Russian oil quality back to normal at Baltic port after contamination

MOSCOW/LONDON: Russia has begun shipping clean oil via the Baltic after a contamination problem disrupted flows for three weeks and it is working to resume supplies by a pipeline to Europe although traders said this might take several more weeks to fix.

High levels of organic chloride, used in oil extraction but which must be removed before being sent to clients, was found in crude pumped to the Baltic port of Ust-Luga and through the Druzhba pipeline in late April, disrupting Russian exports.

Two trading sources told Reuters the level of organic chloride in oil loading at Ust-Luga was back to normal on Monday, after the contamination halted sales. Two other sources said test oil shipments via Druzhba had started to Hungary.

Russia's Energy Ministry had said on Friday tankers were being loaded with clean oil at Ust-Luga, after the disruptions to exports through the port and Druzhba pipeline drove up global crude prices and left refiners as far west as Germany scrambling to find alternative crude supplies.

Two industry sources said Hungarian energy company MOL was receiving oil via Druzhba as part of a test to see whether the equipment at its sole Danube refinery could process the oil. High levels of organic chloride damages refinery equipment.

Hungary has become the first European country to resume imports, but one of the sources said the organic chloride content in Hungary's test supplies was still above permitted levels of a maximum norm of 10 parts per million (ppm).

The sources said MOL hoped to restart regular Druzhba intakes from May 17, once it had carried out the tests.

MOL did not immediately reply to a request for comment.

Ukraine said on Saturday it had resumed transfers to European clients via the pipeline's southern leg to Slovakia, Hungary and Czech Republic. The pipeline, which splits into two branches in Belarus, has a northern spur routed to Poland and Germany.

The Czech government approved on Monday a second loan from state oil reserves for refiner Unipetrol, part of Poland's PKN Orlen group, for more than 100,000 tonnes of crude to cover for supply interruptions from Russia.

"ENORMOUS" COST

Belarus plans to discuss the contamination crisis in the Slovak capital of Bratislava on May 13-14, Belarusian state firm Belneftekhim said on Monday.

President Alexander Lukashenko said last week Belarus had faced "enormous" costs due to the contamination and expected compensation from Russia, although the mechanism for any compensation and who will pay remains unclear.

Russian pipeline monopoly Transneft blamed unnamed "fraudsters" for the problem. Russian President Vladimir Putin said Transneft lacked a proper mechanism to prevent contamination.

The issue has driven down Russian oil shipments. About 6% less oil was pumped through Transneft's pipeline network from May 1 to May 12 compared with April's average, two sources familiar with the shipment data said.

They said oil intake in Transneft's nationwide network, which handles about 85% of Russia's total crude output, was about 8.8 million barrels per day (bpd) in the 12-day period, citing data that included oil used at home and export volumes.

At least 5 million tonnes of oil, or about 36.7 million barrels, was tainted with high levels of organic chloride.

Transneft has proposed mixing tainted oil with the clean crude at the Black Sea port of Novorossiisk. Industry sources said levels of the organic chloride at Novorossiisk had risen since early May but remained below 10 ppm limit.

Total Russian oil production has also slipped this month, declining to 11.16 million bpd from May 1 to May 12 from an average of 11.23 million bpd in April, sources said, the lowest output level since June, when it was 11.06 million bpd.

Russia has agreed with the Organization of the Petroleum Exporting Countries and other producers to lower output to shore up global prices, but its May output has now dipped below the target level allowed in the deal of 11.18 million bpd.