Issues for European oil supply after Russian dirty crude crisis

Imports and Exports | | MIC Customs Solutions |

Contaminated oil coming from Russia has resulted in imports being halted.

Poland, Germany and Slovakia are likely to have to dip into their oil reserves after suspending imports of Russian crude via a major pipeline because it was found to be contaminated.

The problem arose last week when an unknown Russian producer contaminated supplies from the Druzhba pipeline with high levels of organic chloride. This can be used to boost output, but must be removed prior to transportation because it can destroy refining equipment.

According to Reuters, shipments from the Ust-Luga port were halted as soon as buyers found out and Poland, Germany and Slovakia immediately suspended all their oil imports from Russia.

This has cut off a major supply route for Polish refineries as well as plants in Germany, with alternative supplies such as those from Gdansk not enough to fully compensate the shortfall.

Oil prices rose above $75 a barrel for the first time this year and there are suggestions that western buyers could initiate legal claims against their Russian suppliers as a result of the break in supply.

The Czech Republic also followed suit and suspended purchases, with the volume of Russian oil believed to be affected amounting to some 700,000 barrels per day. Some of the polluted oil that escaped through the pipeline before the problem was discovered could reach Slovakia and Hungary in a few days' time.

Russia has said it intends to resume the supply of clean fuel as quickly as possible and already has plans to meet with major stakeholders to discuss the issue. It also added that if the contamination is found to be a result of criminal activity, it will be seeking prosecution against the perpetrators.

Yesterday (April 29th 2019), Russia said it had managed to get clean oil to the border with Belarus and that it will likely take two weeks to stabilize supplies across the Druzhba network.

However, a source told Reuters that the suspension of deliveries to Poland and Germany will not be lifted in the short term.

Druzhba can ship up to a million bpd, or one per cent of global demand. It supplies Poland and Germany via a northern spur and the Czech Republic, Hungary and Slovakia through a southern leg.

Contamination of crude is rare and last happened in Russia around ten years ago.