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Russian oil pipeline operator and owner, Transneft, which supplies Urals crude to European customers via the Druzhba pipeline, faces compensation claims of up to US$1 billion for the contaminated oil it sent to Europe last year, sources from oil firms, traders, and the industry told Reuters on Thursday.
At the end of April 2019, Russia halted supplies via the Druzhba oil pipeline to several European countries—including Germany, Poland, Hungary, Slovakia, and the Czech Republic—due to a contamination issue, which the Russians said was deliberate.
Russia said at the time that the oil was contaminated with organic chlorine, a substance used in oil production to boost output but dangerous in high amounts for refining equipment. The amounts of the chemical were found to be at levels much higher than the maximum allowable amount.
A month after the crisis started, supplies were not restored and analysts and traders were saying the progress in restarting oil flows was very slow while costs could be very high, despite Russia’s assurances that clean oil would resume flowing through the Druzhba pipeline westward to Europe in the second half of May.
Supplies were restored only in early July, while Russia continues its investigation into how exactly the oil was contaminated.
Meanwhile, Transneft now faces claims of a total of up to US$1 billion, more than double the US$364 million (23 billion Russian rubles) the company has allocated for paying compensations, according to multiple Reuters sources.
As per the sources, the average claims stand at US$30-US$40 a barrel, while Transneft has said it would pay up to US$15 per barrel.
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A spokesman for Eni confirmed to Reuters that the Italian oil major had filed its claim for compensation over the tainted oil issue, but did not provide financial details due to commercial reasons.
Poland’s refiner PKN ORLEN said in December 2019 that it would seek compensation for the interrupted Russian supply and for the contamination issue.
“We are determined to recover all the costs we had to pay,” Daniel Obajtek, CEO and President of the PKN ORLEN Management Board, said in a statement.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.