 50 million barrels of this crude, we’re estimating it’s probably around 30 million.”
While the impact of the disruption has so far been largely unfelt in crude futures markets, governments in Poland and Hungary released strategic oil reserves to keep their refineries going.
Some of the contaminated crude is thought to contain up to several hundred parts per million of organic chloride -- an element that’s corrosive and can damage both pipelines and refinery units. Transneft, which operates the Druzhba pipeline, has a limit of ten parts per million, while a normal value would be between one and three parts per million, Haines said.
One thread of the twin pipeline will be freed up by moving about 400,000 tons of substandard crude to farms in Hungary, Slovakia and Ukraine, in an effort to resume oil flows. That should mean clean oil can reach European Union countries by May 18, Ukraine’s national pipe operator said.
At the same time, Russian Railways is helping take some of the oil out of Belarus by train. Despite the attempt to use rail capacity, there aren’t enough carriages to take sufficient oil away from the pipeline, according to Dora Polgar, senior analyst at Facts Global Energy, adding that the pipeline may have to be reversed in order to clear some of the flows.
“Railway takeaway capacity is limited,” she said. “We are talking about all of Druzhba and the pipeline that goes to Ust-Luga, and they don’t have the equivalent capacity, not even close to it, with railway.”
More immediately, the governments of Russia’s customers have been releasing emergency reserves. The International Energy Agency said on Tuesday that Poland is using inventories to maintain normal operations at two refineries. At the same time, Hungary has released 400,000 tons, or 60 percent of its stockpiles, to compensate for supplies halted due to contamination.
Despite the releases, refineries are also being forced to pull crude from other sources. Germany’s port of Rostock is set to receive Urals crude -- loaded from a port that’s where shipments aren’t affected -- for the Schwedt refinery in Germany.
Hungary’s Mol Nyrt. is in talks to ramp up oil supply from the Adriatic. Poland’s Grupa Lotos SA said that its Gdansk refinery can import oil from other parts of the world, thanks to its access to the Baltic Sea. With some states believing the contamination could take months to clear, both Russian exports and European refinery throughput could be at risk, JBC Energy GmbH wrote in an emailed note on Wednesday.
“You’ve got to get the contaminated crude either into storage to drip feed it into your refinery, or to get it exported if you haven’t got the storage space,” said Jonathan Leitch, senior analyst at Wood Mackenzie Ltd. in London. “Then your question is: can you get enough crude into your refinery to keep it running. It’s a bit of a logistical problem for refiners but they’re working at getting around that, it’s what they’re good at.”
--With assistance from Julian Lee.
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