Russian oil and gas – worth the risk?
23 May 2019
According to the news agency reports in late April, pipelines in Russia, Belarus, Ukraine and Poland are estimated to contain five million tonnes of contaminated Russian oil. Pipeline operator Transneft said the oil in the Druzhba pipeline network from Russia to customers in Europe was contaminated at a private terminal at Samara in southern central Russia.
Transneft terminal - Image: Shutterstock
The oil was contaminated with high levels of organic chlorides, substances used in oil production to boost output but which are highly corrosive to refining equipment.
Initial reports from Russia link the contamination to a private refinery and a group of individuals who stole pipeline-ready oil and replaced it with a similar volume of a liquid mixture made up of raw crude and organic chlorides. A number of individuals have been arrested over the incident, Russian police said.
This kind of gangster capitalism is all too prevalent in Russia, but what surprises is that this small operation could be responsible for the vast amounts of contaminated oil in the pipeline network.
Some speculate that Russia’s desire to export as much as possible as quickly as possible to take advantage of the oil price spike caused by sanctions on Iran could have led Transneft and major producers such as Rosneft to make their quality checks even sketchier than usual.
By late May some parts of the network in Central Europe had been cleared of the contaminated oil, but supplies to Poland and Germany, two of the main customers, had yet to resume.
So far Belarus has suffered most. Its 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 earns from the oil that passes through the country in the form of transit fees.
Russia has said it will provide compensation to all parties that can prove real damage from the contaminated oil, but this process is likely to be long-drawn out.
According to Die Welt, the Belarusian State Concern for Oil and Chemistry (Belneftekhim) had been complaining about the deteriorating quality of Russian oil for many years, but this incident was by far the worst.
Equipment at its 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 (€89.7 million) but said the final total could be much higher.
It remains to be seen how quickly Russia can flush out the contaminated product from the Druzhba network.
Those European governments that have chosen to rely on Russian energy imports have long ignored the criminality, corruption, poor safety standards and environmental disasters that the Russian hydrocarbon sector has visited upon the country.
But with this latest disruption, they have to ask themselves if (relatively) cheap hydrocarbons from Russia are in any way a reliable or sustainable source of supply in the long term.