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Factbox: Russian oil flows to Europe drop amid contamination

FILE PHOTO: General view of the Total oil refinary in Leuna, Germany, November 19, 2014. REUTERS/Axel Schmidt/File Photo

By Olga Yagova, Dmitry Zhdannikov and Gleb Gorodyankin

(Reuters) - Russia halted oil flows along the Druzhba pipeline to Eastern Europe and Germany in April because of contaminated crude, contributing to a rise in global oil prices and leaving refiners in Europe scrambling to find supplies.

Oil at the port of Ust-Luga was also contaminated.

For a map of the Russian oil pipeline, click on: https://tmsnrt.rs/2DytnnM

Below are details of the problem and action being taken.


WHAT HAPPENED?

At least 5 million tonnes of oil, or about 36.7 million barrels, have been contaminated by organic chloride, a chemical compound used to boost oil extraction by cleaning wells and accelerating the flow of crude.

The compound must be removed before oil is sent to customers because it can destroy refining equipment.

Russian pipeline monopoly Transneft said the contamination happened in the Volga region of Samara and blamed unidentified "fraudsters". President Vladimir Putin said Transneft lacked a proper mechanism to prevent contamination.

Transneft allows no more than 10 parts per million (ppm) of organic chlorides, while levels in the Druzhba line and Ust-Luga have fluctuated between 80 and 330 ppm.


WHAT IS THE IMPACT?

Supplies along the Druzhba pipeline, which can pump 1 million bpd or the equivalent of 1% of global oil demand, have been suspended since April 25. Every day of pipeline stoppage is costing Russia $80 million in lost revenue.

Druzhba, was built in Soviet times and serves refiners in Germany, Poland, the Czech Republic, Slovakia, Hungary, Ukraine and Belarus.

As of May 21, the northern led of Druzhba serving Poland and Germany was still shut. Flows via the southern leg to Ukraine, the Czech Republic, Slovakia and Hungary have been partially restored.

The main stumbling block for resuming the flows is to find a buyer for 8-9 million barrels of contaminated oil sitting in the pipeline.

Russian oil output from May 1 to May 16 fell to 11.156 million barrels per day (bpd), below the 11.18 billion bpd level set as part of the global oil deal between OPEC and its allies.


WHAT HAVE BUYERS DONE?

France's Total and Eni have suspended payments for the contaminated oil and said they will only pay when compensation is agreed.

Trading companies Vitol and Unipec are sending around 700,000 tonnes (5.1 million barrels) of contaminated oil to Asia in an attempt to place the barrels rejected by buyers in Europe.

Kazakhstan plans to seek compensation from Russia as its oil transit via Russia has also been contaminated.


WHAT HAVE REFINERS DONE?

Hungary's MOL said it will start taking clean Russian oil later this week after agreeing to store 100,000 tonnes of contaminated crude.

Total said on Friday that it had suspended operations at some units of the 230,000 barrel-per-day Leuna refinery in Germany for technical checks.

Poland has released 800,000 tonnes of mandatory oil reserves to Lotos and PKN Orlen refineries. It said it saw no risk to products supplies to consumers so far.

Hungary has released 400,000 tonnes of oil from emergency reserves to supply a refinery owned by MOL. It said that was sufficient for supplying the country's refineries for two months if needed.

Czech refiner Unipetrol will start drawing the second batch of an emergency crude oil loan from state reserves overnight, the reserves administration chief Pavel Svagr said on Friday.


HOW CAN THIS BE FIXED?

Buyers who have received contaminated oil now need to store it somewhere and dilute it with cleaner crude to lower the chloride levels, an operation that could cost millions of dollars for each large tanker.

Oil from Ust-Luga tankers could gradually be loaded into storage tanks in Europe or Asia or through ship-to-ship operations to be mixed with better-quality crude.

But cleaning out the Druzhba pipeline is more complicated.

Germany and Poland lack sufficient storage to keep the oil until it can be diluted.

Transneft has said contaminated oil from Belarus could be transported by rail to the Russian Black Sea port of Novorossiisk, where it would be diluted.

This would take several months because the railway cannot take more than 300,000 tonnes per month, traders say.

Traders said the first rail cars with dirty oil had arrived at Novorossiisk in early May, leading to a deterioration of crude quality at the port although it remained within permitted levels.


(Additional reporting by Vladimir Soldatkin; Editing by Dale Hudson and Emelia Sithole-Matarise)