Key Czech crude supply route halted

By bne IntelliNews October 23, 2012

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Antagonizing the situation as Russian crude volumes delivered through the Druzhba pipeline drop, crude supplies to the Czech Republic's two refineries via the IKL-TAL pipeline network have been suspended because of limited capacity in the system, refiner Unipetrol said on October 22. The news hints that the country's energy security is precarious.

"Crude oil supplies through the IKL/TAL pipeline to refineries of [Unipetrol subsidiary] Ceska Rafinerska have been stopped due to limited capacity of the pipe in the period from October 20 to the end of the month," a Unipetrol spokesman said, according to Platts. "The refinery in Kralupy will operate until October 25, then there is planned a week and a half long shutdown due to maintenance of facilities." He added that Unipetrol is "analyzing the impact on the refinery in Litvinov to see if we will face any limitations."

A spokeswoman for Czech state pipeline operator Mero said the Czech Republic had used up its contracted extra capacity through the IKL/TAL pipelines and shipments were being cut, reports Reuters. "This situation will probably last till the end of the year," Radomira Dolezalova said.

Germany's largest refinery, Miro in Karlsruhe, has also been forced to stop production due to lack of crude, traders said. In Trieste, where TAL is loaded, a queue of tankers has grown, with around seven to eight tankers waiting since last week, some for over 10 days, Klaus Maier of TAL/IKL's operating company told the newswire.

The exact capacity issues facing the Trans-Alpine route, which runs from the Italian port of Trieste to Germany, and the pipeline spur running from Ingolstadt to Kralupy and Litvinov, are unclear. However, coming on the heels of reduced supply through Druzhba, the closed taps on IKL is bad news for the Czechs.

Russian oil exporters limited supplies through Druzhba following the launch of new sea terminal Ust-Luga in March. Traders earlier this year reported 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.

However, in September, the Czechs appeared to push back, with Unipetrol claiming instead that its use - and therefore the entire future of Druzhba - remains highly questionable due to alternative routes. IKL/TAL is the overwhelmingly dominant alternative in that Czech scenario.

According to official figures, IKL/TAL accounts for 87% of oil shipments to the Czech Republic this year, with Druzhba now shipping no more than 13% of supply, a huge drop compared with the long-term trend of 80%. Asked whether the Czech Republic could ask for more Russian oil during the IKL/TAL suspension, the Unipetrol spokesman said only: "Druzhba pipeline deliveries take place in the contracted volumes," reports Platts

A study by the Czech based International Institute of Political Science also released in September claimed that serious supply disruption in 2008 illustrated that the Czech Republic's dependence on Druzhba is far from critical. However, it noted that what it called "small scale infrastructure adjustments" - a Czech purchase of a stake in IKL and/or reversal of the Druzhba section linking to Slovakia - are needed to ensure long-term supplies and maintain independence.

However, others have noted that the situation is more complex. The EU last year produced an action report highlighting the need for a number of new crude oil interconnectors in Central Europe, which would benefit the Czech Republic in particular. It suggested the need for a short line linking the southern branch of Druzhba, on which the country sits, with the northern line serving Poland and Germany. That would also link the Czechs to the ports on the Baltic Sea.

Talks have also been held in the past years between the Czech government, the German government and Total on a possible link between the Litvinov refinery and the French company's Leuna plant in eastern Germany.

The Czech Republic reportedly has 100 days of crude stocks, and should be able to tap them in the event the capacity issues on IKL/TAL are not resolved in a timely manner, writes Platts, without citing a source.

The IIPS report also hinted with apparent foresight that full-scale change to reliance on alternative routes would put Czech refineries in a somewhat precarious position. On the one hand, it warned, they may find themselves competing with Austrian peers for supply through IKL.

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