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. Last Updated: 07/27/2016

Croatia Puts Hitch in Druzhba

Itar-TassThe Druzhba pipeline will carry crude oil west from Russia to the Adriatic Sea.
Russia's plans to export oil to the United States may have run into a hitch.

State-owned Croatian pipeline operator Jadranski Naftovod on Wednesday put forward new conditions for its participation in integrating two East European pipeline systems, said Igor Solyarsky, vice president of Transneft, Russia's state-owned pipeline company.

"Croatia hasn't refused to sign the agreement, but they did take a timeout for further study," Solyarsky said. He declined to give a reason for the delay.

Russia and Croatia both signed a protocol in November to go forward with the project, which would create an oil transport corridor running from Russia to the Adriatic Sea.

For the pipeline to be completed, however, the flow of oil through Croatia's Adria pipeline will have to be reversed. Adria now carries crude eastward from the deep water port of Omis on the Adriatic to the city of Sisak and further inland.

A $20 million modernization of the pipeline would reverse the flow, and Russian oil would be able to bypass Turkey's overcrowded Bosporus Strait. Russia's export capacity is expected to increase by 5 million tons a year after completion of the first phase of the project.

Russian oil companies hope to avoid the Bosporus because Turkey restricts the passage of large tankers through the narrow straits. Analysts say that producers could save money on transportation costs by using large tankers, which can carry 350,000 to 400,000 tons of crude.

Although Russia will have difficulty competing for market share on the U.S. East Coast, the United States may buy Russian oil to diversify.

Russia, Belarus, Slovakia and Ukraine have already signed a framework agreement. But the Druzhba-Adria project cannot go ahead without Croatia and Hungary.

Interfax reported that the Croatians are upset because of a scandal surrounding a west Siberian oil producer wholly owned by Croatian state oil company INA.

Last month, Transneft refused to give the producer, White Nights, access to Russia's trunk pipeline system.

Transneft says the oil producer's metering system needs an upgrade, while sources quoted by Interfax say Transneft is acting on behalf of oil company Slavneft.

Slavneft, which is jointly owned by the Russian and Belarus governments, is negotiating to buy White Nights from INA -- and there is suspicion that Slavneft is trying to force the price down.

Slavneft wants to buy White Nights for $4 million to $5 million, Croatian media say, although auditor Andersen has valued it at $35 million.

Energy Minister Igor Yusufov and Croatian Economics Minister Hrvoje Vojkovic may address the scandal at a meeting Thursday.