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Key Polish refineries' say not affected by Russian crude supply halt

Moscow β€” Key Polish refiners, PKN Orlen and Grupa Lotos, said Thursday the operations of their refineries have not been affected so far by a halt in crude supplies from Russia at the Adamowo entry point on the Druzhba pipeline on quality concerns.

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Poland's Ministry of Energy said late Wednesday the country had suspended taking delivery of contaminated Russian crude oil supplies because it may "cause physical damage to refineries."

The ministry said in a statement that the Polish state-owned crude oil pipeline operator PERN received information from its Belarussian counterpart Gomeltransneft on Friday about the increased amount of organic chlorides in crude supplied to Belarus from Russia.

"Standards were also not met in crude oil transported to Poland," the ministry said. "In order to protect the Polish transmission system and refineries, the acceptance of contaminated oil at the Adamowo entry point (Polish-Belarussian border) was stopped," the ministry added.

The ministry said that Poland, as a member of the EU and the International Energy Agency, is obliged to maintain 90 days' worth of crude oil and product in storage in case of supply interruption. "Thanks to the release of crude oil in storage, the continuity of refining and the supply of the Polish market with fuels will be ensured until the reasons for the failure and the clean-up of the transmission system in Poland are clarified.

In the event of a prolonged lack of raw material supply, Polish refineries will import via an alternative route, i.e. through Naftoport in Gdansk," the ministry said.

Poland's largest refiner PKN Orlen said the halt had not affected the operation of its refineries as the company had sufficient crude inventories to maintain production at its refineries and fuel deliveries to its service stations.

"The situation affects neither the level of crude oil throughput in the refinery in Pock nor production economics" as the company was prepared for alternative crude oil deliveries, PKN Orlen said. "For the last two years PKN Orlen has consistently implemented a policy of crude oil supply diversification, thanks to which currently almost 50% of crude oil purchased by the Production Unit in Pock comes from sources other than Russia, i.e. from Norway, Angola, Nigeria and Saudi Arabia," it said.

Additionally, the company holds "large enough crude oil inventories to continue production. As a result there is currently no risk of a limit on production due to suspension of crude deliveries via the Druzhba pipeline.

In a separate statement, Poland's second largest refiner, the Gdansk-based Grupa Lotos, said the halt of crude flows at Adamawo had not affected production at its refinery.

"At the same time, the company wishes to announce that work is underway to ensure continuity of oil supplies of adequate quality in the long term," it said, without elaborating further.

"The company is analyzing every scenario that will ensure the continuity of long-term crude oil supply. The situation has no impact on the availability or quality of fuels sold at Lotos' service stations," the company added.

Reports emerged over the weekend that the quality of Russian Urals crude supplied to Belarus had deteriorated. Belarus media reported that the Mozyr refinery was experiencing problems due to the poor quality crude and has increased the use of reagents to protect the equipment. According to media reports, the catalytic reformer has been damaged.

The Russian energy ministry said Sunday that problems with the deteriorating quality of crude exported westward was technical and would be resolved in the near future.

The energy ministry said the issues were linked to excess organic chlorides in oil shipped westward. That was discovered by state-owned pipeline operator Transneft, which has taken measures to bring levels back to normal, including localizing the source of this higher concentration and redirecting flows.

Representatives of the ministry and Transneft have not commented on the latest development.

On Wednesday, several Urals traders said they had received information that the quality of Urals would be affected by current contamination issues from further up in the pipeline system.

One trader said cargoes loading May 20-30 were affected, while another said the issues could appear in earlier loading cargoes.

Ust-Luga is the smaller of the two main ports supplying Urals to Northwest European refineries, with Primorsk providing the bulk. Primorsk is not affected currently, sources said. Druzhba is a key element in Russia's crude supply chain via Belarus and Ukraine into Poland, Hungary, Slovakia, the Czech Republic and Germany.

-- Nadia Rodova, nadia.rodova@spglobal.com

-- Adam Easton, newsdesk@spglobal.com

-- Edited by Jonathan Dart, newsdesk@spglobal.com