Czechs look to counter Russian pressure via Druzhba

By bne IntelliNews September 27, 2012

Tim Gosling in Prague -

After Russian oil imports through the mainline Druzhba pipeline into Central Europe plummeted in the first half of 2012, flows have started to perk up, says Czech importer Unipetrol. However, as part of an apparent Czech counter-move to Russian pressure to increase pricing, the company insists that the future of the route remains highly questionable.

Russia oil exports to the Czech Republic through Druzhba started to grow in the second half of this year compared with the first half, Mikulas Duda, Unipetrol spokesman told CTK. "According to preliminary schedules of planned supplies via the Druzhba pipeline, it really seems that we will have a sufficient amount of oil," Duda said about imports for the fourth quarter.

However, the company is still negotiating supply through the pipeline on a monthly basis. While it has already ordered supplies for October, orders for the following months are still being negotiated, Duda said.

Russian oil exporters limited supplies through Druzhba following the launch of a new Russian sea terminal Ust-Luga in March, in an attempt to diversify delivery routes, with traders claiming that the Czech Republic was being used as a test case to apply pressure to hike prices. With Russian production plateauing, the likes of Lukoil and Rosneft are also able to use alternative routes, such as the recently opened line to energy hungry China, to up the ante.

The limit on supplies earlier this year sent Czech refiners to source alternative routes, primarily the IKL pipeline from Austria, through which Russian crude from alternative routes is shipped back eastwards. A study by the International Institute of Political Science (IIPS) in Brno, released earlier this week, points out that serious supply disruption in 2008 illustrated that the Czech Republic's dependence on Druzhba is far from critical, although it points out that small-scale infrastructure adjustments - a Czech purchase of a stake in IKL and/or reversal of the Druzhba section linking to Slovakia - would be needed to ensure long-term supplies and maintain independence from the route.

Unipetrol's statement - which clearly looks to cast doubt on future Czech usage of Druzhba - coming hot on the heels of that report, has the appearance of a counter-move from the Czech side, although in reality, Druzhba's role in supplying the country has been dwindling from its previous central position (when it used to carry 70% of Czech consumption) for some years now.

Referring to Unipetrol orders in 2013 and onwards, Duda said: "The structure of supplies will depend on results of our analyses and on submitted offers of potential suppliers."

While reporting that Unipetrol has declined to specify what are the shares of supplies in the individual pipelines currently, CTK writes that deliveries through IKL will probably make up a majority of exports for the first time this year.

The IIPS report suggests that Russia has little interest in curtailing supplies to the Czech Republic or Poland. At the same time, a full-scale change to reliance on alternative routes would put Czech refineries in a somewhat precarious position. On the one hand, they may find themselves competing with Austrian peers for supply through IKL, which alongside the limits on the blends they can utilize, may put them at risk of competition on oil products from across the border in Germany.

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