Gigantic Druzhba oil pipeline paralyzed for weeks | Business| Economy and finance news from a German perspective | DW | 07.05.2019
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Gigantic Druzhba oil pipeline paralyzed for weeks

Contaminated crude oil from Russia is clogging the main delivery route for several EU countries. Belarus, Poland and Germany are particularly affected and the real financial consequences are still completely unclear.

Germany has a serious problem with Russia, its largest energy supplier. For two weeks, the Druzhba (Russian for "friendship") pipeline has been blocked. It is the main route to supply Europe's leading economy with Russian oil.

Even during Soviet times, the former East Germany was supplied by it as were other communist "brother countries." But as of April 25, today's EU members Poland, Hungary, Slovakia and the Czech Republic can no longer get oil from the Druzhba pipeline. Warsaw, Budapest and Prague have already had to tap into their emergency reserves.

Tons of contaminated oil

The problem is technical. According to information from Moscow, heavily polluted oil has entered the pipeline probably in the Samara region on the Volga. This oil contains chlorides, which are used to extract oil from largely exhausted sources. But afterwards the chlorides have to be removed, because they can cause severe corrosion damage in refineries.

The maximum allowed concentration of such chemicals is 10 parts per million (ppm). Currently though the oil in the Druzhba pipe is showing up to 330 ppm of chloride. Since refineries have refused to accept such a contaminated raw material, its transit was stopped by the pipeline operators in all customer countries. So far the contaminated oil has not come as far as Germany, according to the German Petroleum Industry Association (MWV).

It is still unclear how much of the contaminated crude has accumulated in the several thousand kilometers of pipelines in Belarus, Poland, Ukraine, Hungary, Slovakia and the Czech Republic. It has been estimated that up to five million tons, or 37 million barrels, have entered the system in Russia. That would correspond roughly to the monthly capacity of the now clogged Druzhba pipeline. Still other sources talk about three million tons.

Pain in Belarus

So far Belarus has suffered the most among the buyer and transit countries. Their economy is heavily dependent on oil from Russia, which it gets at a preferential price and processes in two refineries to gasoline, the country's main export and foreign currency producer. Minsk also cashes in on all the oil that passes through the country, otherwise known as transit fees.

Therefore, a standstill in the Druzhba and a shutdown of gasoline production are a heavy blow to the already weakened economy. In addition, the equipment in the Masyr refinery has reportedly been seriously damaged by the chlorine in the oil. At the end of April, Minsk estimated its losses at $100 million (€89.4 million); now it is said that the final bill will be significantly higher.

Belarus closed its section of the Druzhba pipeline on April 24. New "clean" oil from Russia arrived in Masyr on May 4, two days later the refinery was still busy cleaning the plant. On the same day, Ukraine announced that it had resumed transit of Russian oil to the EU.

Restarting service to southeastern Europe

The Druzhba pipeline divides into two lines around Masyr. The smaller southern line leads across Ukraine into Hungary, Slovakia and the Czech Republic. According to Ukrainian pipeline operator Ukrtransnafta, clean Russian oil could reach these EU countries on May 18. This would still mean a delivery interruption of more than three weeks for these customers.

How long Poland and Germany will have to wait for Russian oil, however, remains unclear. These countries are supplied via the much larger northern section of the Druzhba pipeline, which seems to be clogged with a considerable amount of the contaminated stuff. This contaminated material must first be removed and disposed of.

A pumping station of the Druzhba pipeline in the Bryansk region of Russia

A pumping station of the Druzhba pipeline in the Bryansk region of Russia

Russia's Energy Minister Alexander Nowak announced a return to the usual exports in the next few weeks: "As far as the normalization of the situation is concerned, we expect this for the second half of May," he said Tuesday.

Getting rid of the dirty oil

The question of how and who would pay has so far gone unanswered, at least publicly. However, the Russian government has already held (discrete) negotiations twice with all the countries concerned, as Nowak announced on May 7.

In Belarus, the disposal will be done by the state-owned Russian oil pipeline monopoly Transneft. The company will load contaminated oil in cars of the Russian state railway. After that it will be brought to the Russian Black Sea port of Novorysiysk, where it will be mixed with clean oil, pumped into tankers and exported. This same "mixing technology" will also be used in the Russian Baltic Sea port of Ust-Luga.

Ust-Luga is connected to the Druzhba system through the BPS-2 pipeline, which also contains large quantities of contaminated oil. Nevertheless, Ust-Luga was only down for one day. Otherwise tankers were loaded and set sail for the Netherlands and other EU countries. According to the latest information from Moscow clean oil should reach the port on May 8. 

German refineries remain silent

The German refineries in Schwedt and Leuna, which would normally be supplied via the Druzhba pipeline, are now dependent on supplies via ships landing at the Baltic Sea port in Rostock. And now these refineries must be careful that they do not get any contaminated Russian oil by sea instead of by land.

The fact that these German companies have maintained a noticeable silence despite the precarious situation may be due to the fact that a shareholder of the PCK refinery in Schwedt is the Russian state-owned company Rosneft. Its partner, British-Dutch oil and gas multinational Shell, is actively involved in the Russian energy sector. And even Total, a French energy company, which owns the plant in Leuna, has business interests in Russia.

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However, the supply disruptions and quality problems of Russian export article No. 1 mean "a very serious economic, material and image damage" for Russia. This was clear to Russian President Vladimir Putin on the eve of the May Day holiday, when he quoted the Transneft boss in the Kremlin.

The actual losses could not be estimated at that time. Still today, the problem is impossible to estimate. In the meantime, four suspects have been arrested, according to Energy Minister Nowak. They will be investigated for theft, damage to important objects and the creation of a criminal group.

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