London — The shutdown of Russia's pipeline crude exports to Europe due to a contamination issue is a test of the efforts of Central and Eastern European countries over nearly three decades to reduce their reliance on Russian oil.
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Russia's Druzhba (Friendship) pipeline supplies much of Central and Eastern Europe, including refineries in Belarus, Germany, Hungary, Poland and Ukraine, and in Soviet times was the region's sole source of crude.
Some reliance persists, particularly for landlocked refineries, with recent deliveries amounting to over 1 million b/d. Of this, two thirds is sent to countries along the pipeline's northern branch, in Belarus, Poland and Germany. But changed political and market realities have led to diversification.
**Refineries in the region have curtailed activity in response to the contamination issue, and governments in the Czech Republic, Hungary and Poland have authorized emergency stock releases.
**A total of 10 refineries with a combined 1.87 million b/d of capacity are supplied wholly or in part from the Druzhba pipeline, with the crude usually delivered under term contracts, often at a discount to tanker-delivered cargoes.
**Poland, the region's largest oil consumer with demand of nearly 700,000 b/d, has stepped up efforts to reduce Russian crude purchases under the Law and Justice Party government, in office since 2015, reflecting strong state control of the refining sector.
**Russian crude accounts for around 50% of the throughput at PKN Orlen's 326,000 b/d Plock refinery, northwest of Warsaw, and 70% of the input at Grupa Lotos' 210,000 b/d refinery in Gdansk.
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**In January, Grupa Lotos signed a contract to take at least seven crude cargoes from the US and says it refined 16 grades of crude in 2018.
**Poland has bought increasing volumes from the Middle East, including Saudi Arabia and Iraqi Kurdistan. In 2016, PKN Orlen signed a deal to take 200,000 mt/month from Saudi Aramco and this was increased to 300,000 mt/month last year.
**Hungary's MOL, which operates the 165,000 b/d Danube refinery and refineries in Croatia and Slovakia, has diversified its imports, citing not only security, but demand for higher-quality fuels. Its main alternative supply line is the Adria pipeline from Croatia's coast. MOL says Russia's Urals crude accounted for 82% of its crude imports last year, with the remainder being seaborne imports, via Adria.
**Lithuania and Latvia's former links to the Druzhba system for crude are defunct, although both countries still handle refined products manufactured in Russia and by their eastern neighbor Belarus. These products are exported through Baltic Sea ports such as Klaipeda, Riga and especially Ventspils, where the terminal, majority owned by trading company Vitol, has 1.2 million cubic meters of storage capacity.
**Lithuania's 204,000 b/d Orlen Lietuva refinery at Mazeikiai sources its crude from the Butinge terminal on the Baltic coast. Druzhba supplies were cut off in 2006 following wrangling over ownership of the refinery. PKN Orlen took over the refinery in that year, since when it has been known as Orlen Lietuva.
**Belarus relies on Russian crude for its two refineries, the 240,000 b/d Mozyr facility and the 190,000 b/d Naftan refinery at Novopolotsk. The landlocked country has periodically taken alternative crudes, mainly from Azerbaijan, but preferential prices for Russian crude and reliance on Ukrainian pipelines have limited such imports.
**Ukraine's refining sector has been badly hit by economic crisis and conflict, although such pressures have improved energy efficiency. Oil consumption has dropped by a third in the last decade.
**Weaning the region off comparatively cheap Russian crude is understood to have pushed up import costs, but the differential has eased since Russia joined OPEC in carrying out production cuts in 2016. The latter have helped elevate Urals prices relative to other international grades.
**Polish import diversification has involved investment in facilities at the Baltic port of Gdansk and in the Pomeranian pipeline that connects Gdansk to the country's largest refinery at Plock, northwest of Warsaw. The pipeline was originally built as an extension of Druzbha to facilitate Urals exports, but is now used in reverse to import crude.
**Hungary's MOL has refurbished a pipeline between Hungary and Slovakia to enable its 122,000 b/d Bratislava refinery to also source non-Russian crude transported via the Adria pipeline.
**Lithuania built an import terminal at Butinge on the Baltic coast in the 1990s and subsequently a new pipeline to take crude from the terminal to the refinery at Mazeikiai.
**Ukraine's main refinery, the 240,000 b/d facility at Kremenchuk, stopped taking supplies via Druzhba five years ago and relies mainly on Azeri crude shipped across the Black Sea, as well as some domestically produced volumes.
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