Czechs in front line of Russian moves to hike price of Urals oil

Cuts in Russian oil shipments to the Czech Rep. via the Druzhba pipeline may be part of a ploy to push up oil prices for Western Europe

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Contradictary claims have flooded the Czech media in recent days about falls in the volumes of Russian crude oil shipments to the Czech Republic via the Druzhba pipeline, the route for up to 70 percent of Czech supplies. 

The key Czech oil  importer Unipetrol, which is the majority owner of the two major Czech refineries, initially claimed that the issue was down to technical problems on the Russian side. However, according to Russian press reports, the real cause is a move by the Russian oil companies to bypass the traditional pipeline shipments and instead ship oil from the Baltic Sea port of Ust-Luga. In this way, the Russian oil exporters could end advantageous pricing for deliveries via Druzhba for custiomers and push up the price of Urals crude for all EU buyers.

Oil industry sources say Russian oil companies are now looking to push up prices for Urals crude on European markets.

The Russian dailies Kommersant and Vedomosti on Wednesday cited oil industry sources as saying that local oil majors are seeking a price hike for Urals crude on European markets and want customers in the EU, including those who receive shipments via Druzhba, to pay higher EU import prices, or so-called import netback, as opposed to cheaper export, or export netback prices. For the most part, customers receiving shipments via the Druzhba pipeline still receive the bulk of Russian oil at lower Russian export prices, whereas all sea shipments can be sold at higher EU import prices.  

Russian oil majors can now ship more oil via the Russian Baltic Sea terminal at Ust-Luga thanks to the BTS-2 trunk pipeline from Druzhba which was completed in 2011 and is now being brought online.

The Russian oil majors also have another card up their sleeves. As of last year they have an addtional export option in the form of the Eastern Siberia – Pacific Ocean oil pipeline (ESPO) for deliveries to China, Japan and other East Asian markets.

Test case?

Kommersant’s sources suggest that the Czech Republic due to its oil infrastructure has essentially been selected as the first target in the campaign by Russia to raise the price of Urals oil in the EU. “For market players it hasn’t come as a surprise that Russian companies will use the reduction of exports via Druzhba to one European country to review delivery terms and conditions for all deliveries using the pipeline. The Czech Republic was the ideal candidate for this role,” the daily wrote, adding that the Russian oil majors probably wanted to avoid a direct conflict with Hungarian oil and gas major MOL, or Unipetrol’s mother company, PKN Orlen of Poland.                

The Czech Republic is also a convenient testing ground because as the terminus of the southern branch of the Druzhba pipeline no other countries are dependent on oil supplies delivered to the country via the pipeline. Unlike Hungary and Slovakia, which are almost entirely dependent on supplies delivered via Druzhba, the Czech Republic can receive up to 40 percent of its oil requirements from the oil terminal at the Italian port city of Trieste via the Transalpine Line (TAL) and the Ingolstadt-Kralupy-Litvínov pipeline (IKL). Thus by attempting to coerce Czech customers to accept new their new pricing policy by limiting supplies, the Russian oil majors will cause minimal alarm beyond the Czech borders.

According to various oil market resources, alternative routes to the Druzhba pipeline cost Czech importers $4 to $5 more per barrel, whereas according to Russian media, the Russian suppliers are looking to raise prices by around $2 per barrel.    

According to Kommersant, state-owned operator of Russia’s oil pipeline network,Transneft, has a quota to ship 500,000 tons of oil from Lukoil, 500,000 tons from Rosneft, and 200,000 tons from Gazprom Neft via the Druzhba pipeline to the Czech Republic during the second quarter of this year. The quota for April was set at 350,000 tons, however, Transneft has reportedly been contracted by the three oil companies to ship just 80,000 tons to the Czech Republic of which 60,000 tons has already been delivered. Transneft says it will ship the remaining 20,000 tons in the coming days, adding that it hopes Czech consumers, i.e. Unipetrol, will use the time to make a more attractive offer to its Russian suppliers. 

Kommersant and Vedomosti on Wednesday both quoted sources within or close to Russian oil company Lukoil as saying that Unipetrol had not placed orders for oil deliveries from the company for the second quarter of 2012. 

Unipetrol initially blamed the shrinking supplies of Russian oil shipments to the country via Druzhba on “organizational and technical problems on the Russian side.” That claim was sharply refuted by Transneft, which said that there were no technical problems with the Soviet-era pipeline and that it is able to deliver the full volume of provisional quotas to Czech customers.

Unipetrol later changed its tune. ‘Now we can confirm that we have finalized contracts for the delivery of oil for April’ “The current uncertain situation concerning deliveries of crude oil to the Czech Republic has been caused by changes on the side of oil dealers. Now we can confirm that we have finalized contracts for the delivery of oil for April and the volumes requested should be delivered,” Unipetrol spokesman Mikuláš Duda told Czech Position on Wednesday in response to our enquiry as to whether the refiner had not placed orders for the second quarter with its main suppliers.

Unipetrol, however, declined to state the volume of oil it has secured for April, or whether in coming weeks and months it is counting on larger deliveries via the TAL and IKL pipelines to compensate for smaller shipments via Druzhba.  

In a note to clients on Wednesday, oil analyst with Prague-based brokerage Wood and Partners, Robert Rethy said the fact that Unipetrol, owned by the Polish oil major PKN Orlen, does not have long-term supply contracts and relies on the spot market makes the company more vulnerable. If forced to significantly change supply routes Unipetrol’s two Czech refineries in Kralupy nad Vltavou and Litvínov — both operated by daughter company Česká rafinerská — could run at a permanent loss, he warned. Unipetrol posted a loss of Kč 2.8 billion for 2011. 

The Czech Republic’s energy ambassador, now tasked with overseeing the Temelín nuclear expansion but formerly concentrating on gas and oil  security, Václav Bartuška, confirmed to Czech Position that the country has oil reserves to cover domestic demand for up to 90 days. Asked whether in the wake of the latest Druzhba developments he expects the government to push measures to ensure stable oil supplies, he said the Czech state is mostly powerless to influence such an issue. “The situation should serve as a warning for the West as a whole,” he added.       

Počet příspěvků: 3, poslední 19.4.2012 11:53 Zobrazuji posledních 3 příspěvků.