How will Druzhba pipeline incident affect further decisions of European buyers?

Baku, Azerbaijan, May 20

By Leman Zeynalova – Trend:

A recent oil contamination incident in the Druzhba pipeline highlights the reliance of many central and eastern European (CEE) refineries on Russian crude oil and is likely to intensify their search to diversify their oil sources, Trend reports citing Fitch Ratings.

“We expect Fitch-rated refineries to see temporary cost increases during supply disruptions. Russian oil is the main feedstock for both Hungary's MOL Hungarian Oil and Gas Company and Poland's Polski Koncern Naftowy ORLEN S.A. (PKN) refineries, which normally source about two thirds of their supplies from the country, largely via Druzhba. The reduced oil supply from Russia is likely to push the refineries to switch to other sources, including seaborne crude, which could be costlier due to higher spreads and transportation expenses,” reads the analysis by Fitch.

Despite the incident, Fitch expects Russian crude oil to remain the major supplier to both Hungary and Poland, in the foreseeable future given the existing infrastructure. “Once the crisis is resolved, Urals is likely to again start trading with a discount, incentivising the continuation of sourcing Russian oil. Moreover, the discount may widen later in 2019 due to the International Maritime Organization's regulations on sulphur content in shipping fuel, which is likely to reduce demand for Urals that has high sulphur content.”

The overall risks that EU countries that depend on Russian oil may run out of crude supplies are currently low, as they must maintain emergency stocks of crude oil or petroleum products equal to at least 90 days of net imports, according to Fitch.

“These stocks are likely to sustain these countries through the current disruptions. Furthermore, countries like Poland, Hungary and Lithuania have access to alternative sources of crude supplies.

If the contamination had long-term reputational risks for Russia as a reliable source of crude oil, it may encourage the gradual diversification by European off-takers away from the country. Source diversification and a partial switching to seaborne crude may be positive for MOL and PKN in the long term. The companies would be more flexible to choose where to buy, depending on the prevailing pricing. The companies have already been gradually reducing their dependence on Russia from virtually full reliance a few years ago,” reads the analysis.

Druzhba is a major pipeline exporting oil from Russia to Europe for refining. Crude transits via the pipeline were virtually brought to a halt on 25 April when many off-takers stopped accepting oil due to heavy contamination with organic chlorides. Media reports indicate that disruptions continue to exist and will likely remain for a few more weeks on the northern line of the Druzhba pipeline, despite earlier indications from the Russian authorities that flows and quality of oil in the pipeline would be restored within two weeks. The time required to clean the pipeline is difficult to estimate, but lower shipments may continue even for the next few months.

