Russia is set to increase its piped supply of Urals crude to the European Union (EU) via the southern Druzhba pipeline in June by 16% compared to May, as EU refiners strive to secure additional oil amidst apprehensions over potential transit disruptions via Ukraine, according to two sources familiar with the matter.
While Russian pipeline oil supplies to Europe are exempted from an EU embargo, the pipeline route traverses Ukraine and has been under constant threat of disruptions since Russia deployed a significant number of troops into Ukraine last year, citing a “special military operation.”
The southern branch of the Druzhba pipeline supplies Hungary, Slovakia, and the Czech Republic.
In Hungary and Slovakia, MOL (MOLB.BU), the primary buyer of Urals crude, is expected to purchase around 900,000 tonnes of Urals oil via the Druzhba pipeline in June, marking an increase from the 750,000 tonnes acquired in May, as per the sources cited by Reuters.
One of the sources expressed concerns over the recent escalation in Ukraine and damages to crucial infrastructure, stating, “It is a good idea to order more now,” referring specifically to the recent destruction of the Kakhovka hydroelectric dam. Both Russia and Ukraine have blamed each other for the incident.
The Unipetrol refiner in the Czech Republic, which is owned by Poland’s PKN Orlen (PKN.WA), is expected to purchase up to 430,000 tonnes of Urals crude in June, compared to the 400,000 tonnes bought in May, as per the sources.
While MOL’s media representative emphasized that crude oil continues to be delivered without interruptions via the Druzhba pipeline to Hungary, they declined to comment on monthly purchase details. PKN Orlen also stated its policy of not commenting on oil purchases and contractual specifics.
The EU implemented an embargo on Russian oil purchases via maritime routes starting from December. However, Hungary, Slovakia, and the Czech Republic were granted exceptions to continue importing Russian oil as a critical feedstock. In the event of a suspension of the Druzhba pipeline, it would be challenging for them to secure sufficient oil for their refineries.
Temporary suspensions of oil supplies occurred in November via a section of the southern Druzhba pipeline following shelling on a power station that provides electricity to a pump station.
According to Russian reports, parts of the pipeline have also been targeted by drones within Russia, but these attacks did not cause significant disruptions to the oil supply.
The Druzhba pipeline traverses Belarus and Ukraine, serving as an important source of income for both countries, which receive transit fees. Kiev and Minsk have requested substantial increases in transit tariffs, making the route less favorable for European buyers who bear the transportation costs.
A MOL media representative informed Reuters that the company continues to procure crude oil through both the Druzhba and Adria pipelines, despite the significantly higher transit fees compared to reasonable market prices.
Due to issues with Russian Transneft payments to the Ukrainian pipeline operator, MOL has initiated direct payments to Ukrtransnafta for transit.
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