Russia's Dirty Oil Crisis Leaves Pipe Giant Scarred

(Bloomberg) -- As the biggest disruption to Russian oil flows in decades draws to a close the country’s European market looks remarkably unscathed, but its pipeline operator bears a few scars.
For Transneft PJSC -- the giant company that runs enough pipes to wrap five times round the Earth -- the worst didn’t happen. There’s little sign that buyers are turning away from Russian crude, despite the crucial Druzhba supply network being shut down for weeks by chemical contamination.
Yet the relief of retaining customers will be tempered by large compensation claims yet to be resolved, and potentially costly changes happening in Transneft’s domestic operations.
The Druzhba incident “exposed weak links in the Russian oil transportation system,” said Vitaly Yermakov, senior research fellow at the Oxford Institute for Energy Studies. The way Transneft responds “will become a litmus test” for the company and Russian energy regulators, he said.
The Druzhba crisis started small, with warnings in April about high levels of organic chlorides in Belarus’s portion of the pipeline. But it rapidly morphed into an international incident. It emerged that Russia, which has always prided itself on being a reliable energy exporter to Europe, had pumped millions of barrels of tainted oil to customers.
The mistake brought the country “very serious damage” economically, financially and in terms of public image, according to President Vladimir Putin.
“It’s the first time we are facing such a situation,” Transneft spokesman Igor Dyomin told Bloomberg. “It’s still too early to make any wrap-up analysis but we’ll definitely do it.”
Compensation Costs
Responsibility for fixing the crisis fell on Transneft, which manages a network of almost 69,000 kilometers (42,900 miles) of trunk pipelines that link up to Europe in the west and China in the east. In the weeks since the contamination first emerged, it has scrambled to remove tainted crude, get clean oil flowing again and reassure customers that losses will be covered.
Transneft hasn’t yet given an estimate for the cost of that pledge. The sole benchmark for the potential financial fallout is an agreement between the pipeline operator and its counterpart in Kazakhstan. Some supplies from the Central Asian nation were also contaminated because it sends crude through the Russian network to the Baltic port of Ust-Luga.
Transneft estimates that 22.2 million barrels of oil were contaminated by across all affected countries. If the compensation rate paid to Kazakhstan of $15 a barrel were applied to all of this crude, it could amount to hundreds of millions of dollars.
Running Smoothly
While the costs of the crisis remain uncertain, the impact on the oil market has eased considerably.
Transneft started gradually resuming clean crude shipments in May, and from July 1 customers’ delivery requests were being “fully met.” That means Germany, Hungary, Poland, Slovakia and the Czech Republic should once again be receiving about 4 million tons of clean oil every month via Ukraine and Belarus, Transneft said.
The problem isn’t entirely resolved. Crude flows in Poland and the Czech Republic were briefly halted last month when excess organic chlorides were detected again. On Friday, Royal Dutch Shell Plc’s PCK Schwedt plant stopped taking Russian pipe oil for the same reason, switching to supplies via the German port of Rostock. Druzhba flows to the facility resumed Saturday, according to two people familiar with the matter who asked not to be identified.
Overall, the European market showed resilience to the Druzhba disruption, said the Oxford Institute for Energy Studies’ Yermakov. Affected countries were able to tap oil inventories to ensure refineries continued to work, he wrote in a June research paper.
12
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Shell CEO Says World 'Desperately In Need' Of Natural Gas
- Fate Of $8Bn Alaska Oil Project To Be Resolved In Next 30 Days
- Gov't Tampering Puts Australian Gas Market In Unenviable Position
- Texas Power Outages Increase As Ice Storm Persists
- Oil And Gas Firms Need To Accelerate Shift To Low Carbon Energy
- Shell's Record Earnings Draw Angry Reactions
- Lukoil Hits 50 Million Tons Of Hydrocarbon Production In Caspian Sea
- TotalEnergies, Air Liquide To Make Heavy-Duty Hydrogen Stations
- Capricorn Reshapes Its Board of Directors
- NSTA's Energy Pathfinder Proving Its Worth
- What Bad Habits Should Oil and Gas Jobseekers Avoid?
- New SPR Bill Passes House
- Biden To Support ConocoPhillips Alaska Oil Project, Defying Greens
- USA Drops 3 Gulf of Mexico Rigs
- USA Oil and Gas Employs Almost 1 Million in 2022
- Shell Makes Host of Company Changes
- Energy Services Sector Will Grow To $1 trillion In 2025
- Libya Sees More Deals After Eni's $8B Gas Investment
- New Discoveries Make 2022 Highest Value Year In Over A Decade
- $1 Trillion Green Investment Matches Fossil Fuels For First Time
- Valaris Employee Reported Missing from Rig
- Louisiana, Texas To Gain Thousands of Energy Jobs At Start of 2023
- Gasoline and Diesel Prices Expected to Fall
- Is the USA Shale Boom Over?
- Higher Oil Prices Have Not Led to More Exploration
- Shell Finds Gas In Pensacola High-Impact Well Off UK
- Iran Oil Gushes Into Global Market
- Will Oil Hit $100 Per Barrel in 2023?
- Eni, Chevron Make Significant Gas Discovery Off Egypt
- What Bad Habits Should Oil and Gas Jobseekers Avoid?