---

Follow the author on Twitter: @Lyaman_Zeyn

Increase in malware attacks makes cybersecurity more relevant than ever - Kaspersky Lab in Azerbaijan
Increase in malware attacks makes cybersecurity more relevant than ever - Kaspersky Lab in Azerbaijan
Number of electronic registrations of businesses in Azerbaijan growing
Number of electronic registrations of businesses in Azerbaijan growing
Azerbaijan Caspian Shipping CJSC receives int'l certificate in use of specialized software
Azerbaijan Caspian Shipping CJSC receives int'l certificate in use of specialized software
Loading Bars
Latest
Czech gov't declares new state of emergency over coronavirus
U.S. FDA advisors recommend approving Johnson & Johnson COVID-19 vaccine for emergency use
Increase in malware attacks makes cybersecurity more relevant than ever - Kaspersky Lab in Azerbaijan
South Korea vaccinates 18,000 to start ambitious COVID-19 campaign
US may announce new sanctions on Russia within weeks - White House press secretary
Founder of Indian Jet Airways eyes opening airline in Uzbekistan’s Namangan region
Saudi Arabia rejects U.S. intelligence report on Khashoggi's killing: statement
Israel registers 2,738 new COVID-19 cases, 769,971 in total
U.S. announces 'Khashoggi ban' for 76 Saudi individuals
Number of COVID-2019 cases across globe up by over 427,000 in past day
Slovenia confirms first case of coronavirus variant identified in S. Africa
UN Security Council adopts resolution on vaccination
UK records another 8,523 coronavirus cases, 345 deaths
Kazakhstan shows interest in supplies of Belarusian sugar, its manufacturing technology
Turkey reports 9,205 new COVID-19 cases, 2,683,971 in total
Iran, Russia emphasize need to coop. in agricultural sector
When will Georgia receive its first doses of the COVID-19 vaccine?
House poised to approve Biden's $1.9T coronavirus relief bill in Friday vote
Canada approves use of AstraZeneca COVID-19 vaccine
Azerbaijan discloses volume of liabilities of banks in Jan. 2021 accounting for deposits
Azerbaijan imposes restrictions on import of poultry meat from Estonian county
Amount of financial support of Kazakh manufacturing sector by Baiterek holding increases
Attracting FDI can help Georgia to boost exports of high-value food products - OECD
European Council extends mandate of special representative for South Caucasus
Kuwait reports 1,022 new COVID-19 cases, 189,046 in total
WHO says COVID-19 vaccine rollout in Africa has gathered steam
Armenia has always supported terrorism - MP
EU supports JCPOA commitments
Azerbaijan focused on rehabilitation, reconstruction of liberated lands - MP
Assistant to Azerbaijan's president talks country's success in int'l information field
Baku Stock Exchange to auction off Azerbaijani Central Bank's short-term notes
Azerbaijan records growth of GDP in non-oil sector over Jan. 2021
Azerbaijan discloses volume of fruits and vegetables exported since early 2021
Azerbaijan would like to bring new ideas, proposals to region with help of OSCE - MP
Uzbekistan, Tajikistan talk opening ground checkpoints
All Armenian prisoners of war have been returned to Armenia - Azerbaijani MP
President Aliyev makes phone call to President Erdogan
Number of electronic registrations of businesses in Azerbaijan growing
TikTok is more affordable with Azercell!
Etsy not thinking of accepting bitcoin right now
Kazakhstan, Azerbaijan reach agreement on drilling wells with Satti jack-up rig
Only close cooperation can help demilitarize South Caucasus region - Azerbaijani MP
Azerbaijan Caspian Shipping CJSC receives int'l certificate in use of specialized software
FAO outlines strategy for healthy and productive livestock in Europe, Central Asia
Azerbaijan's January 2021 revenues from exports to US increase over fourfold
Registration of new enterprises down in Georgia
We have created new realities, Armenia and other countries must reckon with it - President Aliyev
Azerbaijan's AzerGold, BUZ Consulting ink contract to acquire Microsoft license
Precious metal prices down in Azerbaijan
Azerbaijan's State Employment Agency opens tender on e-platform development
Azerbaijan holds minute of silence to honor Khojaly genocide victims
Turkmenistan's Turkmenhimiya extends tender for turnkey construction of plants
Putin discusses current situation in Karabakh with Russian Security Council members
Azerbaijan records decline in total assets of local banks for Jan.2021
CNPC in Turkmenistan opens tender for purchase of tubing, spare parts
TPP in Uzbekistan announces tender for construction of combined cycle unit
Iran launches telecommunication projects in Isfahan Province
Azerbaijani witnesses to Khojaly genocide recount tragic events - Trend TV (VIDEO)
Turkmenistan conducts exploration, drilling operations at fields in Caspian region
Portugal's 'Original Features' shoots film about Khojaly genocide (VIDEO)
China will extend tariff exemptions for 65 U.S. products
Azerbaijan reports 180 more COVID-19 recoveries
Russian state official stresses need to reveal out causes and culprits of Khojaly tragedy
Uzbekistan to increase number of facilities recording water based on 'smart water’ technology
Uzbekistan’s 2020 volume of foreign direct investments down
Nothing must divert involved sides from main task in Nagorno-Karabakh region - Russian MFA
Kazakhstan reports increase in agriculture yield year-on-year
Iran's export to Spain declines
EU overseeing several projects to reinforce renewable energy use in Georgia
Azerbaijani population honoring memory of victims of Khojaly genocide (PHOTO)
Despite events in Armenia, it's necessary to continue implementation of agreements on Nagorno-Karabakh - Russian official
Azerbaijan jointly with Turkey to improve gaming industry - Game Tech
Pfizer COVID-19 vaccine reduces transmission after one dose
India's April-Jan fiscal deficit hits 66.8% of full-year target
Azerbaijan discloses amount of compensations paid to depositors of closed banks
Turkmenistan, Russia considering co-op in construction, electrification of railways
EBRD reveals info on investments in Azerbaijani projects
Turkey to ask Russia for discount on natural gas imports
European Council President Charles Michel to visit Georgia
Spain lowers import of Azerbaijani crude oil
WB, BSEC and Georgia start consultations on 'blueing the Black Sea'
Azerbaijani ombudsman makes statement on 29th anniversary of Khojaly genocide (VIDEO)
There will be good opportunity for cooperation between our relevant agencies and international companies - President Aliyev
Azerbaijan issues data on 2020 oil export to Greece
France raises imports of Turkish made cars
Turkey records increase in car exports to Georgia
Turkey discloses foreign trade turnover in Jan. 2021
We are preparing master plan for reconstruction of each city - President of Azerbaijan
Process of modernization of Azerbaijani cities continues - President Aliyev
Armenia ruined almost all religious monuments in Azerbaijani de-occupied lands - State Committee
Turkish president reveres memory of Azerbaijani brothers and sisters ruthlessly murdered in Khojaly
Memory of Khojaly genocide to live forever, says Azerbaijan's ombudsperson
Azerbaijan sees decline in crude oil exports to India
Azerbaijan nearly doubles oil supplies to Ukraine
Turkey discloses number of ships received at Antalya port in Jan.2021
Turkmen Airlines to receive new Boeing 777-200LR aircraft
Georgian Oil and Gas Corporation reveals amount of oil extracted in country
Turkmenistan extends suspension of flights
We were preparing for war all these years, we never concealed that - President of Azerbaijan
Pakistani Airlines requests permission to operate flights to Uzbekistan
All news