May 07, 2019 07:54 AM EDT
The tainted oil that flew through the Druzhba oil pipeline from Russia to customers in Europe was "deliberately contaminated" at a private terminal, according to Russia's oil pipeline operator Transneft. The oil was contaminated at the Samaratransneft terminal which receives oil from several small producers, Russia's TASS news agency reports, citing Transneft's spokesman Igor Demin as telling reporters.
"Russian law enforcement agencies have initiated a criminal case for oil contamination. The first results show that this contamination was a deliberate act. Now, investigative activities are underway in offices of several private companies in Samara to determine their involvement in the incident," Demin said.
Back in December 2018, Russian oil minister Alexander Novak agreed to cut Russian oil output by 2 percent or 228,000-230,000 barrels per day over the first six months of 2019. Until this week, Russia had yet to comply with this cut at all. In fact, Russia had been talking about increasing production to fill in any gaps left by the sanctions on Iran's oil industry.
Now it seems that Russia has to cut production. On April 19, Transneft alerted an array of customers in Europe that the oil currently on its way to them via its 3,400-mile pipeline was "heavily contaminated" with organic chloride. Organic chloride is a compound used to increase oil production and accelerate the flow of oil. It is typically removed from crude oil before transportation because it can damage refineries but, for some reason that Transneft has yet to explain, was not removed. In all, about 36.7 million barrels of oil was contaminated. Transneft was forced to shut most of its operations on the contaminated line and requested the production cut while it figures out what happened. The problem has strained relations between Moscow and Minsk as Belarus was the first to report the problematic oil in mid-April. The amounts of the chemical were found to be at levels much higher than the maximum allowable amount.
The discussion focused on a 'road map' to remove the tainted oil from the pipeline, Russian deputy energy minister Pavel Sorokin said at the meeting, adding that Russia expects that oil with standard levels of organic chlorine will reach the Russian-Belarusian border by April 29 and that the Druzhba pipeline is expected to return to full normal deliveries within two weeks.
Customers are still waiting for answers. They say that communication from Transneft has been minimal and that they do not know what is going on. Transneft has blamed "fraudsters" for the contamination, but Russian President Vladimir Putin put the blame squarely on Transneft. He said that the company did not have adequate means to remove the organic chloride before sending it to customers.
Contamination is not a new issue with Russia crude oil. However, Transneft is a state-owned firm with a monopoly on pipeline transportation in Russia, so European buyers of Russian crude oil have few alternatives when it comes to Russian crude. However, there are other options globally, and Russian crude oil will likely suffer from a loss of confidence as the issue continues.
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