Oil & Gas

23 Jan 2021

Price Dispute Shrinks Russia Oil Pipeline Exports

23 Jan 2021  by Reuters   
Exports of Russian Urals oil via the Druzhba pipeline have dropped this month as sellers opt for the sea route instead, following disagreements over pricing with European refiners, four sources told Reuters on Wednesday.
The Soviet-built Druzhba pipeline, named after the Russian word for friendship, links Russian oilfields to European refineries and has the capacity to pump 1 million barrels per day (bpd).

Since the start of January some 70 per cent of that capacity is being used, two sources familiar with daily Russian oil export data told Reuters on condition of anonymity.

Urals exports via Druzhba have fallen by 10 per cent and 20 per cent compared to December and January 2020 respectively, Reuters estimates based on data provided by the sources show.

At the same time, Urals oil exports from Russia's Baltic ports rose by 35 per cent.

Lower seaborne transportation costs for Russian flagship Urals crude in 2020 made exports via the pipeline less profitable compared to shipping oil by sea.

In response, the sellers sought to increase prices, but refiners, who have suffered from poor margins have resisted.

Russia's major oil exporter Rosneft has yet to agree on supply terms with Poland for 2021, two trade sources said. The country's two main refiners - Grupa Lotos, which owns Gdansk refinery, and PKN Orlen, owner of a refinery in Plock, are disputing the price, they added.

Rosneft's supply agreement with Grupa Lotos expired on Dec. 31, 2020, and the contract with PKN Orlen expires on Jan. 31, the sources said.

"Poland's refiners are always tough to agree with as they have the alternative of seaborne supplies," one of the trade sources said.

Rosneft also needs to reach agreement with Total about supplies to its Leuna refinery in Germany before the end of March when a contract expires.

At the end of last year, Total failed to agree with another major Russian oil supplier, Surgutneftegaz, which then diverted its oil to Baltic sea ports.

Rosneft, Grupa Lotos, PKN Orlen and Total did not immediately answer Reuters' requests for comment.

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