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. Last Updated: 07/27/2016

EU Scolds Russia on Belarus Conflict

European Union leaders on Tuesday criticized Russia's decision to shut down its main oil pipeline to Europe, which has disrupted supplies to five countries and added fuel to the debate over Russia's reliability as an energy provider.

Since Monday, five countries -- Germany, Poland, Hungary, Slovakia and the Czech Republic -- have been getting no crude deliveries through the Druzhba pipeline, which crosses Belarus. Russia shut down the pipeline after accusing Belarus of siphoning off oil in an escalating trade dispute.

Belarus last week imposed transit duties of $45 per ton on Russian oil after Russia slapped full duties of $180 per ton on exports of Russian crude to Belarus.

German Chancellor Angela Merkel and European Commission President Jose Manuel Barroso said Tuesday at a joint news conference in Berlin that it was unacceptable for oil supplies to have been closed off without consultation.

"While there is no immediate risk to supply, it is not acceptable for suppliers or transit countries to take measures without consultation. Of course this is a matter for concern," Barroso said when asked about Russia's decision.

"I support what Jose Manuel Barroso said, namely that it's unacceptable when there are no consultations on such actions," Merkel said. "That hurts trust and it makes it difficult to build a cooperative relationship based on trust."

Barroso and other members of the European Commission were in Berlin to discuss Germany's presidency of the EU, which began this month.

In an interview broadcast on ARD television Tuesday, Merkel called for less dependence on Russian oil and gas, and said Germany should think more about conservation and renewable energy and also thoroughly consider the consequences of shutting down its nuclear power plants.

Merkel urged the construction of a tight oil network in Europe "so that in case of bottlenecks, there would be the possibility that European countries could help each other in certain situations."

Oil companies in the five affected countries have kept their refineries operating by drawing on their reserves and some have begun arranging for alternative supplies, through ports on the Baltic Sea or through other pipelines.

The disruption of crude exports via the Druzhba pipeline "shows that oil supplies from this direction are untrustworthy,'' Polish Deputy Economy Minister Piotr Naimski said Monday, Bloomberg reported.

Poland, which depends the most on Russian crude of all the affected countries, has reserves that will last 80 days and will bring in crude by sea, he said.

In the television interview, Merkel spoke of the need to diversify supplies of natural gas as well as of oil and sought to reassure Poland that Germany "must also think about whether we develop the possibility to send gas back to Poland out of what we receive in Germany."

As president of the EU over the next six months, Germany will be responsible for leading talks on a new cooperation pact with Russia, which will cover a range of issues from energy to trade and human rights. The start of negotiations has been blocked by Poland, which wants Moscow to end a ban on Polish meat imports.

On Sunday, Merkel said she wanted a new cooperation agreement to include commitments from Moscow that it would be a reliable provider of energy to Europe. She is scheduled to visit Moscow on Jan. 21.

The disruption hurts the image of Russia and Belarus as reliable energy partners for the EU, the EU Energy Commission said in a statement Tuesday.

The International Energy Agency said Monday that there was "apparently no immediate impact to any of the refineries in the countries involved, as they all have working stocks of several days." All of the countries have strategic reserves that can be drawn upon if necessary, but so far the market was capable of handling the situation, the agency said in a statement on its web site.

The last time a European country had to use its strategic oil reserves was after the Gulf War broke out in 1991.

The current dispute will be resolved in a "matter of days," predicted Simon Wardell, a London-based oil analyst at Global Insight, a consultancy with headquarters in the United States. European governments will see it as "an isolated case" and will not "rush to establish alternative supplies," he said.

The dispute also shows that Russia is prepared to sacrifice "a little bit of public relations" in order to settle its ongoing problems with the former Soviet neighbors regarding transit agreements and prices for its energy resources, he said.

"Clearly, Russia does not want to go too far in this direction," he said.

Germany's reserves will last 130 days, and the Czech Republic will be able to go 122 days by drawing on its reserves, some of which are stored in Slovak facilities, Czech Industry and Trade Minister Martin Riman said. The Czech Republic said Tuesday that it had already tapped reserves of at least 52,000 tons of crude oil stored in Slovakia, which would cover its needs for four days, Reuters reported.

Polish refining company PKN Orlen said Monday that it was keeping its largest refinery operating at full capacity by using its reserves. But the company intended to request permission from the government to use national crude reserves, if necessary, it said in a statement on its web site. The reserves would secure 80 days of continuous operations, it said.

PKN Orlen stressed that it could arrange for crude to be supplied via the Gdansk port.

Hungary's oil company, Mol, said it could import additional supplies of crude through the Adria pipeline running from a port on the Adriatic Sea, Interfax reported.

Crude supplies to Europe through Druzhba were around 1.2 million barrels per day, the International Energy Agency said. That constituted 12.5 percent of the European Union's demand and more than 30 percent of Russia's pipeline-borne exports last year.

