April 25, 2019 / 7:46 AM / a year ago

RPT-UPDATE 1-Germany, Poland halt oil imports via Russian pipeline over quality concerns

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MOSCOW, April 25 (Reuters) - Major Russian oil buyers Poland and Germany have suspended imports of Russian crude via a major pipeline, citing poor quality.

The development could starve refineries belonging to Poland’s PKN Orlen as well as German plants belonging to Total, Shell, BP and Rosneft of the lion’s share of their imports which usually come via the Druzhba (Friendship) pipeline built by the Soviet Union.

The very rare suspension of oil flows could also trigger a flurry of legal claims by western buyers against Russian suppliers who will in turn seek compensation from the Russian pipeline monopoly Transneft, according to three traders with western oil buyers.

On Wednesday, Poland’s pipeline company Pern told Transneft it was suspending purchases, according to a letter seen by Reuters.

Belarus said its neighbour Poland stopped accepting deliveries of Russian crude oil via the Druzhba pipeline at 2000 GMT on Wednesday, according to Belarus state news agency Belta.

Druzhba can ship up to 1 million barrels per day, or one percent of global crude demand.

If the crude is not flowing through Belarus and Poland, that means it cannot reach customers further west, in Germany. Traders from oil majors operating the German refineries said the flows via Druzhba had been stopped.

The quality problem arose last week when an unknown Russian producer contaminated the oil with high levels of organic chloride.

The material is used to help boost oil output but must be separated from oil before shipment as it can destroy refining equipment.

According to traders with several European majors, levels of organic chloride have fluctuated at 150-330 parts per million (ppm) instead of the 10-ppm maximum norm and the usual level of around 1-3 ppm.

The Russian energy ministry said Transneft was trying to fix the problem as soon as possible, giving no timeframe.

A Russian energy source familiar with the situation said the problem could be fixed by the end of the week.

Crude contamination is rare in Russia. Traders said oil was last contaminated with high levels of organic chloride around 10 years ago, but on a lower scale.

This time the problem has become so big that flows have been contaminated along the Druzhba pipeline as well as from the Baltic port of Ust Luga.

From Ust Luga, at least five contaminated tankers have sailed belonging to oil firms Rosneft, Surgut and Kazakh producers and bought by traders and majors such as Equinor, Vitol, Trafigura, Glencore and Total.

Buyers have filed pre-claims to Russian oil sellers, indicating they may seek compensation, two traders familiar with the developments said.

"No one wants to stop the refineries in Germany. They will be operating at lower capacity now and may import some crude from the sea,” said a trader with a western oil major. (Reporting by Dmitry Zhdannikov, Andrei Makhovsky and Andrey Ostroukh; Editing by Christian Lowe and Mark Potter)

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