August 23, 2008

Shortfalls in Russian Oil Supplies to Czech Republic Continue

Text of report by Czech newspaper Mlada fronta Dnes on 13 August

[Report by Jana Klimova: "Czech Republic threatened by further difficulties with oil supplies"]

In August the Czech Republic is still encountering a fall in Russian oil supplies from the Druzhba oil pipeline, and now there is a danger that it is also going to have problems with oil flowing to the Czech Republic by the other pipeline, the IKL [Ingolstadt- Kralupy-Litvinov - pipeline connected to Transalpine pipeline (TAL) from Trieste]. This pipeline is mainly used to supply us with oil from Azerbaijan, which after Russia is the second largest supplier of this key commodity.

However, because of the armed conflict in Georgia with Russia, the pipeline from Azerbaijan was closed, and there is also speculation that Russian planes bombed it. However, its administrator, British Petroleum, has not confirmed any damage to the pipeline. However, there are difficulties concerning the continuation of the pipeline in Turkey, where it ends in the port of Ceyhan and from where Azerbaijani oil is then transported to us.

During the last few days there was a fire at the pipeline in Turkey after a bomb planted by Kurdish rebels, and the pipeline's administrator there is now starting to ascertain the damage. From Turkish Ceyhan Azerbaijani oil goes in tankers to Italian Trieste, from where it is transported by further pipelines to the refinery in Kralupy.

"Yes, difficulties with the transport of Azerbaijani oil may occur, but thus far we do not have any official information," Ivan Ottie, a member of Unipetrol's board of directors, told Mlada Fronta Dnes. However, according to him, any eventual shortfall in Azerbaijani oil would not mean any "drama" because IKL is also capable of transporting any other kind of oil and the Kralupy refinery is also able to process more types of oil, not only Azerbaijani oil. Unipetrol is the main shareholder of Ceska Rafinerska [Czech Oil Refining], which processes oil at Kralupy.

However, sources from the oil processing branch confirm that the refinery would thus have increased oil costs, which would either reduce profits or be passed on to customers in the form of a moderate increase at gas filling stations.

The Industry and Trade Ministry is monitoring the situation of the pipeline in Turkey and Georgia on account of the possible impact on the Czech Republic, but so far does not have sufficient information.

"Unofficially the repairs to the oil pipeline in the Turkish part will last a few days, and so for the meanwhile there is no reason to be fundamentally worried," said Tomas Bartovsky, spokesman for the Trade and Industry Ministry.

"We do not have any trustworthy information. Personally I think that the overall repairs may be rather longer than shorter," said Vaclav Bartuska, special ambassador at the Foreign Ministry.

Domestic petrol producers would have to make up for any shortfall in oil from Azerbaijan quickly, because the state's oil reserves do not hold oil suitable for the Kralupy refinery and, therefore, they could not lend oil to the refinery's owners.

In addition, already since last month the refinery has been encountering a problem of how to replace shortfalls in supplies of oil from Russia. In July the amount of this shortfall was 230,000 tons less than the amount ordered - that is, a reduction of almost one half. In August the refineries ordered 501,000 tons. However, according to Bartovsky, only roughly 10 per cent less than that amount has so far been confirmed.

However, on the basis of hitherto experience, the head of state company Mero, which administers the Czech part of the Druzhba pipeline, estimates that the reduction in August deliveries will be as much as 150,000 tons. "In August shortfalls are once again continuing; however, they are not as extensive as in July," said Mero director Jaroslav Pantucek.

The owners of Czech refineries - Unipetrol, Shell and Eni - are ensuring supplementary supplies from the State Fuel Reserves Administration and by imports of Russian oil in tankers to the port in Italian Trieste and from there by the TAL and IKL pipelines to the Czech Republic. Oil from the first tanker should arrive in the Czech Republic at the end of August.

Mero, which administers the IKL pipeline, has negotiated with the owners of TAL an increase in the transportation capacity of oil to the Czech Republic. "Either the refineries will make a binding order for increased deliveries by the end of August, or they will make ad hoc requests, of course for an additional fee," said Pantucek. A contract with TAL could be signed in September.

According to Bartuska, the reason officially given by the Russian side for the continuing shortfalls in supplies of Russian oil in August is the same as in July: apparently, it is a question of an attempt to make the system of oil supplies to the Czech Republic more transparent - that is, to exclude a number of intermediaries.

Russian oil does not go to the Czech Republic directly from its producers, but in most cases it goes through several intermediaries, among which there are a lot of firms registered in tax havens. "We support the attempt to introduce a transparent system of Russian oil supplies," said Bartuska. According to Bartuska, it is probable that the difficulties with supplies will not end even in August.

Russian oil is transported to the Czech Republic by the Druzhba pipeline through Ukraine and Slovakia to refineries in Pardubice and Litvinov. The country receives roughly two thirds of its consumption from Russia, while around 30 per cent comes from Azerbaijan through Georgia and Turkey to the port of Ceyhan, from where it is transported to Italian Trieste in tankers. In Trieste the oil is pumped into the TAL transalpine pipeline as far as Ingolstadt in Germany and then from there into the Czech IKL pipeline to end in the refinery in Kralupy.

Originally published by Mlada fronta Dnes, Prague, in Czech 13 Aug 08.

(c) 2008 BBC Monitoring European. Provided by ProQuest LLC. All rights Reserved.