LUKoil's German Supplies Blocked

LUKoil will likely not supply crude to Germany in March for a second month running due to a pricing dispute with the monopoly importer of Russian crude to the country, trading sources said Tuesday.

"There have been no supplies in March so far and it looks like there will be nothing at all until the end of the month," one trading source said.

The move marks another attempt by the country's largest privately owned oil producer to clinch direct deals with German refiners instead of supplying oil to Sunimex, a monopoly importer of Russian pipeline crude to Germany.

In August last year, LUKoil reduced supplies to Sunimex, which is run by Sergei Kishilov, a prominent Russian oil industry figure. It later clinched a deal to restore supplies from September.

The fresh cut forced some German refiners, including PCK in the town of Schwedt, to switch to alternative supplies, including imports of the same Russian crude from the port of Rostock on the Baltic Sea.

German Economy Minister Michael Glos has said he sees no danger to German oil supplies from the cut, which he said was a normal market problem linked to prices.

LUKoil declined to comment. Sunimex was also not immediately available for comment.

Russian crude is supplied to Germany via the Druzhba pipeline, which runs from Russia via Poland and Belarus.

Germany is due to get 5.87 million tons of oil in the first quarter of 2008, including 1.75 million from LUKoil, according to an export schedule made by pipeline monopoly Transneft.

This means that LUKoil's cut in theory reduces Russian crude supplies by pipeline to Germany by over one-quarter.

One-fifth of German supplies arrive via Druzhba and are overseen by Sunimex, an intermediary which buys crude from Russian firms and sells it to the German refineries of BP, France's Total, Royal Dutch Shell and Italy's Agip.

Trading sources at oil majors that control German refineries have said the presence of Sunimex helps to solve logistical problems as they deal with one coordinator instead of a number of Russian oil firms.

LUKoil has said getting rid of Sunimex would help boost the transparency of oil trading and increase tax payments to Russia, as direct deals would generate more revenue.

Transneft chief Nikolai Tokarev last month questioned the need for intermediaries in the oil trade, saying firms like Sunimex, which emerged from the economic chaos of the 1990s, would soon disappear.