Ukraine has halted oil flows to Europe due to a payment problem, according to Russian Transneft

The receiver station of the Druzhba oil pipeline between Hungary and Russia is seen at Hungarian MOL Group’s Danube refinery in Szazhalombatta, Hungary May 18, 2022. REUTERS/Bernadett Szabo/File Photo

Join now for FREE unlimited access to Reuters.com

Register

  • Ukrainian pipeline operator was paid but the money was returned -Transneft
  • Discontinued shipments since August 4
  • Slovakia, Hungary and the Czech Republic concerned

MOSCOW, Aug 9 (Reuters) – Ukraine has suspended Russian pipeline flows to parts of central Europe since the start of the month because Western sanctions prevented it from accepting transit fees from Moscow , Russian pipeline monopoly Transneft said on Tuesday.

International benchmark Brent crude jumped $2 a barrel to trade near $98 as the news added to energy supply concerns but turned negative later in the day.

Europe is heavily dependent on Russian crude, diesel, natural gas and coal. Energy prices have risen this year due to a shortage as Europe scrambles to replace Russian energy with alternative sources.

Join now for FREE unlimited access to Reuters.com

Register

Flows along the southern route of the Druzhba gas pipeline have been affected while the northern route serving Poland and Germany remains uninterrupted.

The suspension of pipeline flows on Tuesday will affect countries such as Slovakia, Hungary and the Czech Republic, all of which rely heavily on Russian crude and have limited ability to import alternative supply by sea.

The fact that refiners have to import oil by sea at such short notice will make the task of securing alternative supply even more difficult in an already tight oil market, traders said.

Hungarian energy company MOL and Slovak pipeline operator Transpetrol confirmed that flows were interrupted for a few days due to payment of transit fees.

MOL said it had had supplies for several weeks and was working on a solution. MOL’s oil refiner, Slovnaft, said it has started discussions with Ukraine and Russian partners on possible payment of transit fees by Slovnaft or MOL.

Hungary is one of the countries most dependent on Russian oil and its government has been pushing for an exemption from broader EU sanctions against Moscow.

Hungary can import oil via the Adria pipeline that connects the Omisalj oil terminal in Croatia to its Duna refinery in Hungary, but road capacity is limited and shipments are much more expensive than via Druzhba.

Slovakia’s options for alternative oil imports are even more limited as it has to import oil through Hungary.

Poland’s PKN Orlen (PKN.WA), which controls refiner Unipetrol in the Czech Republic, could secure an alternative supply from Trieste in Italy via the Transalpine Gas Pipeline (TAL), although the route is operating near its limited capacity and may not be enough to meet commodity needs, traders said.

Czech pipeline company MERO has operational oil stocks that can last at least until the second half of August, and the government currently has no plans to exploit its nearly 90-day strategic reserve, the Minister of Energy said on Tuesday. Industry Jozef Sikela.

MERO said it expected Russian oil supplies via the Druzhba pipeline to the Czech Republic to resume within days.

Russia’s Transneft (TRNF_p.MM) said it made July 22 payments for the August oil transit to Ukrainian pipeline operator UkrTransNafta, but the money was returned on July 28 because the payment failed. has not been performed.

He said shipments had been halted from August 4.

Transneft said in a statement that Gazprombank, which handled the payment, told it the money had been returned due to European Union restrictions.

SANCTIONS RULES

Under the new sanctions, European banks must receive approval from a relevant government authority instead of deciding for themselves whether to authorize a transaction, Transneft said.

He said European regulators have yet to decide on algorithms for all banks, which complicates transactions.

Transneft is considering alternative payment systems, but has sent a request for the transaction to be cleared, the pipeline monopoly said.

MOL and Unipetrol are the main oil buyers via the Druzhba route, also known as the Friendship Pipeline, while Russia’s Lukoil, Rosneft and Tatneft are the main oil suppliers.

UkrTransNafta did not respond to a request for comment.

Since March, Hungary, Slovakia and the Czech Republic have relied heavily on Russian crude supplies from the Urals via the Druzhba pipeline and reduced their purchases of maritime crude.

A drop in European demand for Russian oil since Russia invaded Ukraine in late February has pushed the value of the Sea Urals, used to price Druzhba deliveries, to the steepest discount in history by relative to the dated Brent benchmark. ,

Moscow describes the invasion as a “special military operation”.

Russia normally supplies around 250,000 barrels per day (bpd) via the southern branch of the Druzhba pipeline. If supplies remain suspended, Russian oil exporters will have to divert volumes to seaports, traders said.

Loadings of Russian oil from its western ports of Primorsk, Ust-Luga and Novorossiysk were pegged at 8.74 million tonnes in August.

Russia, the world’s second-largest oil and gas exporter, has already cut pipeline flows to many EU members, citing maintenance problems for Nord Stream 1 gas pipeline turbines as well as sanctions against some buyers which Moscow describes as “unfriendly”.

Join now for FREE unlimited access to Reuters.com

Register

Reuters reporting; edited by Barbara Lewis, Jason Neely and Jane Merriman

Our standards: The Thomson Reuters Trust Principles.

About Matthew R. Dailey

Check Also

Contactless payment penetration rate in Saudi Arabia is ‘94% of all digital transactions’

India and Saudi Arabia to focus on sustainability to boost bilateral ties: Indian Trade and …