Druzhba carries 75 percent of Poland's supplies. Slovakia and the Czech Republic are less dependent, and Germany is the least reliant with 20 percent.

In Washington, U.S. State Department spokesman Sean McCormack said the dispute between Russia and Belarus underscored the need for multiple sources of energy supplies and transport routes, The Associated Press reported.

Alternative oil routes



Russia has said it will reroute supplies to European customers after a trade spat with Belarus halted shipments via the Druzhba pipeline system that supplies Germany, Poland, Hungary, Slovakia and the Czech Republic.

President Vladimir Putin suggested Russia might have to cut output in response to the pipeline closure.

Druzhba carried more than 30 percent of Russia's pipeline-borne exports last year, a total of 68 million tons, or 1.37 million barrels per day, and Russian oil firms will struggle to find alternative routes for such vast volumes.



SEABORNE:

Russian seaports exported 133.3 million tons, or 2.68 million bpd, of crude brought to them by pipeline last year, with the Baltic terminal of Primorsk filling the most important role.

The port, near St. Petersburg, exported 66 million tons last year and lacks the spare capacity to ship anything but a fraction of Druzhba's unexported volumes since it was already pumping at a record high in December.

The Black Sea ports of Novorossiisk, Tuapse and Odessa -- jointly responsible for 60.7 million tons last year -- have more spare capacity. But they are often closed by storms in the winter months and are ill placed to supply central Europe.

Frequent shipping bottlenecks in the Bosphorus straits also make a significant expansion in Black Sea exports unlikely.

RAILBORNE:

Russia's rail company does not reveal data on how much its trains export to Europe, although shipments to China totaled around 200,000 bpd last year.

Russian Railways could theoretically increase shipments to ports such as Vitino, which shipped less than half its capacity of 8 million tons last year, although the White Sea port is icebound in winter.

Nearby Murmansk, which does not freeze and is also supplied by rail, is expanding and will be able to load up to 26.1 million tons per year of cargoes by 2010, compared with 16.7 million tons per year in 2004.

But neither port is ideally placed for supplying the volumes needed in central and eastern Europe, and rail shipments may have to be increased to lesser-used Baltic ports for shipment to Gdansk.

RIVERBORNE:

Rivers and canals carry unrevealed but substantial volumes of crude and oil products every year.

Several million tons of fuel oil and distillates were shipped to the Baltic via the Volga-Balt pipeline system last year, and spare tanker capacity is unlikely to be available to expand significantly.

Fresh water transport also carries volumes to Vysotsk, Tallinn and other Baltic seaports.

Source: Reuters

druzhba at a glance



The Druzhba oil pipeline is one of the world's biggest by capacity and length. Part of pipeline monopoly Transneft's system, it starts in central Russia and connects to major refineries in Europe.

It has a capacity of more than 2 million barrels per day of which some 1.4-1.6 million bpd go directly to consumers in the European Union, while remaining volumes stay in Belarus.

GERMANY, POLAND:

The Druzhba pipeline splits into two legs with the bigger, northern one going to Poland and Germany.

Germany gets around 500,000 bpd of crude via Druzhba or one-fifth of its total consumption. Refineries belonging to Total, Shell and BP are among the biggest buyers of crude from Druzhba.

Traders say refiners could in theory replace purchases of Russian crude from Druzhba with imports from the Baltic Sea ports of Gdansk in Poland or Germany's Rostock. But this would take time and the ports' capacities would not be sufficient as Polish refiners would also have to import crude via Gdansk.

Poland imports around 360,000 bpd of crude via Druzhba for domestic refining and exports another 170,000 bpd of Druzhba crude via Gdansk. Poland's oil consumption was 478,000 bpd in 2005, according to BP's Statistical Review of World Energy.

SLOVAKIA, HUNGARY, THE CZECH REPUBLIC:

The southern leg of the Druzhba pipeline supplies Slovakia, Hungary and the Czech Republic and has total capacity of more than 400,000 bpd but is often underused.

The Czech Republic imports around 100,000 bpd via Druzhba, or half its consumption, Slovakia buys around 76,000 bpd from Druzhba, covering its entire needs, and Hungary imports 135,000 bpd, also almost fully meeting its demand.

LITHUANIA, BELARUS:

Lithuania had also been getting around 300,000 bpd for its Mazeikiu refinery and Butinge export terminal on the Baltic Sea via Druzhba.

But Russia suspended those supplies last year, blaming a pipeline leak. Analysts said the move was to punish Lithuania for selling the Mazeikiu refinery to Poland's PKN Orlen rather than choosing a Kremlin-friendly oil major.

Belarus itself gets around 400,000 bpd for its two refineries. Russia late last year imposed a crude export duty of $180 per ton to bring a halt to a lucrative scheme in which Belarussian refiners made up to $4 billion per year by buying duty-free Russian crude and exporting finished products.

Belarus retaliated on Jan. 3 by imposing a transit charge of $45 per ton on all Russian crude crossing its territory.

Source: Reuters