Lukoil again cuts oil supplies to Germany over dispute

Thu, 26 March 2009

RUSSIA’S Lukoil halted oil supplies to Germany through the Druzhba pipeline in late February “until further notice.” The cut is the third interruption in Russian oil deliveries by pipeline to Germany in the space of 13 months. Russia’s pipeline monopoly Transneft ceased deliveries to several EU member countries, including Germany, for three days in January, 2007, and Lukoil imposed a 30% reduction in deliveries to Germany in August, 2007.

On 18 February, a Lukoil representative announced that the company was again stopping oil supplies by pipeline to Germany because "we do not agree with the price." Lukoil argues that it is not in breach of contract, citing the absence of long-term contracts with its customers in Germany. The Russian company is prepared to resume deliveries at the pre-planned volume, but apparently at a higher price. Lukoil was due to have delivered 520,000 tons of crude oil to Germany through the Druzhba pipeline in February. The German refineries directly affected by the action are those in Schwedt and Leuna, the shareholders of which are Shell Deutschland, BP/Ruhr Oel, Italy's ENI-Agip, and Total of France. The Schwedt refinery processes almost 11m tons/yr, around 10% of Germany's total oil-processing capacity, and almost fully depending on the Druzhba pipeline. The line is routed to Germany from Russia via Belarus and Poland. Germany imports about 22 million tons of Russian oil per year through the Druzhba pipeline. Of these, Lukoil delivers approximately 6m tons/yr, with Surgutneftegaz supplying much of the remainder. Russian producers account for nearly 37% of Germany's total oil imports of 110m tons/yr; a further 9% is supplied by Kazakhstan and other countries through Russian pipelines.