RUSSIA MONITOR
Date: 14 May 2019
Druzhba Oil Pipeline Contamination Brings Russia’s Transneft Into Disrepute
Adverse effects of the Druzhba oil pipeline contamination crisis are likely to be felt until the end of the year. This was the most significant technical failure in its 55-year history while real normalcy is expected to come long after it had been promised. For his part, Belarusian President Alexander Lukashenko claimed the cost of damages from contaminated oil received via the pipeline could run into the hundreds of millions of dollars. The recent equipment failure showed that importing hydrocarbon supplies from Russia is a risky undertaking while its effects were immediately experienced by refineries in Germany, Poland, the Czech Republic, Slovakia, and Hungary. About 36.7 million barrels of crude oil were contaminated yet no information has been given how polluted supplies had entered the pipeline. Although the Russian pipeline operator provided on some explanations, many recipients considered them highly doubtful. It might have been Transneft’s responsibility, and the company is now trying to blame publicly several minor oil supplies for what had happened in the pipeline.
On May 11, the president of Belarus Alexander Lukashenko said the cost of damages from contaminated oil received via the Russian Druzhba oil pipeline was “enormous” and Belarus expects compensation from Russia. Both the pipeline infrastructure running through Belarus and two local refineries were damaged due to contaminated crude. Although still being evaluated, costs of the damage could run into the hundreds of millions of dollars, Lukashenko stated, while hoping that Moscow will not dispute the costs incurred by Belarus. Representatives of Transneft denied Lukashenko’s claims, saying that Belarussian losses do not amount to “hundreds of millions of dollars,” as the president had initially reported. Russian renowned Vedomosti newspaper wrote on May 13 that oil damage in the Druzhba pipeline may range from $271.3 million to $435.3 million, most of which accounts for Belarusian transit fees and revenues from processing oil supplies. Belarus’s Belneftekhim reported that due to a drop in refinery production, the company was deprived of its profit amounting to $100 million. Further costs will be incurred as the pipeline will need to be cleaned while faulty equipment replaced.
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The Druzhba pipeline is one of the oldest arteries through which Russian crude supplies are delivered from Russia and Kazakhstan, through Belarus, to Poland, Germany, and Slovakia. The pipeline handles up to 8 percent of total EU imports while its annual capacity is estimated at 65 million tons of crude oil, or one-quarter of Russia’s total exports. On April 19, Belarus informed about contaminated oil shipments flowing through the pipeline and claimed that the source of “chloride pollution” was detected in Russia, along the Samara-Unecha section. Transneft initially downplayed the issue, saying the incident was minor and the situation would be “normalized” within a week. Shortly after, contaminated oil flows caused significant concerns and forced Belarus and several European recipients to halt Russian oil supplies. Belarussian refineries were forced to halve oil production while Polish PERN and Ukrainian Ukrtransnafta stopped oil shipments. On April 30, the same decision was made by Belarus state oil company Belneftekhim.
Later that day, Belarusian pipeline operator Gomeltransneft Druzhba halted Russian oil flows to pump dirty crude out of the pipeline.
On April 30, Vladimir Putin summoned the head of Transneft Nikolay Tokarev to the Kremlin, demanding an explanation. Tokarev said an internal investigation by Transneft had concluded that the contamination might have been the result of fraud perpetrated by a private firm in the Samara region.
This theory was, at least publicly, seemed to have been accepted by Putin, though the problem is that there is no credible evidence of such fraud has actually been produced. On April 27, Russia’s Federal Security Service (FSB) launched an investigation into the case, calling the contamination an act of “sabotage.” Two days later, four of six men, identified as managers of small private-owned companies, were detained on the charge of intentional oil pollution in the Druzhba pipeline. Blaming small private-run companies brings large Transneft into disrepute, the more that the latter wields control over all oil pipelines across Russia. Both political and financial consequences of the oil contamination scandal have shown Russia in a bad light. Experts, however, are doubtful about Transneft’s explanations and point that both the scale and the level of pollution have prompted the long-lasting nature of the entire process. Small private-run companies do not dispose of such considerable quantities of their own oil supplies, nor do they have access to export pipelines.
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