Czechs reportedly set to take stake in strategic crude pipeline

By bne IntelliNews November 13, 2012

bne -

Motivated by shortfalls that have seen refineries shutdown for maintenance this year, the Czech Republic is close to securing a strategic stake in the TAL crude oil pipeline, according to sources.

Through the stake, the Czech state pipeline operator Mero would have the opportunity to book priority capacity in the pipeline that is the country's major alternative to the rapidly drying Russian Druzhba. "It seems it will all end up well," an unnamed government source told Reuters on November 12, claiming Mero could make an announcement next week.

However, the newswire could not access any official comment. The industry ministry and stakeholders in refiner Ceska Rafinerska joined Mero in declining to say anything on the report.

With Russian crude supplies dropping hugely this year as producers seek new routes and higher prices, the Czechs have become increasingly dependent on TAL, which carries oil from Azerbaijan, Kazakhstan and Iran via Trieste to Germany, with the country's two main refineries fed by the IKL spur. According to official figures, TAL will account for around 87% of oil shipments to the Czech Republic this year, with Druzhba shipping no more than 13% - a huge drop compared with the long-term trend of 80% of demand arriving from Russia.

Such limited options are clearly a risk, and Mero has reportedly sought a stake in TAL for years. However, the pipeline operator - said to be in recent talks with Shell over a stake - now appears to have upped its efforts in the wake of a recent halt of supplies due to limited capacity in the system. That stoppage through the final 10 days of October saw Ceska Rafinerska shut down the Kralupy refinery, and mull the same at Litvinov.

Analysts see a stake in TAL as a vital first step if the Czech Republic is to maintain any leverage in its purchases of Russian crude, but they also call for other alternatives, especially given potential competition for TAL capacity from Austrian refiners.

Reversal of the Druzhba section linking to Slovakia is thought an option, while an EU report last year suggested building an interconnector to link the southern branch of Druzhba with the northern line serving Poland and Germany. That would also offer the Czechs access 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.

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